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Archive for Monday, September 26, 2005

Oil refineries’ condition ‘better than expected’

September 26, 2005

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— Hurricane Rita spared most of the gasoline-producing refineries in its path and perhaps the American economy, too.

Before Rita hit, fears had risen that gasoline prices could surge to as much as $5 a gallon since it threatened large number of refineries along the Texas and Louisiana coast. That prospect had caused some analysts to worry about a Rita-induced recession.

But the worst-case scenario failed to materialize. The storm lacked the punch of Hurricane Katrina and veered away from so-called "refinery row" in the Houston vicinity, leaving its gasoline-production facilities largely unscathed.

The prices of both oil and gasoline in the futures market went down after the storm's arrival, even though the condition of all 16 refineries in Rita's path, which produce 23 percent of the nation's gasoline, was not known.

"I think we can squeak through," said Philip Verleger, a Colorado energy expert who several days ago had expressed worry that Rita could do severe damage to the U.S. economy if many refineries had been damaged.

Adam Sieminski, energy economist for Deutsche Bank, said the worst fears of energy experts had not materialized, "and that's good for everybody." A spokesman for the American Petroleum Institute, trade association for the industry, said it appeared that the industry - and gasoline consumers - appeared to have dodged a bullet.

But that doesn't mean the American consumer is totally out of the woods. Damage was reported to some refineries in the area that bore the brunt of the storm, near Port Arthur, Tex., and Lake Charles, La. Also, natural gas facilities in the Gulf of Mexico were in Rita's path, but it will take several days to assess any damage to them, said Sieminski.

At Valero Energy's Port Arthur refinery, the company reported significant damage to two cooling towers and a flare stack, damage that it said could take between two and four weeks to repair. Valero spokeswoman Mary Rose Brown said the company's Texas City and Houston refineries survived the storm, and both are expected be back in service later in the week despite the troubles at its Port Arthur facility.

With refining capacity extremely tight across the country, any significant outage could put upward pressure on prices, although the price picture wasn't totally clear on Sunday. Four large Louisiana refineries, representing 5 percent of the nation's refining capacity, still remain idled from damage caused by Hurricane Katrina. And Valero's Port Arthur refinery adds to that list.

Bob Slaughter, president of the National Petroleum and Refiners Association, said because of the tight supply-and-demand situation, refineries cannot make up for the lost production, which he estimated at 10 million barrels daily, more than an entire day's consumption in the United States.

Slaughter said the vast majority of the lost production from Rita would be coming back on line within a few days. "The basic theme is that things are a lot better than we expected," he said.

Still uncertain is whether Rita did much damage to natural gas facilities in the Gulf. Slaughter said it would take several days before an assessment could be made. Rita's path took it over an area rich in natural gas, Slaughter said.

Already, he noted, natural gas prices are expected to soar this winter and any further loss of supply will only exacerbate the situation. "We're really on the verge of a natural gas crisis," said Slaughter. "People should watch and wait."

Katrina caused gasoline prices to soar more than $3 throughout the country, and in some cases close to $4 a gallon. But gasoline prices have been softening since then, and on Sept. 19, the nationwide average price was $2.78, according to the Energy Information Administration, part of the Energy Department.

Higher energy prices had caused the economy to slow even before Katrina came ashore in Louisiana. Most analysts believe that the economy will grow at a 3 percent annual rate in the second half of the year even with today's prevailing energy prices.

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