U.S. Oil Output, Refineries Close as Gustav Nears

By Alexander Kwiatkowski and Nesa Subrahmaniyan

Sept. 1 (Bloomberg) -- Hurricane Gustav shut almost all oil output in the Gulf of Mexico and at least 10 percent of U.S. refinery capacity as Exxon Mobil Corp., Valero Energy Corp., Royal Dutch Shell Plc and other companies took safety measures.

The threat of a repeat of Hurricane Katrina in 2005 closed eight refineries across Louisiana and slowed operations at four in eastern Texas, cutting gasoline supplies as some 2 million people fled the coast. More than 96 percent of Gulf Coast oil production and 82 percent of gas output is shut, the U.S. Minerals Management Service said.

``Flooding is inevitable and so would be power supply cuts even if hurricane damage is minimal,'' said Anthony Nunan, assistant general manager for risk management at Mitsubishi Corp in Tokyo. ``If there's a big stoppage, it will depend on how long any shutdown will be for prices to react.''

Crude oil and natural gas reversed earlier gains after the National Hurricane Center said the storm, now a Category 3 hurricane with winds of 115 miles an hour, is unlikely to intensify before striking land today. Hurricane Katrina, which devastated the region's production and refining capacity in 2005, was the same category of storm when it made landfall.

Port Fourchon

As of 7 a.m. local time, the center of the hurricane was about 85 miles (135 kilometers) south of New Orleans and 20 miles off Port Fourchon, Louisiana, the National Hurricane Center said on its Web site.

``It's raining really hard and the wind is now at about 110 miles per hour,'' Ted Falgout, director of Port Fourchon, said over the phone in an interview today at about 7 a.m. local time. ``At the moment I don't have a clue on the damage,'' he said, speaking from his houseboat located 25 miles north of the port.

BP Plc and Royal Dutch Shell Plc are among companies that have halted about 1.25 million barrels a day of oil and 6.09 billion cubic feet of gas output, the U.S. Minerals Management Service said in a report on its Web site yesterday. The U.S. Gulf Coast accounts for 26 percent of U.S. oil and 14 percent of natural-gas production.

At least eight Gulf Coast refineries are closed, accounting for 9.8 percent of the country's capacity, or about 1.56 million barrels a day of crude. Almost half of U.S. refining capacity is located in the region. In 2005, Hurricanes Katrina and Rita idled about 19 percent of the country's refining capacity.

Crude oil for October delivery fell $1.56, or 1.4 percent, to $113.90 a barrel in electronic trading on the New York Mercantile Exchange at 1:03 p.m. London time. Prices earlier gained as much as $2.54, or 2.2 percent, to $118 a barrel.

Evacuations

Workers from 86 offshore rigs and 518 production platforms have been evacuated, the agency said. The Gulf normally produces about 1.3 million barrels of oil and 7.4 billion cubic feet of gas a day.

BHP Billiton Ltd. shut and evacuated staff at the $1.1 billion Neptune oil project in the Gulf of Mexico. Production from the project, located about 120 miles (195 kilometers) off the Louisiana coast, reached 50,000 barrels of oil per day on July 24 after starting last month.

Shell today plans to close its Capline crude oil pipeline system because of dwindling supplies from fields, the company said in a statement. The Louisiana Offshore Oil Port, the biggest U.S. oil import terminal, shut on Aug. 30.

Capline runs 650 miles from St. James, Louisiana, to Patoka, Illinois, and has capacity to transport 1.2 million barrels of oil a day. Shell's Houma, Louisiana-to-Houston oil pipeline has already ceased operations. Other onshore pipelines and tank farms have closed, the company said.

Natural Gas Hub

Chevron Corp.'s Sabine Pipe Line LLC began to shut its pipelines and the Henry Hub natural gas connection point as mandatory evacuations were declared. Henry Hub, in Erath, Louisiana, is the pricing point for Nymex natural-gas futures.

Natural gas for October delivery fell as much as 34 cents, or 4.2 percent, to $7.606 per million British thermal units on Nymex. It was at $7.649 per million Btus at 1:02 p.m. in London.

Refineries in Texas and Louisiana can process 6.44 million barrels a day of oil, turning it into products including gasoline and diesel fuel. About 28 percent, or 2.36 million barrels a day, of the U.S. gasoline supply is produced along the Gulf Coast, according to the Energy Department.

Valero, the largest U.S. refiner, shut down its St. Charles, Louisiana refinery, which can process 185,000 barrels per day. San Antonio-based Valero's Port Arthur, Houston and Texas City, Texas refineries were running at reduced rates. Combined, the plants can process about 572,000 barrels a day.

Motiva Enterprises LLC, a Houston-based joint venture of Shell and Saudi Arabia's state oil company, said it shut its Norco, Louisiana, plant, which can process 236,400 barrels a day. Motiva also reduced rates at its Convent refinery, which can process about 235,000 barrels a day, and its 285,000 barrel- a-day Port Arthur plant.

Lake Charles

ConocoPhillips, based in Houston, closed its Lake Charles, Louisiana, refinery, which can process 239,000 barrels a day, and its Alliance refinery in Belle Chase, Louisiana, which can process about 247,000 barrels per day.

Houston-based Marathon Oil Corp. halted the Garyville, Louisiana, refinery, which can process about 256,000 barrels a day. El Dorado, Arkansas-based Murphy Oil Corp. shut its Meraux, Louisiana, plant located near New Orleans. The refinery can process about 120,000 barrels a day.

Chalmette Refining LLC, a joint venture of Exxon and Petroleos de Venezuela SA, shut its Chalmette, Louisiana, plant. The refinery can process about 193,000 barrels per day.

Exxon also reduced output at its 503,000 barrel-a-day Baton Rouge refinery and its 567,000 barrels-a-day Baytown refinery in Texas, news agency Reuters reported, citing unidentified people with knowledge of operations.

Alon USA Energy Inc. based in Dallas, shut its refinery at Krotz Springs, Louisiana, which can process about 80,000 barrels a day.

To contact the reporter on this story: Alexander Kwiatkowski in London at akwiatkowsk2@bloomberg.netNesa Subrahmaniyan in Singapore at nesas@bloomberg.net.