Main Hub of U.S. Oil Refineries Seemingly Spared

A handful of refineries sustained heavy damage from Hurricane Rita’s fierce winds, but initial reports from the Gulf Coast early Saturday suggested that the nation’s largest refining center was spared the destruction that many had feared.

Although the early news was good, oil industry experts cautioned that refinery crews from Lake Charles, La., to Houston are still assessing the condition of the plants in Rita’s path as it hit land in the predawn hours.

The refineries with confirmed damage could be shut down for as long as a month for repairs -- a situation that would crimp fuel supplies and could trigger price hikes at the nation’s gas pumps.

“It’s really too soon to tell, but it looks like we have better news than we feared,” said John Felmy, chief economist at the American Petroleum Institute, an industry trade group.

“But we still have a lot of operations shut down, a lot that need to get restarted, and we’re already in a tight supply situation,” Felmy said.

Power outages hit in cities across central and eastern Texas and in western Louisiana, adding to the woes at some refineries, pipelines and other oil facilities, as well as cutting off electricity for more than a million customers.

Houston, home to the largest cluster of refineries, appears to have avoided the worst of the storm.

Department of Energy spokesman Craig Stevens said officials are “cautiously optimistic” that refineries there will be back to full production relatively quickly.

As the day wore on, concern in the oil business focused on the gasoline-making plants in Lake Charles and in the Texas cities of Beaumont and Port Arthur.

Seven refineries based in those areas process a combined 1.7 million barrels per day of crude oil -- equal to about 10% of the nation’s total daily processing capacity.

The nation’s largest refiner, Valero Energy, owns seven refineries along the Gulf Coast regions hit by hurricanes Rita and Katrina.

Valero reported Saturday that Rita’s winds did “significant damage” to cooling towers and a flare stack at its plant in Port Arthur, and that it could take two weeks to a month to make the repairs and restart that refinery.

Shell Oil said that the Port Arthur refinery owned by its Motiva joint venture did not appear to have flood damage, but that “the refinery has sustained wind damage, including downed power lines and cooling water-tower damage,” according to a statement from the company Saturday.

Exxon Mobil said damage at its Baytown refinery, the nation’s largest, “does not appear to be severe,” adding that it would begin restarting the plant once repairs were complete.

It did not give a time estimate for the restart.

The company said Saturday afternoon that it was still reviewing the condition of its refinery in Beaumont.

Citgo said its Lake Charles refinery was without power and, based on preliminary inspections, characterized the wind and water damage to the facility as minor.

In some cases, oil companies said, the speed of refinery restarts would depend on how quickly power could be restored, and how quickly employees could return to their jobs.

Harry Quarls, senior vice president with Booz Allen Hamilton’s energy practice, said that compared with other possible paths Rita might have taken, it hit shore in the area with a relatively low concentration of refinery capacity.

“But we are not home free,” Quarls said.

“We’re still going to have a month or so where we’re going to be short” because of post-Rita repairs.

If fuel-making facilities are offline in Port Arthur, Beaumont and Lake Charles, even for a short period, it eliminates badly needed gasoline, diesel and jet fuel supplies. With four refineries still inoperable from Hurricane Katrina, the nation’s refining capacity is already down 5%.

For that reason, gasoline prices are likely to rise in the coming days, Quarls said.

“I don’t think there’s any choice about it. Suppose you’ve got to raise the price high enough to get people to drive 13% to 14% less, so how high is that? You’re got be talking about something close to $4 a gallon.”

On Saturday, gasoline prices in many places across the country had already reversed course, heading higher after two weeks of declines caused by lower demand and a surge of imports after Katrina hit.

The nation’s average price for a gallon of self-serve regular rose 1.2 cents from Friday to $2.760, according to the AAA’s daily survey.

In California, the statewide average dipped less than a penny overnight to $2.978 a gallon.

Oil industry experts also worry about damage to offshore platforms and the ability to produce oil and natural gas.

Assessing those facilities will take longer because companies have to fly over the sites to gauge the damage.

As Hurricane Rita plowed through the Gulf of Mexico toward shore, oil companies evacuated most offshore facilities, and by Saturday, 100% of the offshore oil production was shut down, according to the federal Minerals Management Service. About 75% of natural gas production from the gulf was halted as of Saturday.

Both figures include production that was knocked out by Hurricane Katrina.