HOUSTON -- The punch of Hurricane Gustav appeared to fall softly Monday on the vast energy complex along the U.S. Gulf Coast, allowing oil market traders to focus not on storm damage, but on their growing anxiety over the state of the global economy, said the Associated Press. Even as 110-mph winds raked refineries that line the coast and rushed over the deep-water rigs off the shores of Texas and Louisiana, the price for a barrel of oil plummeted by more than $4 a barrel to just above $111 because Gustav was weaker than expected.
Still, the storm's impact on production platforms, drilling [image-nocss] rigs and other equipment likely will not be fully known for another day or so. Assuming no damage, it typically takes two to four days to restart a refinery, depending on its size. It can take a day or two to get offshore oil and natural-gas production going again. In 2005, hurricanes Katrina and Rita knocked out the region's offshore energy infrastructure for several weeks.
In recent days, oil companies shut down virtually all oil and natural gas production in the Gulf, and the storm's threat halted about 15% of the nation's refining capacity based in the region.
Any serious damage to oil platforms and rigs or prolonged refining disruptions could cause a spike in energy prices. Eqecat Inc., a risk modeling firm, projected Monday that Gustav could knock out capacity for about 5% of both oil and natural gas production for the next year; however, one factor likely to mitigate any impact from the storm on prices is that many analysts believe the country's appetite for fuel has been reduced by high prices and slower economic growth.
"U.S. demand has fallen dramatically," Linda Rafield, an analyst at Platts, told AP. "People look like they're making what I'd call a long-term adjustment in consumption patterns."
The U.S. Gulf Coast is home to nearly half the nation's refining capacity, while offshore, the Gulf accounts for about 25% of domestic oil production and 15% of natural gas output.
Gustav churned through an area with one of the Gulf's vital assets: the Louisiana Offshore Oil Port (LOOP), which shut down operations over the weekend. The facility handles about 12% of the nation's crude imports and is tied by pipeline to about half the nation's refining capacity, much of it along the Mississippi River from the New Orleans area north to Baton Rouge.
Any prolonged closure of LOOP, as it's called, could severely disrupt crude imports and their shipment to refineries. LOOP is located about 18 miles south of Grand Isle, La.
"We will not attempt to assess damage (if any) until the storm passes," said Mark Lambert of the Louisiana Department of Transportation. "We have no reports, either confirmed or unconfirmed, of damage to LOOP."
The petroleum industry has spent hundreds of millions of dollars since the catastrophic hurricanes of 2005 strengthening its operations both offshore and inland. The enhancements include stronger moorings for production platforms, deeper pipelines and greater supplies of backup electricity and other supplies.
"The industry is much better prepared this time around to cope with any wind or water damage," said Rafield.
Gustav's strength at landfall was nowhere near that of Katrina and Rita, a factor that oil analyst Jim Ritterbusch said likely contributed to falling oil prices.
Eating away at prices even before the storm entered the Gulf were suggestions that additional crude supplies would enter the market if Gustav caused severe damage to the Gulf's oil facilities and hampered production.
Many also were betting the U.S. government would release supplies from the Strategic Petroleum Reserve (SPR) if supplies became tight. "That's helped put a fair amount of selling into this market, just the security of knowing we have alternative supplies available," said Ritterbusch, president of energy consultancy Ritterbusch & Associates.
Louisiana Governor Bobby Jindal called on President Bush to release oil from the reserve for use at refineries when they come back on line, saying fuel shortages in his state could slow down rescue operations and overall storm recovery. Jindal said 85% of south Louisiana gas stations have no fuel. "We think it's necessary. We think it's the right time to do this," Jindal said at a news conference. "We need this fuel, we know we're going to need this fuel by Thursday."
Scott Angelle, Jindal's natural resources secretary, said his office has submitted the paperwork to the federal Department of Energy to set up what would essentially be a loan of crude oil from the federal government to the oil companies. Angelle said Louisiana's refineries now have a three-day supply of gasoline that could go out to retail stations.
According to a report by The Times-Picayune, state agriculture-forestry commissioner Mike Strain said his agency, charged with fuel distribution, has requested federal assistance for a barge carrying 4.2 million gallons of fuel. Strain said the use of the fuel could go into the private sector at gas stations or into the public sector to help in rescue and recovery efforts.
Strain said if he gets the barge from the federal government, he should be able to keep about 1 million gallons of gasoline on hand for emergency use.
Louisiana attorney general Buddy Caldwell said Monday that his office has investigated between 300 and 350 complaints of price gouging in the days leading up to Gustav's landfall and is braced for hundreds more.... He said most of the complaints have centered on gasoline prices being raised up over a period of a few hours. After the storm, he said, construction contractor fraud will be the main problem.
He said his office has also received some complaints about hotels and motels raising their prices for evacuees and others dealing with increased prices for hurricane supplies like generators and building supplies.
"One gas station told us that 'we didn't know we couldn't raise the price of gasoline,' and they lowered it on the spot,'' Caldwell told the Times-Picayune. He said some of his personnel have taken pictures of gasoline pump prices to see how much they may fluctuate before, during and after the storm. He said he has enlisted the help of gasoline company officials and officials from the convenience store industry in the state to help keep members in line with their pricing.
Meanwhile, Tropical Storm Hanna is forecast to regain hurricane strength this week as it crosses the Bahamas and aims for the U.S. East Coast. Farther out to sea, two more storms trail Hanna and threaten to become hurricanes, reported Bloomberg.
Hanna drenched the Bahamas and the island of Hispaniola yesterday, the U.S. National Hurricane Center said. Tropical storms Ike and Josephine were building in the middle of the Atlantic. Hanna, downgraded from a hurricane yesterday, is forecast to move over the southeastern Bahamas and into the central Bahamas today. The center estimates Hanna's winds will reach hurricane level as early as today and approach the northeast coast of Florida on September 5. It may then come ashore in South Carolina and sweep up the East Coast as a tropical storm, threatening to drench weekend sports events including tennis at the U.S. Open in New York City and National Football League matches on September 7 in Baltimore, Pittsburgh and Philadelphia.
Florida Governor Charlie Crist declared a state of emergency yesterday in advance of the Hanna's approach.
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