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Refiners shut down as Rita approaches

Hurricane Rita's final path will determine whether U.S. consumers face a short-term blip in energy prices – or outright shortages. By John W. Schoen
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As Hurricane Rita continued to bear down on the Texas and Louisiana coast, the storm appeared headed for the highest concentration of refineries and oil and gas pipelines in the nation.

In preparation for the storm, 15 area refineries have been shut down which, combined with four refineries knocked out by Hurricane Katrina, represent some 30 percent of U.S. refining capacity. The storm’s final path will determine whether U.S. consumers face a short-term blip in energy prices -– or outright shortages.

Spot outages were already cropping up along the Gulf Coast and Houston area, as some evacuees were unable to top off their tanks before fleeing. Energy Secretary Sam Bodman Thursday warned of further disruptions in gasoline supplies, though the White House later clarified those remarks to say that a nationwide supply disruption wasn't expected.

As of late Friday, Rita had begun weakening and was headed for landfall along the Texas-Louisiana border, sparing the Houston area from a direct hit, where a storm surge could knock millions of barrels of refining capacity offline for weeks. But even without long-term damage, production of everything from gasoline and jet fuel, plastics and fertilizers could be halted for some time after the storm passes through.

“One of the most fearful things for a refiner is water -- because they’re essentially massive industrial enterprises that run on electricity -- and water and electricity don’t mix,” said Red Cavaney, president of the American Petroleum Institute. “So it could be quite awhile to clear up even if there isn’t a lot of direct damage.”

Even once the water recedes and power is restored, it can take days to restart a refinery, which is essentially a huge pressure cooker that uses high pressure and temperatures to brew highly volatile end products.

And those products can’t get delivered to the people who need them if the storm damages the vast network of pipelines that crisscross the storm’s path.

“This is an area that provides extra product to the rest of the United States, particularly the Midwest and the East,” said Bob Slaughter, president of the National Petrochemical and Refiners Association. “It’s a donor area that is responsible for much of our supply.”

Offshore oil and gas rigs were also shut down as Rita roared through the Gulf. As of Friday, about 72 percent of the Gulf’s natural gas production and 99 percent of crude oil production was shut down, according to the U.S. Minerals Management Service, the government agency that overseas oil and gas leases on federal lands.

Oil producers and refiners also face a serious manpower problem. Since Katrina slammed the New Orleans area, many companies have been struggling to reassemble crews -– many of whom were made displaced from the area. Some companies had to backfill by borrowing workers from other operations. Now, the evacuation of the Houston area -– where many oil companies have headquarters or major offices –- provides yet another setback.

“You saw all those people hauling out of Houston, so getting those people back to those refineries is going to be a challenge,” said David Dismukes, a professor at Louisiana State University’s Center for Energy Studies.

The storm’s projected track would also run straight into a critical natural gas facility known as the Henry Hub near the tiny town of Erath, Louisiana. One of the largest gas processing plants in the world, the facility connects nine interstate and four intrastate pipelines that feed natural gas to the Midwest, Northeast, Southeast, and Gulf Coast regions, according to the U.S. Energy Information Administration.

Tight supplies have already sent natural gas prices soaring in the last few years.  About 5 billion cubic feet per day of natural gas processing capacity in Louisiana was damaged and shut down by Katrina.

Short-term interruptions in natural gas supplies could be eased by natural gas in storage facilities located elsewhere in the country. But the loss of natural gas and refining capacity comes at a time of year when energy companies are typically busy stockpiling natural gas and heating oil for the winter heating season. So the biggest impact from back-to-back hurricanes could be felt months from now -– especially if the winter proved colder than normal.