- The Washington Times - Monday, September 5, 2005

JACKSON, Miss. - As half of the Gulf Coast refineries damaged by Hurricane Katrina begin to ramp up production this week, industry analysts have this message: Be patient.

“What you’ve got are a whole series of requirements and processes and that takes days, if not weeks,” said John Felmy, chief economist for the American Petroleum Institute.

The going is also slow for the restoration of offshore oil and gas production. Almost 70 percent of normal oil production and half of the natural-gas output remains shut down, according to the U.S. Minerals Management Service, which said activity is slowly recovering.

On London’s International Petroleum Exchange yesterday, a barrel of Brent crude for October delivery fell $1.21 to close at $64.85 a barrel — close to what it had been before Katrina hit.

The New York Mercantile Exchange was closed for the Labor Day holiday. Benchmark light, sweet crude had closed Friday at $67.57 a barrel, down $1.90 after the International Energy Agency on Friday announced its 26 members would release 2 million barrels daily for 30 days to meet shortfalls in world energy markets.

Eight major refineries that produce gasoline, diesel and jet fuel and heating oil were knocked out of commission and the output at two others was cut by last week’s hurricane and the flooding that followed. That cut overall U.S. refining capacity by more than 10 percent and contributed to a surge in retail gasoline prices and spot shortages around the country.

Motiva Enterprises LLC, Marathon Oil Corp. and Valero Energy Corp. said that they hope to restart, and in some cases make fully operational, four of those refineries this week.

Motiva, a joint venture between Royal Dutch Shell PLC and Saudi Refining Inc., said its Convent, La., refinery restarted on Sunday and its refinery in Norco, La., is expected to get started by midweek. Both are located west of New Orleans.

Marathon said over the weekend that its Garyville, La., refinery west of New Orleans should be fully operational early this week. Valero said it’s still hoping to restart this week its St. Charles refinery about 15 miles from New Orleans.

When running at 100 percent capacity, these four represent slightly more than 1 million barrels of refined oil product a day.

In contrast, Chevron Corp.’s 325,000 barrel-a-day refinery in Pascagoula, Miss., and ConocoPhillips’ 247,000 barrel-a-day facility in Belle Chasse, La., south of New Orleans have suffered major damage and are unlikely to resume production for some time, according to the U.S. Department of Energy.

The ConocoPhillips facility, along with Exxon Mobil Corp.’s Chalmette, La., refinery and Murphy Oil Corp.’s facility in Meraux, La., also have no power. They represent nearly 690,000 barrels a day of refined oil products.

But industry analysts say that even after power is restored, restarting an oil refinery is a tricky and time-consuming process. Crews must be meticulous with repeated inspections, checking and rechecking for leaks. They must also ensure that all saltwater has been cleared or risk igniting a fire.

“What you have is an important set of steps in terms of these are high-temperature, high-pressure facilities,” Mr. Felmy said. “And that’s if you have not had any damage, and we know from preliminary reports that’s not the case.”

There are also work-force issues. With communication lines either down or overloaded, many companies have not been able to locate displaced employees.

Last week, Shell Oil and Valero spoke out about efforts to locate and assist employees. In some cases, it may require providing shelter near the refineries.

Valero estimated that almost 1,000 of its employees may have been affected by the storm, including 550 at its St. Charles refinery, scheduled to restart by week’s end.

Yesterday afternoon, the company said it had heard from all but nine of its employees from the St. Charles work force. The company has set up a large air-conditioned tent equipped with a catering operation, according to Valero spokeswoman Mary Rose Brown.

Additionally, the company has dispatched 50 mobile homes to St. Charles for workers who may need temporary housing.

“It appears a lot of our employees probably lost their homes,” Valero Chief Executive Bill Greehey told employees last week at the company’s San Antonio headquarters. “Rest assured, we are going to take care of our employees. Whatever financial help they need, they will be taken care of by Valero.”

Cal Hodges, a Houston energy consultant, said companies may need to recruit retired workers for stopgap help. “We need to get the workers back, but we may need to be creative, too, in getting people to the refineries,” he said. “That’s one way to do it.”

Refineries also will receive a boost from the Department of Energy, which agreed to lend oil from the Strategic Petroleum Reserve. Exxon Mobil, Valero, Placid Refining Co. LLC, BP PLC, Marathon and Total SA will collectively receive 12.6 millions barrels of oil.

More is available. Energy Secretary Samuel W. Bodman offered 30 million barrels to be provided beginning today. The reserve supply, however, must be replenished by the companies once conditions return to normal.

Other developments critical to the Gulf’s recovery include:

• The Louisiana Offshore Oil Port, the nation’s largest oil import terminal, has been unloading tankers, operating at about 75 percent capacity. It may hit full capacity this week.

• Colonial Pipeline Co., which transports refined products from Houston to as far away as the Northeast, is operating at 76 percent capacity, up 3 percent from its weekend report.

• Kinder Morgan Energy Partners’ Plantation Pipe Line Co., which transports fuel from refineries to Eastern markets, has been capable of full-capacity operations once it receives fuel from downed refineries.

• Shell Pipeline Co.’s Capline pipeline system, which transport crude oil into the Midwest, is operating at approximately 40,000 barrels per hour; the normal rate is 45,000 barrels per hour.

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