- The Washington Times - Wednesday, September 21, 2005

A second major hurricane is headed toward the heart of America’s oil-producing center — this time slated to hit near critical Houston-area facilities left untouched by Hurricane Katrina.

Any direct hit by Hurricane Rita, a Category 5 storm with 165 mph winds rated more powerful than Katrina, could send gasoline prices well above $3 a gallon again and pack a one-two punch on U.S. consumers and an economy already shaken by the earlier storm, analysts say.

Rita is expected to lumber through an oil patch in the western Gulf of Mexico that produces one-third of the nation’s oil, including fields hit hard by Katrina as well as oil rigs and platforms that escaped unscathed.

But the biggest worry is the potential of Katrina-like damage to the huge refineries clustered near Houston, Port Arthur, Galveston and Corpus Christi, which together produce a quarter of the gasoline consumed by U.S. motorists.

Oil and gas prices soared yesterday in New York futures markets in anticipation of Rita’s landfall on the central coast of Texas sometime this weekend, while stocks and the dollar fell on fears of a second, knockout hit on the economy.

The Dow Jones Industrial Average dropped 103 points to 10,378, and has fallen 264 points since Rita made an appearance Monday.

Ralph Acampora, a stock analyst with Prudential Securities, predicted “long and painful” days of waiting and worrying as Gulf Coast residents, investors and consumers watch the path of the storm.

Rita appears likely to be at least as dangerous as Katrina when it makes landfall, according to forecasters.

Katrina caused sporadic gasoline shortages and sent prices soaring into record territory by ripping up drilling rigs, and toppling oil platforms from their moorings and marooning them dozens of miles away. The damage to major refineries in the New Orleans area came from flooding and the loss of electricity.

Nearly all Gulf oil and gasoline production initially was shuttered, and about 5 percent of U.S. output remains shut down by the storm. Major facilities such as the Mars deepwater oil platform, which produces 15 percent of Gulf oil, are not expected to go online again until mid-2006.

Production from western Gulf oil wells and refineries started shutting down yesterday as companies evacuated workers ahead of Rita’s arrival, adding to the extensive outages imposed by Katrina.

As of 2 p.m., 73 percent of the Gulf’s oil production and about half of its natural-gas output was stopped, according to the Interior Department. BP Amoco PLC, Royal Dutch Shell, Valero and other companies were moving to close refineries and evacuate workers.

Any prolonged shutdown of a large portion of Gulf production could cause shortages of gasoline and translate into significantly higher gas prices, analysts say.

“The Houston area is ground zero of the refining industry,” said Rick Mueller of Energy Security Analysis Inc. “If it suffers the scope of damage caused to refineries in Louisiana by Katrina, we could see rationing and queues at the gas pump.”

The Organization of Petroleum Exporting Countries would not be able to help if any more refineries are knocked off-line, he said.

That is because U.S. refineries have been producing all the fuel they can and have no spare capacity to make up any shortfall from the Gulf, while the worldwide market is nearly as tight. Swamping the world with more oil that has not been refined would do little to relieve gasoline shortages.

The chances of serious damage from flooding to the Texas refineries seems high. The National Weather Service has issued a flood watch for the Texas coastline, including Galveston.

Exxon Mobil Corp.’s Baytown, Texas, oil refinery — the nation’s largest — is located along the Houston Ship Channel inland from Galveston.

“Rita is developing into our worst-case scenario,” said John Kilduff, an executive at Fimat USA, an investment-analysis firm. “This is headed right into our other major refining center just after all the damage done to facilities in Louisiana. From an energy perspective, it doesn’t get any worse.”

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