Ike Forces Shutdown of 19% of U.S. Refining Capacity

By Jordan Burke

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

At least 13 refineries in Texas shut 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 yesterday.

``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 smashed into the Texas coast as a category 2 storm with winds almost 110 miles per hour (176 kilometers), making landfall in Galveston at 2:10 a.m. local time today. Ike's path toward Houston makes it the first storm to hit a major U.S. metropolitan area since Hurricane Katrina devastated New Orleans in 2005.

President George W. Bush today said the federal government was ``prepared to move'' quickly to help in recovery efforts from Hurricane Ike and said he has ordered federal authorities to guard against gasoline price gouging.

Idled Production

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.

Royal Dutch Shell Plc, Europe's largest oil company, said today it plans to do a flyover of its Gulf of Mexico assets to assess any damage from Hurricane Ike, after the storm passes. Shell wants ``most notably'' to examine its Auger tension leg platform, the company said in a statement on its Web site.

Shell may redeploy some workers to Shell-operated assets that were not in the immediate path of Ike, the statement said.

``Once power and communications are restored at our facilities, then personnel can commence repairs, and where possible, conduct restart and production ramp up procedures,'' the company said. `Production ramp up at each facility will vary and could take from a few days to weeks.''

Calls for Conservation

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.''

Gasoline futures traded in New York gained 3.1 percent this week. The futures rose 2.08 cents, or 0.8 percent, to settle at $2.7696 a gallon yesterday as the refineries closed.

CME Group Inc., the world's biggest futures exchange, is extending New York Mercantile Exchange electronic trading hours this weekend because of Ike. Trading will begin at 10 a.m. New York time on Sept. 14, earlier than the normal opening of 7 p.m.

Ike is similar to Hurricane Alicia in 1983, according to Jim Rouiller, senior energy meteorologist at Planlytics Inc. in Wayne, Pennsylvania.

`Devastated' Infrastructure

``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.''

Hurricanes Katrina and Rita forced the temporary shutdown of at least 20 U.S. refineries during August and September 2005, idling 30 percent of the nation's capacity. Most of those plants resumed operations within a few weeks of the storms.

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

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

Exxon Mobil shut down 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 company's Web site. 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 able to process 85,000 barrels, spokesman Bill Day said.

Gas Station Closings

The company closed 64 company-operated gasoline stations out of almost 200 in the Houston region, Day said.

Motiva Enterprises LLC, a joint venture of Shell and Saudi Arabia's state oil company, started shutting down its 300,000- barrel-a-day plant in Port Arthur yesterday, 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.

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.

Texas City, Pasadena

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

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.

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.''

With winds decreasing to about 90 mph, making it a Category 1 storm, Ike was moving north at about 18 mph, the National Hurricane Center said in an 8 a.m. local time advisory. Ike is likely to remain a hurricane through the afternoon as it weakens on its inland path curving toward the northeast toward western Arkansas, the center said.

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