Storms lay bare US refinery crisis

If proof were needed that United States oil refineries are stretched to breaking point, the twin hurricanes of Katrina and now Rita have provided ample evidence.

Rita had far less of an impact than initially feared after it skirted clear of a slew of vital oil installations in Texas. But it was damaging enough for an industry still reeling from the devastation left by Katrina four weeks ago.

“It’s premature to say everything is clear,” PFC energy analyst Seth Kleinman said after Rita roared ashore near the Louisiana-Texas border over the weekend.

Rita hit a “tight market” already struggling to recover from Katrina, he said.

If US refineries escaped the worst feared from Rita, the hurricane has already struck a serious blow to offshore production in the Gulf of Mexico, which normally supplies nearly one-third of US crude.

A total of 859 rigs and platforms in the Gulf are unmanned after being evacuated last week before Rita swept through, US government figures showed on Monday.

Crude production in the Gulf is 100% shut down as a result, while more than 78% of natural gas output is offline, the figures showed.

Even in good times, US refineries struggle to meet roaring demand in the world’s biggest oil-consuming nation.

But if they are starved of supplies, the effects ripple throughout the economy for a host of products including petrol, diesel, heating oil and petrochemical offshoots such as plastics.

After Katrina, average US petrol prices soared more than $3 a gallon (3,8 litres). In advance of Rita, prices topped $4 a gallon, before calming a touch.

Warning from Bush

The situation was deemed alarming enough for President George Bush on Monday to urge Americans to cut back on driving as he laid out steps to fix supply problems in the wake of the twin hurricanes.

In a speech at the US Department of Energy, Bush said he was monitoring efforts to get pipelines and refineries back up to full capacity and that he was willing again to tap the government’s emergency crude reserves.

“It’s important for our people to know that we understand the situation and that we’re willing to use the Strategic Petroleum Reserve to mitigate any shortfalls in crude oil that could affect our consumers,” he said.

The US government released more than 23-million barrels from the reserve after Katrina battered the US Gulf Coast.

But Oppenheimer oil analyst Fadel Gheit said the problem “is not in crude oil” supplies but in refining capacity.

“The more President Bush talks about releasing strategic reserves, the more we understand that we’ve got no more production to give,” he said.

Owing to tougher environmental regulations and local opposition, the US has seen no new refinery built since 1976.

Bush said the US needs to build more refineries, and reiterated his call for the construction of new nuclear power plants—a sensitive topic since before the Three Mile Island accident in Pennsylvania in 1979.

“I am for increasing supply, because I understand the more supply there is of a product, that will take pressure off of [the] price,” the president said.

The hurricanes have hit not just refinery capacity but also the pipelines that take the crude products from the Gulf Coast to the rest of the US.

Two of the three pipelines that lay in Rita’s path are operating at just more than half their normal capacity.
Bush said they should be back up fully by next week.

But as PFC’s Kleinman recalled, after Hurricane Ivan in 2004, affected pipelines took a year to resume full capacity.—Sapa-AFP

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