Ike Forces Shutdown of 19% of Refining Capacity, Limiting Fuel

By Jordan Burke

Sept. 13 (Bloomberg) -- Hurricane Ike, which will make landfall along the U.S. Gulf Coast today, caused more than 19 percent of the nations refining capacity to close and may limit fuel deliveries across the country.

At least 13 refineries in Texas were shutting down as Ike approached. Gulf Coast refineries and ports are the source of about 50 percent of the fuel and crude used in the eastern half of the U.S. Plants operated by Exxon Mobil Corp., Valero Energy Corp., ConocoPhillips and Royal Dutch Shell Plc were affected.

Gasoline shortages may occur across the southern U.S. up to Washington because of the closures caused by Hurricane Gustav and now Ike, Kevin Kolevar, assistant secretary for electricity delivery and energy reliability at the U.S. Department of Energy, said on a conference call.

``We expect to see constrained supplies of refined products,'' he said. ``The administration will utilize every tool at our disposal to lessen the likelihood of limited fuel supplies,'' including tapping the Strategic Petroleum Reserve.

Ike bore down on the coast with winds increasing in strength to 110 miles (175 kilometers) an hour. Coastal areas faced a storm surge as high as 25 feet, the National Hurricane Center in Miami said on its Web site.

The storm idled about 98 percent of oil production and 94 percent of natural-gas output in the Gulf of Mexico, the U.S. Minerals Management Service said yesterday. Gulf fields produce 1.3 million barrels oil a day, about a quarter of U.S. output, and 7.4 billion cubic feet of gas, 14 percent of the total, government data show.

Refinery Issue

``This is more of a refinery issue than an oil and gas issue,'' said Jim Rouiller, senior energy meteorologist at Planalytics Inc. in Wayne, Pennsylvania. ``A storm as massive as Ike has the capacity to generate massive storm surge.''

Gasoline for October delivery rose 2.08 cents, or 0.8 percent, to settle at $2.7696 a gallon yesterday on the New York Mercantile Exchange as the refineries closed. Prices rose 3.1 percent this week.

Chevron Corp., the second-largest U.S. energy company, urged U.S. consumers outside the Gulf Coast region to conserve gasoline and other fuels to help avert shortages.

The company, in a statement on its Web site, said it's concerned about ``the potential impact of Hurricane Ike and the additional pressure it could have on an already stressed petroleum-distribution system.''

Baytown Closure

Exxon Mobil is shutting its Baytown, Texas, refinery, the biggest in the U.S, with processing capacity of 590,500 barrels of oil a day, and its Beaumont plant, which can process 363,100 barrels a day, according to the Energy Department. Exxon is the world's largest oil company.

Valero, the largest U.S. refiner, closed three Texas oil refineries with a combined capacity of 589,000 barrels a day. They are the 294,000-barrel-a-day Port Arthur refinery, a Texas City plant with a capacity of 210,000 barrels and a Houston facility that can process 85,000 barrels, spokesman Bill Day said in an e-mail.

Earlier today, Valero closed 64 company-operated retail stories out of almost 200 in the Houston region, Day said.

Motiva Enterprises LLC, a joint venture of Royal Dutch Shell Plc and Saudi Arabia's state oil company, started shutting down its 300,000-barrel-a-day plant in Port Arthur, Shell said on its Web site. Shell is also closing its Deer Park plant, which can process 340,000 barrels per day.

Motiva's Beaumont, Pasadena and North Houston terminals are also closed and refined product supplies at those terminals remain at ``safety levels,'' Shell said in a statement. Tank drivers earlier picked up their last loads and are making final deliveries in the region to refuel Shell-branded stations before Hurricane Ike makes landfall.

Corpus Christi

Citgo Petroleum Corp., owned by Venezuela's state oil company, declined to comment on the status of its refineries in Corpus Christi, Texas, and Lake Charles, Louisiana.

``We do not comment on operations,'' spokeswoman Shawn Trahan said in an e-mail.

Planalytics' Rouiller said Ike is similar to Hurricane Alicia in 1983.

``It took them over a year to get their feet on the ground again,'' he said. ``The refineries were down for months. Basically, the whole infrastructure around the Houston metropolitan area was devastated.''

Gasoline supplies across the southern and eastern U.S. may be disrupted by the storm, Rouiller said.

``We could have this capability lost for a long period of time,'' he said.

Houston Port

The U.S. Coast Guard closed the port of Houston, the nation's largest petroleum port. The Louisiana Offshore Oil Port, the biggest U.S. oil-import terminal, stopped unloading vessels.

BP is closing its 475,000-barrel-a-day Texas City, Texas, refinery. ConocoPhillips, the second-largest U.S. refiner, said its 260,000 barrel-a-day refinery in Sweeny, Texas, is closing. LyondellBasell Industries is shutting its 299,300-barrel-a-day Houston Refining LP plant.

Conoco's Pasadena, Texas, refined products terminal and Clifton Ridge Marine terminal near Lake Charles also closed earlier today, and all company-operated pipelines in the region are shut down.

LyondellBasell Industries is shutting its 299,300-barrel-a- day Houston Refining LP plant.

Marathon Oil Corp., the fourth-largest U.S. oil company, began to shut its Texas City refinery, which can process about 81,500 barrels of oil a day.

Port Arthur

Total SA, Europe's third-largest oil company, is shutting down its Port Arthur refinery, which can process about 240,000 barrels a day.

``Ike is headed into the heart of the refining industry,'' Bruce Bullock, director of the Maguire Energy Institute at Southern Methodist University in Dallas, said in an interview. ``The damage is likely to come in flooding, a lack of power for an extended period of time.''

To contact the reporter on this story: Jordan Burke in New York at jburke29@bloomberg.net.