From: Hugh Aynesworth, The Washington Times
Published August 31, 2005 12:00 AM

Closures Threaten U.S. Energy Supply

BATON ROUGE, La. — Hurricane Katrina shut down almost all of the energy production in the Gulf of Mexico, threatening the nation's short-term energy future.


Oil workers congregating here said Katrina seemed certain to have demolished some of the infrastructure.


The storm idled 95 percent of crude oil production and 88 percent of the area's natural-gas output -- almost 25 percent of the nation's oil output, said the U.S. Minerals Management Service, an arm of the Interior Department.


Oil prices briefly touched a record $70.85 per barrel on the New York Mercantile Exchange yesterday in a trading frenzy prompted by the uncertainty over the extent of the damage. Crude closed at $69.81, up $2.61 per barrel.


Most of the oil companies closed and evacuated their personnel over the weekend in anticipation of what experts had warned could be the most destructive storm in many years.


Officials at Pickering Energy Partners in Houston said yesterday it would be at least a couple days before they could assess the damages.


Scores of petroleum experts, engineers and specialists yesterday began flying over the Gulf of Mexico to inspect their oil and natural-gas platforms.


Others checked out refineries and pipelines.


"We know all of us will be scrambling for some time. We just can't tell quite yet how bad it will be," said Barry Fields of Houma, La., a contractor for two oil companies.


Shell Exploration and Production Co. spokesmen said tracking devices had established that two of their drilling rigs had shifted positions substantially. They began sending crews to examine it yesterday morning.


The U.S. Coast Guard is tracking seven offshore rigs that broke free of their moorings and are adrift, Lt. Cmdr. Jeff Carter told CNN.


"Drifting rigs are an ominous sign for an already panicky market, since moorings and anchors can potentially be dragged by drifting facilities and do damage to subsea pipes," said analysts at JP Morgan.


Royal Dutch Shell PLC, the biggest deep-water producer in the region, said its Mars platform sustained damage. Mars can pump the equivalent of 15 percent of U.S. oil production in the Gulf.


"It is too difficult to predict anything at this point," said Paul Weeditz, spokesman for Marathon Oil Corp., the fourth-largest U.S. oil company. "We will get helicopters and get our people there just as quickly as we can. But when that will be, it is difficult to say."


Reports on New Orleans television stations said some pipelines had been shattered or pulled apart.


"This pipeline damage is generally more difficult and costly to repair," said Doug Leggate, an analyst for Citigroup Global Markets Inc.


The Minerals Management Service reported that 645 of 819 staffed production platforms in the Gulf had been shut down.


Katrina forced the shutdown of at least eight oil refineries near the Gulf of Mexico in Louisiana and Mississippi. The refineries have a combined processing capacity of about 1.79 million barrels per day, or 10.5 percent of U.S. capacity. Three of them reportedly are underwater.


Valero Energy Corp.'s refinery in St. Charles will be out of service for two weeks, spokesman Greg Matula said.


Wachovia Bank experts said as much as 10 percent of U.S. refinery capacity might be out of operation for at least two weeks.


Port Fourchon, a staging area for workers who staff Gulf of Mexico oil and natural-gas production platforms, still is closed after Katrina damaged the facility.


"We have just got to the head of the port," Port Director Ted Falgout said.


"We have yet to enter because there are several large vessels on the highway in the port itself."


Port Fourchon, about 50 miles south of New Orleans, is the base for three-quarters of support services to the Gulf's deep-water oil and gas facilities and is the land base for the Louisiana Offshore Oil Port, the only deep-water oil terminal in the U.S., which also remains closed.


Colonial Pipeline Co., which runs the world's biggest network of petroleum-product pipelines, shut two fuel pipelines.


The pair of lines carry gasoline and distillate fuels and run from Houston to Greensboro, N.C., spokesman Steve Baker said. The lines were shut at noon Monday.


"These are pretty threatening circumstances," said Tom Kloza, director of the Oil Price Information Service in New Jersey.


Wachovia economist Jason Schenker said extra supplies from the U.S. Strategic Petroleum Reserve (SPR), which President Bush is considering releasing, could help.


But, "At the end of the day, it may not matter for gasoline and heating-oil prices how much crude comes out of the SPR. After all, it won't matter how much crude is available if the refineries are shut down and can't run the crude they have," he said.


This story is based in part on wire service reports.


To see more of The Washington Times, or to subscribe to the newspaper, go to http://www.washtimes.com.


Source: Knight Ridder/Tribune Business News


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