Gas Prices Climb Quickly as Refineries Remain Closed

September 15, 2008
Gas Prices Climb Quickly as Refineries Remain Closed

By CLIFFORD KRAUSS
HOUSTON — Oil companies were warning motorists on Sunday that they would not be able to produce adequate supplies of gasoline in the days ahead because so many of their refineries were still not operating in the aftermath of Hurricane Ike. As a result, prices at the pump began soaring again.
Already in the last two days the average price for a gallon of gasoline has increased to nearly $3.80 from $3.68, according to AAA, a jump that has been rare since the oil price spikes of the 1970s and 1980s. Drivers throughout the South and Midwest, which depend on Gulf refineries, are reporting increases of 30 to 40 cents at some gasoline stations over the last couple of days.
The culprit is a combined blow from Hurricanes Gustav and Ike, which have shut down almost all oil and natural gas production in the Gulf of Mexico for over two weeks and thrown a wrench into refinery operations in Texas and Louisiana.
At least 14 Texas refineries, representing nearly a quarter of the nation’s refining capacity, will probably remain shut for the next week or more. Three more Louisiana refineries may be damaged from widespread flooding.
“It may not be possible for us — and other manufacturers — to maintain normal supplies in the coming days,” Chevron stated in a bleak assessment on its Web site on Sunday, warning of “severe supply disruptions in the wake of Hurricane Ike.”
The Energy Department said it would release more than 300,000 barrels of reserves from the Strategic Petroleum Reserve to refiners, and indicated that it would help to keep supplies going to refineries that were still running. But oil companies said power outages at refineries and pipelines and at hundreds of gasoline stations around the Gulf area were going to make distribution of fuel difficult for awhile.
Refiners began to send crews as early as Saturday afternoon to visit refineries along the coast after Hurricane Ike passed quickly through the area. Preliminary reports indicated that the refineries in Texas did not suffer significant flooding or other damage, but company officials said they did not want to speculate about how long it would take to resume normal operations.
It will also take time for companies to fly over and board hundreds of oil and gas platforms on the Gulf that were jostled by Hurricane Ike’s extensive wake and gusts. The United States Minerals Management Service reported that at least 10 platforms — out of 3,800 in the Gulf — had been destroyed. At least two oil drilling rigs broke loose from their moorings. There has been no estimate yet of any environmental damages.
Platforms and other production facilities around the Gulf account for about 25 percent of domestic oil production and nearly 15 percent of domestic natural gas output.
“We don’t even know when we can start the restart process, let alone how long the restart process will take,” said Bill Day, a spokesman for Valero Energy, the country’s biggest refiner. Valero has three big refineries in Houston, Port Arthur, Tex., and Texas City, Tex., that have been closed since a few days before the hurricane made landfall as a Category 2 storm Saturday morning.
Mr. Day said that crewmen had not found any serious structural damage at the three facilities, but there was no power for the Texas City and Port Arthur refineries because of a regional blackout. Meanwhile none of the three facilities have adequate fresh water supplies to generate steam because the storm surge pushed salt water through the region’s waterways.
Since most of the Houston refineries are clustered in a small area, are supplied by the same utilities and most are expected to face similar problems.
Senator Kay Bailey Hutchison, Republican of Texas, said on CBS’s “Face the Nation” on Sunday, “We are looking at another week or eight or nine days before refineries are up and going, so refined gasoline is going to be in a shortage situation because of the power outages and flooding.”
“It is going to be felt for the next week that we have gasoline shortages,” Ms. Hutchison said, “so people need to be prepared for that.”
The disruptions come as drivers were just getting used to lower gasoline prices.
Just before Hurricane Gustav hit Louisiana on the Labor Day weekend, the national average for a gallon of unleaded regular gasoline was $3.69, more than 40 cents below the highs in July. Gasoline prices had fallen sharply until the last few days mainly because oil prices have dropped since early summer by more than $40 dollars a barrel to about $100, about the level at the beginning of the year.
Crude prices on the New York Mercantile Exchange declined again on Sunday by more than 2 percent, to $99.70 a barrel a six-month low, as traders continued to view declining economic trends as more important than an active hurricane season. Declining oil prices mean that once the disruption subsides, gas prices could easily drop as quickly as they are now rising.
Hurricanes Gustav and Ike are the first major challenge to Gulf oil operations since Hurricanes Katrina and Rita of 2005, which crippled more than 100 production platforms, disrupted refinery operations and sent oil and gas prices rising for weeks.
Home
World
U.S.
N.Y. / Region
Business
Technology
Science
Health
Sports
Opinion
Arts
Style
Travel
Jobs
Real Estate
Automobiles
Back to Top Copyright 2008 The New York Times Company