How Katrina Turned Off the Oil
From Platts Oilgram News
After a severe pummeling from Hurricane Katrina, a big segment of the U.S. energy industry is struggling to get up off the mat. Several major Gulf Coast refineries remained shut Aug. 30, battling pipeline and power outages in the aftermath of the storm.
The amount of lost production is enormous. Roughly 1.9 million barrels per day of the refining capacity on the Gulf Coast was off-line, with many plants down completely and others operating at reduced rates.
Platts has received reports that terminals were running out of product. While the White House's early-morning announcement of Aug. 31 that it's ready to tap the Strategic Petroleum Reserve may offer refiners some relief, the plan's details were still unclear as of 8:26 a.m. ET.
The Environmental Protection Agency has granted waivers for required gasoline additives and sulfur rules to help alleviate supply shortages. And European gasoline sellers were waiting in the wings to take advantage of the increased demand.
As refineries began to use up available feedstock, the list of requests for emergency loans of crude from the SPR started to grow. Gulf Coast refiner Placid Refining intends to ask for a 1 million barrel loan of sweet crude from the SPR, President Dan Robinson tells Platts, which like BusinessWeek Online is a unit of The McGraw-Hill Companies (MHP ). So far Citgo is the only refiner that has officially requested an SPR loan, seeking 250,000 to 500,000 barrels of light sour oil.
Placid is attempting to restart its 50,000-barrel-per-day (b/d) Port Allen (La.) plant after putting it in "circulation mode" during Katrina. The refinery takes crude via pipeline from the St. James (La.) area, says Robinson.
"COMPLETELY SHUT DOWN."
"As far as we can tell, nothing is getting into St. James," he says. "The [oil] supply lines are completely shut down, and we have no reliable estimate on when they might be reestablished," says Robinson, adding "unless something is in our refinery in a week or so, we're starved."
Placid was awarded a 300,000-barrel sweet crude loan from SPR during Hurricane Ivan last year. It hopes to draw its latest SPR crude loan from the Energy Dept.'s 72 million-barrel Bayou Choctaw (La.) site, which was closed as a precaution on Aug. 29. SPR's four underground caverns, including Bayou Choctaw, are now open and undamaged, an Energy spokesman said on Aug. 30.
Refiners awaited resumption of crude loadings at the key Louisiana Offshore Oil Port, which remained closed Aug. 30. LOOP handles an estimated 1 million b/d of imported crude, about 10% of U.S. weekly imports.
WAITING FOR POWER.
LOOP sustained "no apparent catastrophic damage" and should be able to quickly resume offloading tankers once power is restored to its onshore pipeline systems, a spokesman says.
He tells Platts that utility Entergy (ETR ) was working to restore power to the onshore systems, which must be in operation before the offshore terminal can begin unloading crude from tankers. The offshore terminal, 20 miles south of the Louisiana coast, has its own power source.
"Power is our biggest need... It shouldn't take us terribly long to get back once we get power," he says. LOOP could resume offloading vessels once power is restored "probably within a matter of hours."
A more extensive assessment of LOOP will be carried out shortly, the spokesman says. Additional testing of the offshore terminal can be done only once power is restored.
Power loss to the area surrounding the Capline and LOCAP crude pipelines were keeping both lines down on Aug. 30, according to a source close to the lines' operations. The Shell-operated (RD ) 1.1 million b/d Capline was shut late Aug. 28. It's not clear when LOCAP, which connects Capline to LOOP, was shut.
LOCAP is operated by LOOP and has a capacity in excess of 1 million b/d. Capline carries crude from St. James, La., to Patoka, Ill. Shell and LOOP officials couldn't be reached for comment.
"PACKED WITH PRODUCT."
On the products side, Colonial Pipeline said on Aug. 30 it plans to return its gasoline and diesel pipelines to "partial service" by the weekend, following power-related closures.
Colonial said the restarts were part of a plan "designed to safely provide limited service" on its pipeline system. The plan, said CEO David Lemmon, would allow the company "to restart our pipeline and provide some level of service along our entire system, from Houston to New York Harbor," before power distributors are able to restore normal electricity supplies.
Kinder Morgan's (KMP ) Plantation Pipeline tentatively estimated that by midday Aug. 31 it will be able to restore power to pivotal pumping stations and potentially resume shipments of refined products on the company's 3,100-mile system, according to a spokesman. Plantation's entire line "is packed with product," he says. The line shut late Aug. 28.
Refiners are allocating supplies in order to deal with outages, according to Robert Slaughter, president of the National Petrochemical & Refiners Assn. (NPRA). He notes that "people who can't produce may have to cover with spot purchases."
Products terminals are empty or low everywhere from the Mississippi River to the Appalachian Mountains, including Indiana, Ohio, South Carolina, Arkansas, and South Tennessee, according to Dan Gilligan, president of the Petroleum Marketers Association of America.
"There's no unbranded product available. If you aren't a branded station with a terminal contract, you are out of luck," he says. "Some trucks are going to have to travel great distances and sometimes over state lines to find products."
CRIPPLED BY FLOODING.
The EPA on Aug. 30 waived the summertime gasoline RVP standard in the four Gulf States affected by Hurricane Katrina, as well as the diesel sulfur standard. The waiver will allow marketers to immediately sell gasoline with a wintertime RVP levels, the agency said. Marketers also will be able to sell diesel with a sulfur level greater than the current standard of 500 parts per million.
Gulf Coast refiners are dealing with several issues at this point, says the NPRA's Slaughter, including "access issues" such as flooding. "Of the ones that can be accessed, many of them don't have electricity," he says.
Murphy's closed 125,000 b/d Meraux (La.) plant is "certainly in the area in which there is flooding," says a spokeswoman, noting no one is sure exactly what is going on at the refinery since "we can't get out there."
Following is a list of refineries that remained completely shut as of Aug. 30:
• ExxonMobil (XOM )/PDVSA's 187,000 b/d Chalmette refinery in Louisiana;
• Chevron's (CVX ) 325,000 b/d refinery in Pascagoula, Miss.;
• Valero Energy's (VLO ) 190,000 b/d St. Charles refinery in Louisiana;
• Motiva Enterprises' 242,000 b/d Norco refinery and 252,000 b/d Convent refinery, both in Louisiana;
• ConocoPhillips' (COP ) 250,000 b/d Alliance refinery in Belle Chasse, La.;
• Marathon Ashland Petroleum's (MRO ) 245,000 b/d refinery in Garyville, La.;
• Murphy Oil's (MUR ) Meraux plant;
• Ergon Refining's 23,000 b/d refinery in Vicksburg, Miss.; and
• Hunt Southland's 11,000 b/d Sandersville refinery and 5,800 b/d; Lumberton refinery, both in Mississippi.
Prepared by Platts Oilgram News staff reporters