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U.S. refineries evacuate as Rita gains strength

The U.S. energy industry braced itself for another blow as Hurricane Rita swept towards the oil and gas production center of the Gulf Coast, which is still reeling from Hurricane Katrina.
/ Source: Financial Times

The U.S. energy industry braced itself for another blow as Hurricane Rita swept towards the oil and gas production center of the Gulf Coast, which is still reeling from Hurricane Katrina.

Crude prices spiked higher Wednesday morning after Hurricane Rita, currently tracking across the Florida Keys, was upgraded to category 4 with sustained winds in excess of 100 mph. By mid morning in London on Wednesday, Nymex West Texas Intermediate for November delivery was up $1.13 at $67.33 a barrel, while November Brent was up 81 cents at $65.01 a barrel.

Energy companies in the Gulf of Mexico, including BP Plc, ConocoPhillips, Exxon Mobil Corp., and Marathon Oil Corp., have evacuated staff and shut rigs and platforms in the path of Rita.

The National Hurricane Center predicted that Rita would probably develop into a Category 4 hurricane, with winds of at least 111 mph., when it hits land at the weekend. Hurricane Katrina grew to a Category 5 and delivered such a powerful blow that 5 per cent of US refining remains down, more than three weeks after the storm touched down in Louisiana.

While there is a chance this next hurricane could again hit Louisiana, forecasters believe it to be more likely to pummel Texas, which has 26 refineries, with capacity to produce 26 percent of U.S. crude oil.

"This has our attention," said Bob Slaughter, president of the National Petrochemical & Refiners Association. Even without the experience of Katrina, refiners would be watching any hurricane headed toward the Gulf coast: "We have to be ready for it."

Valero, one of the biggest U.S. refiners, said its Texas City and Houston refineries were in a "pre-storm" preparation phase, which includes testing emergency communications, developing operating plans in case of a supply shutdown and securing generators and pumps.

Even as Chevron said it had just managed to resume 56 percent of its pre-Katrina production, it was being forced to evacuate personnel from offshore rigs and production platforms for the second time in less than a month. The Port of Houston Authority, the second biggest in the U.S. following Louisiana's, was checking emergency equipment and reviewing response plans in case of a hit.

Although multiple storms have hit the energy industry in a single season, they have never been this powerful, said Bill O'Grady of AG Edwards & Sons. "We're barely recovering from the first," he said. "A second one would not be a good thing."

Fuel prices have been rising across the board in response to the supply disruptions caused by Katrina. Though some fell back yesterday, on forecasts that the hurricane might veer off course, JPMorgan noted: "Five days out is a long time, and that shift still would impact the entire Texas coastline."

Houston moved quickly to clear the shelters it had established for Louisiana's evacuees, saying the Reliant Arena where thousands had taken refuge was not made to withstand more than a category 3 storm and the Reliant Astrodome, which also housed refugees, had a glass roof that made it unsuitable as a storm shelter. Although the city has resettled most of the refugees in apartments around the city, more than 1,000 were to be flown to Arkansas on tickets provided by Continental. Galveston, which is right on the coast, called for voluntary evacuations, and Houston stressed that evacuees should not stop in the city but continue past Houston.

The mayor, Bill White, encouraged Houstonians to fill medical prescriptions now and gather canned foods, a can opener, bottled water, batteries for torches or radios, maps and a first aid kit. He also suggested filling petrol tanks and planning an evacuation route.

O'Grady said there had been some anecdotal signs Americans were responding to the drop in supplies by cutting back or, at least, thinking of cutting back, on consumption. "We may be at the early stages of realizing that it is not being caused by the evil oil companies but that we do have a real energy crisis," O'Grady said.

But even such a realization would be too late to keep prices from rising this winter, when he believes the public will be most hurt by limited supplies of natural gas. "You're almost reduced to going to church and praying for a mild winter," he said.