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Oil industry escapes serious damage from Rita

Hurricane Rita hit a key region for oil-refining with less force than feared on Saturday, but there were some early signs of damage.
Smoke pours from a stack at the Shell refinery in Deer Park, Texas, as few cars travel along the highway in the aftermath of Hurricane Rita on Sept. 24.David J. Phillip / AP
/ Source: news services

Hurricane Rita smacked a key region for oil-refining with less force than feared on Saturday, although there were some early signs of damage.  The state of Texas sustained around $8 billion in damages but oil refineries were mostly spared and could resume production soon, Texas Governor Rick Perry said Sunday.

"It appears the refining industry, the oil and gas industry (suffered) a glancing blow at worst. Hopefully they'll be back in production very soon," Perry said during an interview with CNN television.

Perry said he expected the federal government to "pay fully the cost" of damages to buildings and other structures.

In a separate interview with Fox News, Perry said one gas pipeline was ruptured, "but it's being repaired as we speak." He did not provide details.

Oil platforms off the Texas coast in the Gulf of Mexico appeared to be "in relatively good shape also," Perry said.

Pump prices for gasoline and diesel fuel could rise if pipelines and oil refineries are slow to resume operations, and analysts said they were paying close attention to facilities in Lake Charles, La., and Beaumont and Port Arthur, Texas.

“There will be some modest disruption of supplies of gasoline and other products,” said William Veno, an analyst at Cambridge Energy Research Associates. “But I don’t think it’s going to be as severe a situation as Hurricane Katrina.”

Power outages were reported across wide swaths of Texas and Louisiana, leaving more than a million customers without electricity and one utility spokeswoman said it could be weeks before service is fully restored.

Valero Energy Corp. said it will take two weeks to a month to repair and restart its 255,000-barrel-per-day Port Arthur refinery, which sustained “significant damage to two cooling towers and a flare stack.”

Outside the plant, two workers from Garner Environmental, a Houston-based cleanup firm, spread booms and oil absorbent pads late Saturday along a perimeter fence in knee-deep floodwaters stained with dark brown crude oil. They, along with a quartet of Valero workers in hip-waders assessing the damage, declined to comment, referring questions to Valero’s San Antonio headquarters.

Motiva Enterprises Inc. and Citgo Petroleum Corp. also reported minor damage to plants in Port Arthur and Lake Charles, respectively. But on a positive note, Exxon Mobil Corp. said it completed a safety assessment and plans to restart it Baytown refinery outside Houston, a 557,000-barrel-per-day plant that is the nation’s largest.

Valero said the lights were on at its refineries in Houston and Texas City, Texas — plants that refine almost 300,000 barrels of oil per day. And BP PLC spokesman Scott Dean said that was encouraging since “they’re right next door to us there.” BP’s Texas City refinery processes 437,000 barrels per day.

Marathon Petroleum Co. said its Texas City refinery, which processes 72,000 barrels of crude oil per day, has power and sustained only minimal damage.

Based on computer modeling and initial reports, the Energy Department said it was cautiously optimistic about the nine refineries in the Houston area. “But we really need to look at the Port Arthur region and other areas directly impacted,” spokesman Craig Stevens said. “It may still be two or three days before we get a sense of the actual picture.”

Before Rita hit, 16 refineries in Texas accounting for 2.3 million barrels per day of capacity shut down and evacuated crews. Four refineries in Louisiana and Mississippi whose output had been more than 800,000 barrels per day remain closed almost a month after Hurricane Katrina, and a significant amount of oil and natural gas output has not returned.

Late Saturday, a natural gas pipeline near the Louisiana coast was leaking in a flooded area, and workers planned to try to fix it Sunday. Crews also needed to check for leaks in a petroleum storage facility after observing an oil sheen in floodwaters, said Jim Porter, president of the Louisiana Mid-Continent Oil and Gas Association.

Crude oil prices fell Friday as traders welcomed news that Rita had weakened. Traders will get their first chance to react to the Rita news when trading resumes on the International Petroleum Exchange in London late on Saturday night. The New York Mercantile Exchange will open electronic trading for crude oil futures and other energy futures at 10 a.m. Eastern Sunday, rather than the usual 7 p.m.

Analysts said they were eager to find out about the impact on refinery operations near the Texas-Louisiana border. “Lake Charles looks like it’s the closest in terms of any kind of real impact. That’s where we’ve got to focus our attention,” said John Felmy, chief economist of the American Petroleum Institute in Washington, D.C.

“Remember, the power outages are what bedeviled recovery efforts after Katrina,” said oil analyst John Kilduff of Fimat USA in New York.

ConocoPhillips, Calcasieu Refining Co. and Citgo, a subsidiary of Petroleos de Venezuela S.A., have refineries in Lake Charles. In Port Arthur, refineries are owned by Valero, Total S.A. and Motiva, a joint venture between Royal Dutch Shell PLC and Saudi Refining Inc.; Exxon Mobil Corp. has a refinery in Beaumont.

Shell said in a statement that there was wind damage to power lines and a cooling water-tower at its Port Arthur refinery, but no flooding. The company said it had no restart date yet for the plant.

Citgo spokesman David McCollum said the company’s 324,000-barrel-per-day Lake Charles plant received “minor” damage from water and strong winds that stripped away insulation from cooling towers. “It could have been a lot worse,” he said.

Motorists are already paying the price for the hurricane-related disruptions.

The average retail cost of gasoline nationwide was $2.75 a gallon on Friday, up from $1.87 a year earlier, according to the Oil Price Information Service of Wall, N.J.

Several oil and fuel pipelines that carry product from the Gulf Coast to markets in the East and Midwest were shuttered prior to Rita’s arrival, but Explorer Pipeline Co., said on Saturday that it found no visible damage so far and could restart operations as early as Monday. Colonial Pipeline Co. also said it expects to resume pumping once fuel supplies and local power are available.

The Louisiana Offshore Oil Port, through which 10 percent of all U.S. oil imports flow, stopped offloading tankers earlier in the week, but by midday Saturday the LOOP had resumed delivering oil from storage to customers. Scheduling manager Mark Bugg said rough seas will prevent the resumption of oil tanker deliveries until Sunday or Monday.

The U.S. Minerals Management Service said Saturday that 634 platforms in the Gulf remained unstaffed, unchanged from Friday. Oil production in the Gulf of Mexico was totally shut down, and more than 74 percent of natural gas output was off. Since Katrina, more than 31 million barrels of oil and 147 billion cubic feet of natural gas have been lost.