August 30, 2005 at 7:58 PM CDT - Updated July 26 at 5:20 PM
Hurricane Katrina disrupted GulfCoast petroleum output and rattled energy markets on Monday, sending oil and natural gas prices soaring and setting the stage for a spike in the retail cost of gasoline. The powerful hurricane roiled the industry at a time when producers worldwide were already struggling to keep up with strong demand and it threatened to constrain the supply of home heating fuels this winter. The rise in energy prices has already slowed the U.S. economy's growth rate, though domestic fuel consumption is still rising.
The Bush administration said it would consider lending oil from the nation's emergency stockpile to refiners that request it and the president of OPEC said he will propose a production increase of 500,000 barrels a day at the cartel's meeting next month. Analysts nervously awaited details on the extent of the damage to the region's platforms, pipelines, refineries and electric grid.
"We're losing a lot of crude oil and also a lot of natural gas," said Lawrence J. Goldstein, president of the New York-based nonprofit Petroleum Industry Research Foundation. Goldstein estimated that total refinery production of gasoline, heating oil, diesel and other fuels could fall by as much as 20 million barrels over the next 60 days.
Royal Dutch Shell PLC said on its Web site that two of its drilling rigs equipped with tracking devices had "drifted off location." The company said it would send aircraft to check the status of its assets "as soon as it is safe to do so."
Also Monday, several refiners said damage at their plants appeared to be minimal and oil prices eased from the day's high of $70.80 a barrel. But if a bleaker picture emerges in the days ahead -- it may take more time to assess damage, depending on how rough the seas are -- prices could run-up once again, analysts said.
Based on conversations with oil and gas companies operating in the Gulf, Goldstein said it appeared that Katrina would not curb output for as long as last year's Hurricane Ivan, even though the short-term impact was significant.
The federal Minerals Management Service said Monday that 92 percent of the region's oil output was shut-in, with more than 3 million barrels of production lost since Friday. The agency said 83 percent of natural gas output was shut-in, resulting in a loss of 15.5 billion cubic feet of lost production since Friday.
The Gulf of Mexico normally produces 2 million barrels of crude oil a day, or about 35 percent of the United States' domestic output, according to government and industry data. About 10 billion cubic feet a day of natural gas is produced in the region.
Wholesale gasoline prices in the New York and Gulf Coast markets soared by 25-35 cents a gallon on Monday following reports that more than 8 percent of U.S. refining capacity had been shut down as a precaution ahead of the storm. One analyst said pump prices nationwide would likely average more than $2.75 a gallon by week's end, up from about $2.60 a gallon Monday.
"Unfortunately, I don't think $3 a gallon is a hyperbolic number in some markets anymore," said analyst Tom Kloza of Wall, N.J.-based Oil Price Information Service. He emphasized that the market reaction is a reflection of supply tightness, not shortages.
Natural gas futures briefly surged more than 20 percent after the temporary closure of a critical distribution hub and on concerns that power outages and flooding could prevent processors from running their plants for days, if not weeks. Even before Katrina arrived, the Energy Department had warned consumers who rely on natural gas to heat their homes to expect sharply higher bills this winter.
On Monday, Puget Sound Energy of Bellevue, Wash., filed a request with state regulators to pass through higher natural gas costs to its customers, and analysts said more such requests were likely around the country.
Katrina hit an area crucial to the U.S. energy infrastructure -- offshore oil and gas production, import terminals, pipeline networks and numerous refining operations in the southern states of Louisiana and Mississippi.
On Wall Street, companies that ferry workers to and from offshore oil platforms, as well as those that provide other support services to the industry, saw their stock prices rise. Shares of Offshore Logistics Inc. climbed 1.96, or 6 percent, to close at $34.41 on the New York Stock Exchange, where shares of Oceaneering International Inc. rose by $1.80, or 4.3 percent, to $44.
Chevron Corp., Royal Dutch Shell, BP PLC, ExxonMobil Corp. and others began evacuating workers from the region over the weekend. The government said 615 platforms and 96 rigs were evacuated. As a precaution, refineries capable of processing some 1.6 million barrels a day were closed, while others reduced their production levels. Sabine Pipe Line LLC on Sunday shut down the Henry Hub, a natural gas distribution center that connects to interstate pipelines; the hub was reopened by Monday afternoon.
The LouisianaOffshoreOilPort, the largest oil import terminal in the United States, evacuated all workers and stopped unloading ships on Saturday. Any significant damage to the port would have a devastating impact, analysts said.
With top winds of 145 mph, Katrina passed just to the east of New Orleans as it moved inland and later dropped to a 105-mph Category 2 storm, sparing this vulnerable city its full fury.
"The damage to the electric power grid is the most important source of damage to consider in evaluation of the impact of Hurricane Katrina," said energy analyst Dan Lippe of Petral Worldwide in Houston.
Lippe said the operations of oil refiners, natural gas processors and chemical manufacturers could be disrupted for as little as a few days or as long as a few weeks.
Light sweet crude for October delivery settled at $67.20 a barrel, an increase of $1.07. Crude futures settled at $67.49 last Thursday, the highest closing price since oil began trading on Nymex in 1983.
Oil prices would need to rise to about $90 a barrel to match the highs of 25 years ago, when adjusted for inflation.
Gasoline futures zoomed 13.37 cents to $2.0606 a gallon on Nymex, but on spot markets in New York and the GulfCoast, prices were as much as 8 cents to 15 cents higher, according to Kloza. Nymex heating oil futures rose by 7.22 cents to $1.9088 a gallon.
Brent crude was not trading Monday, with London's International Petroleum Exchange closed for a bank holiday.
Hurricane Ivan damaged seven platforms, 100 underwater pipelines and resulted in the loss of nearly 44 million barrels of oil production between September 2004 and February 2005
(Copyright 2005 by The Associated Press. All Rights Reserved.)