Louisiana Refining May Take Days to Resume, Sapping Fuel Supply

By Joe Carroll

Sept. 2 (Bloomberg) -- Louisiana refineries that shut down before Hurricane Gustav may take about 10 days to resume operations because of a lack of power, stunting fuel production at a time when regional gasoline inventories are at a 10-month low.

Marathon Oil Corp., Valero Energy Corp. and other refiners that shut plants as Gustav swept through the Gulf of Mexico won't know the extent of any damage until today at best. Exxon Mobil Corp. shut its Baton Rouge plant, the second-largest U.S. refinery, after winds snapped power lines.

Gasoline futures prices, which have fallen 4.7 percent since the end of last week, may rebound as power failures delay recovery across Louisiana, the second-largest oil-refining state, said Andy Lipow, president of Lipow Oil Associates LLC. Valero and Royal Dutch Shell Plc are among companies that shut 14 percent of U.S. crude-processing capacity as Gustav neared Louisiana, which ships 75 percent of its fuel to other states.

``We're going to lose a fair amount of gasoline and diesel production,'' Lipow said in a telephone interview from Houston. ``Once the refiner gets all its people back into the plant, for a simple refinery it can take three to five days to get back up and running, while a complex refinery can take anywhere from 5 to 10 days to go full tilt.''

Wholesale gasoline at Gulf Coast fuel terminals climbed 8 percent last week to $3.05 a gallon, the biggest weekly increase since May 9, as demand surged among evacuating residents, according to data compiled by Bloomberg. Wholesale markets were closed yesterday for the U.S. Labor Day holiday.

The national average gasoline pump price was $3.686 per gallon two days ago, up 90 cents from a year earlier, according to AAA.

Fuel-Production Falls

Gasoline held in Gulf Coast storage tanks fell 13 percent in the past five weeks to 60.85 million barrels, the lowest inventory in 10 months, according to the U.S. Energy Department in Washington. Shortages began developing yesterday in south Louisiana, where 85 percent of filling stations had exhausted fuel supplies, Governor Bobby Jindal said yesterday at a press conference in Baton Rouge.

At least nine refineries representing 1.56 million barrels of daily crude-processing capacity were shut in anticipation of Gustav, and a tenth closed yesterday in Baton Rouge when high winds cut power. Those ten account for about 15 percent of U.S. refining capacity, according to data compiled by Bloomberg. Five more plants were knocked down to reduced rates.

Blackouts spread across Louisiana yesterday as Gustav neared shore and its winds snapped utility poles and toppled trees onto power lines. The hurricane made landfall about 85 miles (136 kilometers) southwest of New Orleans yesterday at 10 a.m. local time.

Repairing Power Lines

More than 900,000 homes and businesses in Louisiana and neighboring states lost power, utility companies said. New Orleans- based Entergy Corp., the state's largest electricity provider, said it was ready to dispatch 9,000 workers to repair power lines and utility poles as soon as the weather allowed.

Houston-based Marathon Oil won't know the extent of damage to its biggest refinery in Garyville, Louisiana, until some time today, spokeswoman Linda Casey said.

A so-called ride-out crew stationed inside the plant throughout the hurricane was scheduled to make its first inspection of the damage after sunrise today, Casey said. The plant can process 275,000 barrels of crude a day.

Hurricane Hanna is expected to approach Florida over the next few days, the National Hurricane Center said. Florida, which burns more gasoline than any other state in the eastern U.S., has no refineries and relies 100 percent on shipments from the Gulf Coast and overseas producers, according to the Energy Department.

Inspection Crews

San Antonio-based Valero Energy, the largest U.S. refiner, and Chevron Corp. said it would be at least a day before they can move inspection teams into storm-affected areas to determine the status of refineries.

Chevron's Pascagoula, Mississippi, plant continued to make fuel during the hurricane, even as surrounding neighborhoods lost power, spokesman Mickey Driver said.

Yesterday's drop in gasoline prices ``may have been premature, as hurricanes can be unpredictable and we still have no idea whatsoever about the extent of damage, if any, to the oil production platforms or to the refineries,'' Michael Wittner, head of oil market research at Societe Generale, said in a note to clients yesterday.

Houston-based ConocoPhillips shut its St. Charles and Belle Chasse, Louisiana, plants, which can process 239,000 barrels and 247,000 barrels a day, respectively.

Refineries Shut

Motiva Enterprises LLC, a Houston-based joint venture of Shell and Saudi Arabia's national oil producer, closed a 236,400-barrel- a-day plant in St. Charles Parish near New Orleans and its 235,000 barrel-a-day Convent refinery. Chalmette Refining, a plant owned by Exxon Mobil Corp. and Venezuela's state-controlled oil company, also shut down.

El Dorado, Arkansas-based Murphy Oil Corp.'s Meraux refinery near New Orleans was idled, halting 120,000 barrels of daily crude- processing capacity, as was Alon USA Energy Inc.'s 80,000-barrels- a-day plant in Krotz Springs, Louisiana.

``Obviously, we're not going to have as much gasoline next week as we have this week,'' Peter Beutel, president of New Canaan, Connecticut-based Cameron Hanover Inc., said in a telephone interview.

To contact the reporter on this story: Joe Carroll in Chicago at jcarroll8@bloomberg.net