Storms Cast Spotlight on Energy's New Reality - New York Times
Storms Cast Spotlight on Energy's New Reality - New York Times
September 26, 2005
Storms Cast Spotlight on Energy's New Reality
By JAD MOUAWAD
The vast energy complex spread along the hurricane-battered Gulf Coast apparently escaped serious damage in the latest storm. But for an industry still reeling from the impact of Hurricane Katrina, the recovery will be long and arduous, leaving global energy markets at the mercy of other natural disasters - or unforeseen twists in unpredictable oil-producing countries like Nigeria and Iran.
Once again, Hurricane Rita illustrated the energy market's new reality: with little production or refining capacity to spare, any disruption can have a big impact on tight and increasingly edgy markets. Until investments are made in new supplies, or demand slows down enough to ease the capacity squeeze, analysts warn that markets will remain volatile.
In the short run, much will depend on how quickly oil companies can restart their refineries and bring gasoline, natural gas and other products back to consumers. Energy prices, which had already soared in recent months because of fears that supplies were lagging demand, peaked last month after Hurricane Katrina cut production in the Gulf of Mexico and crimped many refiners.
By now, with the summer driving season at an end, refineries should have started building stockpiles of heating oil for the winter. Instead, most of them have been struggling to churn out more gasoline to make up for the lost refining capacity. Ahead of the peak winter demand, this leaves markets for heating oil and natural gas on shaky foundations and could mean higher prices in coming months.
"We really could have a very tight squeeze in October or November because we have no padding," said Amy Myers Jaffe, the associate director of Rice University's energy program.
"Anything that might have had a minor impact in the past, will have a major impact today - a war in the Middle East, an accident in Latin America, an explosion in Iraq," she said. "Anything could turn this into an even bigger crisis."
The most immediate concern for oil companies was the condition of the coastal refining system. The industry was already suffering from bottlenecks and shortfalls that caused retail shortages, gas lines and gasoline prices above $3 a gallon earlier this month. While oil, natural gas and gasoline prices have since retreated, more delays could send them shooting up again.
The Gulf Coast is by far the most sensitive region for America's energy supplies. Refineries in Texas and Louisiana account for nearly half the country's refining capacity, while the offshore waters produce nearly a third of the nation's oil and gas output. Most of those operations were shut down by Hurricane Rita and remained closed yesterday.
Rick Perry, the governor of Texas, speaking to CNN yesterday morning, gave an upbeat assessment. He said the state's refineries had suffered "a glancing blow, at worst," adding, "hopefully they'll be back in production very soon." He also said that the offshore oil platforms appeared to be "in relatively good shape also."
The news helped ease some of the concerns that had built up on oil markets last week. At the New York Mercantile Exchange and London's International Petroleum Exchange, both open for special sessions yesterday, oil futures dropped.
In New York, crude oil for November delivery fell $1.14, to $63.05 a barrel. On Friday, the price fell 3.5 percent as Hurricane Rita's course shifted away from the main refining centers. By then, oil futures were down 9.4 percent from their peak of $70.85 a barrel, reached in the aftermath of Hurricane Katrina.
Initial estimates by insurance specialists put the damage from Hurricane Rita at $5 billion or less, far below the estimated $35 billion in damage inflicted by Hurricane Katrina.
"We do not expect to see significant structural damage to the refineries," said Dr. Jayanta Guin, vice president of research at AIR Worldwide, a Boston firm that tracks hurricanes and the damage they inflict.
Still, on the Texas coast, the focus through the weekend was on how long it would take to restart the 16 refineries that were shut down by the storm.
Those refineries can process 4 million barrels of oil a day, or 23 percent of the country's total capacity, according to the Energy Department. Another four refineries, accounting for 5 percent of capacity, are undergoing repair after the damage caused by Hurricane Katrina.
Also, there was little sign of damage to the offshore infrastructure, according to the United States Coast Guard, whose initial survey found only two damaged drilling platforms and no traces of oil spills. By contrast, Hurricane Katrina destroyed about 50 small facilities and damaged a handful of major platforms.
Even if the damage from the latest storm proves to be light, oil production from the Gulf of Mexico is likely to be months away from returning to its normal level. Oil companies evacuated 80 percent of all the manned platforms operating in the gulf in anticipation of Hurricane Rita and shut down the region's oil production, about 1.5 million barrels a day.
The storm also forced the shutdown of oil import terminals along the coast, including the largest one, the Louisiana Offshore Oil Port, which has a daily capacity of a million barrels, or about 10 percent of oil imports. In Texas, Port Arthur, Freeport, Corpus Christi and the port of Houston were also shut down.
The country's largest refinery, in Baytown, Tex., which is owned by Exxon Mobil and has a capacity of 557,000 barrels a day, seemed to have suffered only light damage from Hurricane Rita. The company said it was beginning to restart the refinery and had already delivered gasoline out of its storage tanks.
But the storm disruptions led Exxon Mobil, the world's largest publicly traded oil company, to issue an unusual recommendation to the nation's motorists.
"We ask that you use fuel wisely," the company said in newspaper advertisements yesterday. It suggested that drivers "conserve fuel by reducing trips" and "defer discretionary purchases to ease supply pressures."
