United States: Hurricane Katrina and the Cold Winter Ahead
August 30, 2005 14 48 GMT
stratfor.com
Citgo Petroleum Corp. has requested a crude oil loan of 250,000 to 500,000 barrels from the U.S. Strategic Petroleum Reserve (SPR) in order to maintain normal operations at its Lake Charles refinery in the aftermath of Hurricane Katrina. Citgo is the first U.S.-based refiner to make a request, having done so the evening of the Aug. 29 hurricane. A great deal of Gulf Coast refining and Gulf of Mexico producing assets remained offline the morning of Aug. 30, raising the probability of energy shortages in the United States this winter.
Energy firms and government officials are carrying out damage assessments in the Gulf of Mexico region in the aftermath of Hurricane Katrina's rampage through the region. First-cut assessments are shy on numbers, but so far at least two major drilling platforms are adrift in the Gulf of Mexico, and Royal Dutch/Shell reports that its mammoth Mars platform -- which typically produces 147,000 barrels of oil and 157 million cubic feet of natural gas per day -- has been moderately damaged. More detailed damage assessments will trickle in throughout today, but most are not expected to be completed until late Sept. 1.
That means all we know for sure is that much of the region's energy infrastructure remains in shutdown mode. In preparation for Katrina's arrival, 1.79 million barrels per day (bpd) of the country's refining capacity, 1.375 million bpd of oil production and 8.3 billion cubic feet per day of natural gas production were shut down as a precautionary measure. Such amounts represent 11 percent of total U.S. refining capacity as well as 92 percent of typical U.S. Gulf of Mexico oil production and 83 percent of the region's natural gas production. The producing assets remain offline not simply because of concerns of their continued viability, but because a complete assessment of the maze of collecting and transport pipelines that link offshore assets to the coast must be undertaken before production can be safely restarted.
There is, however, a bit of good news. Despite rampant talk of gasoline shortages, there is not even a minimal danger. Nearly all U.S. refineries already have switched over to heating oil and winter fuel production. The Sept. 3-5 Labor Day weekend marks the end of the U.S. summer driving season, so gasoline demand is about to drop off. There could be some regional tightness in markets and prices will certainly rise on shortage fears -- no matter how misplaced -- but there should not be more than mild supply disruptions.
The real problems will come later. As we noted, most American refineries already are gearing up for winter production runs. The issue is almost exclusively one of refined products, as U.S. commercial crude oil reserves are sitting at six-year highs and the Strategic Petroleum Reserve (SPR) is sitting pretty at 700 million barrels -- it became full for the first time ever earlier in August. If Gulf refining capacity remains offline for any more than a few days, the United States could quite easily face heating oil shortages -- particularly in the Northeast -- in the coming winter. Overall tightness in all refined products is a less acute, but equally legitimate, concern.
Of course, we should not ignore the question of production assets either. Although the absence will not contribute to product shortages, significant damage certainly would affect the broader price situation. Katrina followed the same approximate path through the Gulf of Mexico's producing areas as Hurricane Ivan did in 2004. Ivan wrecked so much havoc that it took 10 months to repair all the damage, and contributed to a sustained 20 percent hike in energy prices. All told, the Bush administration approved 5.4 million barrels of crude oil loans from the SPR to keep the American refinery complex running. With the U.S. energy transport and production infrastructure damaged in all likelihood, Citgo will not be the last U.S. refiner to ask for help. |
