- The Washington Times - Tuesday, August 30, 2005

Losses at oil and gas facilities caused by Hurricane Katrina could add another 15 cents to 25 cents to prices at the pump that already were near $3 a gallon, analysts said yesterday.

Facilities that produce 11 percent of the nation’s gasoline and almost a third of U.S. oil and natural gas lay in the path of the storm in the Gulf of Mexico and southern Louisiana and Mississippi, and were shut down and evacuated over the weekend, according to an Interior Department report yesterday.

But while most of the inland refineries appeared to escape largely intact, albeit without the power to operate, the full extent of the damage was not known at the vacated and underwater facilities on the Gulf. About 2 million barrels a day is produced from platforms in the Gulf and funneled ashore through underwater pipelines.

Experience a year ago with Hurricane Ivan, a less violent storm that brushed by the main oil-producing areas rather than hitting them full force like Katrina, suggests it could be days or weeks before any serious breakdowns at facilities are fully detected, and then months before they are repaired and working.

“There is concern that this storm has the potential to uproot some of the rigs and destroy them,” said Peter Beutel, president of Cameron Hanover Inc., an energy consulting firm.



“The concern here is that we’re going to lose a sizable chunk of production, not just for a couple of days, not just a couple of weeks, but possibly for months or more,” he said.

The prices of crude oil, natural gas, heating oil and wholesale gasoline all jumped to new highs on the New York Mercantile Exchange yesterday. Premium crude soared to $70.80 a barrel in the first few minutes of trading before settling back to a record close of $67.20.

The market was soothed and retraced some gains after separate announcements from the White House and Saudi Arabia that they would fill in for the loss of production, if needed, with additional crude oil and loans from the Strategic Petroleum Reserve.

The government received its first request for reserves from Citgo Petroleum Corp., which said it needs 250,000 to 500,000 barrels to ensure its Lake Charles, La., refinery does not run out.

The government said 615 platforms and 96 rigs were evacuated. Refineries processing some 1.6 million barrels a day were closed, and many may remain shut for days or weeks by power outages, analysts said.

At least three platforms were ripped from their moorings and set adrift by the storm, and one runaway oil rig that was being repaired in Mobile, Ala., broke free and smashed into a suspension bridge.

Among the critical facilities shuttered was the nation’s largest oil-import terminal, 20 miles off the coast of Louisiana, and the Henry Hub, where much of the nation’s natural gas is delivered to buyers.

The closure of refineries already hard-pressed to supply the gasoline needed by American drivers caused wholesale prices to surge as much as 35 cents a gallon, laying the groundwork for further big price increases at the pump.

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 yesterday.

“Unfortunately, I don’t think $3 a gallon is a hyperbolic number in some markets anymore,” said analyst Tom Kloza of Oil Price Information Service.

Natural gas prices jumped 11 percent amid widespread shutdowns of vital pipelines and loading facilities. The sharp impact on natural gas and heating oil prices means that the cost of electricity and home heating fuel is likely to climb steeply in the weeks ahead in Washington and other areas fed by supplies from the Gulf.

“Natural gas is the real worry,” said Bill O’Grady, an analyst at A.G. Edwards & Sons. “Unfortunately, we can’t import the missing production. This is largely a domestic market.”

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