September 26, 2005
Storms Cast Spotlight on Energy's New Reality
By JAD MOUAWAD
The vast energy complex spread along the hurricane-battered Gulf Coast apparently escaped serious damage in the latest storm. But for an industry still reeling from the impact of Hurricane Katrina, the recovery will be long and arduous, leaving global energy markets at the mercy of other natural disasters - or unforeseen twists in unpredictable oil-producing countries like Nigeria and Iran.
Once again, Hurricane Rita illustrated the energy market's new reality: with little production or refining capacity to spare, any disruption can have a big impact on tight and increasingly edgy markets. Until investments are made in new supplies, or demand slows down enough to ease the capacity squeeze, analysts warn that markets will remain volatile.
In the short run, much will depend on how quickly oil companies can restart their refineries and bring gasoline, natural gas and other products back to consumers. Energy prices, which had already soared in recent months because of fears that supplies were lagging demand, peaked last month after Hurricane Katrina cut production in the Gulf of Mexico and crimped many refiners.
By now, with the summer driving season at an end, refineries should have started building stockpiles of heating oil for the winter. Instead, most of them have been struggling to churn out more gasoline to make up for the lost refining capacity. Ahead of the peak winter demand, this leaves markets for heating oil and natural gas on shaky foundations and could mean higher prices in coming months.
"We really could have a very tight squeeze in October or November because we have no padding," said Amy Myers Jaffe, the associate director of Rice University's energy program.
"Anything that might have had a minor impact in the past, will have a major impact today - a war in the Middle East, an accident in Latin America, an explosion in Iraq," she said. "Anything could turn this into an even bigger crisis."
The most immediate concern for oil companies was the condition of the coastal refining system. The industry was already suffering from bottlenecks and shortfalls that caused retail shortages, gas lines and gasoline prices above $3 a gallon earlier this month. While oil, natural gas and gasoline prices have since retreated, more delays could send them shooting up again.
The Gulf Coast is by far the most sensitive region for America's energy supplies. Refineries in Texas and Louisiana account for nearly half the country's refining capacity, while the offshore waters produce nearly a third of the nation's oil and gas output. Most of those operations were shut down by Hurricane Rita and remained closed yesterday.
Rick Perry, the governor of Texas, speaking to CNN yesterday morning, gave an upbeat assessment. He said the state's refineries had suffered "a glancing blow, at worst," adding, "hopefully they'll be back in production very soon." He also said that the offshore oil platforms appeared to be "in relatively good shape also."
The news helped ease some of the concerns that had built up on oil markets last week. At the New York Mercantile Exchange and London's International Petroleum Exchange, both open for special sessions yesterday, oil futures dropped.
In New York, crude oil for November delivery fell $1.14, to $63.05 a barrel. On Friday, the price fell 3.5 percent as Hurricane Rita's course shifted away from the main refining centers. By then, oil futures were down 9.4 percent from their peak of $70.85 a barrel, reached in the aftermath of Hurricane Katrina.
Initial estimates by insurance specialists put the damage from Hurricane Rita at $5 billion or less, far below the estimated $35 billion in damage inflicted by Hurricane Katrina.
"We do not expect to see significant structural damage to the refineries," said Dr. Jayanta Guin, vice president of research at AIR Worldwide, a Boston firm that tracks hurricanes and the damage they inflict.
Still, on the Texas coast, the focus through the weekend was on how long it would take to restart the 16 refineries that were shut down by the storm.
Those refineries can process 4 million barrels of oil a day, or 23 percent of the country's total capacity, according to the Energy Department. Another four refineries, accounting for 5 percent of capacity, are undergoing repair after the damage caused by Hurricane Katrina.
Also, there was little sign of damage to the offshore infrastructure, according to the United States Coast Guard, whose initial survey found only two damaged drilling platforms and no traces of oil spills. By contrast, Hurricane Katrina destroyed about 50 small facilities and damaged a handful of major platforms.
Even if the damage from the latest storm proves to be light, oil production from the Gulf of Mexico is likely to be months away from returning to its normal level. Oil companies evacuated 80 percent of all the manned platforms operating in the gulf in anticipation of Hurricane Rita and shut down the region's oil production, about 1.5 million barrels a day.
The storm also forced the shutdown of oil import terminals along the coast, including the largest one, the Louisiana Offshore Oil Port, which has a daily capacity of a million barrels, or about 10 percent of oil imports. In Texas, Port Arthur, Freeport, Corpus Christi and the port of Houston were also shut down.
The country's largest refinery, in Baytown, Tex., which is owned by Exxon Mobil and has a capacity of 557,000 barrels a day, seemed to have suffered only light damage from Hurricane Rita. The company said it was beginning to restart the refinery and had already delivered gasoline out of its storage tanks.
But the storm disruptions led Exxon Mobil, the world's largest publicly traded oil company, to issue an unusual recommendation to the nation's motorists.
"We ask that you use fuel wisely," the company said in newspaper advertisements yesterday. It suggested that drivers "conserve fuel by reducing trips" and "defer discretionary purchases to ease supply pressures."
posted by Marcel at 4:22 PM
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