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Oil, Natural Gas Rise After Katrina Damages U.S. Gulf Platforms

Oil, Natural Gas Rise After Katrina Damages U.S. Gulf Platforms

Aug. 30 (Bloomberg) -- Crude oil and natural gas climbed after Hurricane Katrina damaged platforms and ports and curtailed production at refineries as it slammed the Gulf of Mexico coast, the source of almost a third of U.S. oil output.

Royal Dutch Shell Plc said its 220,000 barrel-a-day Mars platform, which is able to pump as much as 15 percent of U.S. Gulf output, was damaged. Katrina, the strongest Atlantic storm this year, shut 92 percent of Gulf crude production and eight refineries. President George W. Bush may tap the U.S. strategic petroleum reserve to help producers compensate for disruptions.

``This could be defined as an emergency,'' said Tor Kartevold, an oil market analyst at Statoil ASA, Norway's biggest oil company, in Stavanger. ``With damage to crude production, releasing oil from the strategic reserve would be a real buffer and could alleviate the situation.''

Crude oil for October delivery rose as much as $1.28, or 1.9 percent, to $68.48 a barrel on the New York Mercantile Exchange, where it was up 74 cents at 10:33 a.m. London time. Oil, which reached a record $70.80 yesterday as the storm approached, has jumped 61 percent from a year ago.

The closest-to-delivery contract of U.S. natural gas, which yesterday reached a record $12.07 per million British thermal units on Nymex, today gained 4.6 percent to $11.648.

``The real fear is an extended outage,'' said Kurt Barrow, an energy consultant at Purvin & Gertz in Singapore. ``We have notable capacity reductions in the U.S. Gulf Coast production, refining and distribution system.''

Undersea Pipelines

Brent crude for October settlement added $1.58, or 2.4 percent, to $66.45 a barrel on London's International Petroleum Exchange, which was closed yesterday for a U.K. holiday.

Last year, oil prices gained 22 percent in the month after Hurricane Ivan damaged oil rigs, ripped up undersea pipelines and blocked with silt the ports oil companies use to supply and maintain facilities in the Gulf.

``It's caused serious disruption to oil refining and production capacity in the Louisiana region,'' said Angus Geddes, founder of research and fund management company Fat Prophets. ``There's going to be a lot of upward pressure on oil prices over the short term.''

U.S. congressional Republicans said the government should release oil from the strategic reserve while energy producers recover from damage caused by the storm. The Administration loaned 5.4 million barrels of crude oil to refiners whose supplies were disrupted by Hurricane Ivan.

Strategic Reserve

Bush ordered the reserve filled to its 700 million-barrel capacity after the attacks of Sept. 11. He has rejected calls from Democrats and some analysts to use the reserve, which can meet all U.S. needs for more than a month, to try and lower record oil and gasoline prices.

Saudi Arabia is ready to increase crude oil output to 11 million barrels a day to make up any production lost because of damage from Hurricane Katrina, oil minister Ali al-Naimi said yesterday. Saudi Arabia, the world's largest oil exporter, produced 9.6 million barrels a day in July, according to Bloomberg estimates.

Apache Corp., which closed 336 of its 386 facilities in the Gulf of Mexico, said it may be three or four days before it can assess the damage to its platforms.

Power cuts from the storm may delay refinery re-starts for days or even weeks, analysts including Petral Worldwide Inc.'s Daniel Lippe said.

Refinery Shutdowns

Katrina forced the shutdown of at least eight oil refineries near the Gulf in Louisiana and Mississippi including ones operated by Exxon Mobil Corp. and Marathon Oil Corp. The shut refineries have a combined crude-oil processing capacity of about 1.79 million barrels a day, or 10.5 percent of total U.S. capacity.

That may reduce U.S. gasoline production by 800,000-to-900,000 barrels a day this week, said Andy Lipow, president of Lipow Oil Associates LLC, a Houston consultant. Refineries may take five to 10 days to restore normal output, he said.

Gasoline for September delivery jumped 13.37 cents, or 6.9 percent, to close at a record $2.0606 a gallon in New York. Futures, which yesterday touched $2.1606, the highest intraday price since trading began in 1984, were at $2.0955 in after-hours trading.

``The crude situation is less serious and more manageable than that of refineries,'' Statoil's Kartevold said. ``It all depends on how water affected refineries in the area. Under normal circumstances it takes one or two weeks to restart plants. If there's damage, it can take much longer.''

Unloading Halted

The Louisiana Offshore Oil Port, the biggest U.S. oil import terminal, stopped unloading tankers on Aug. 28. The LOOP is 20 miles off the coast and handles about 1 million barrels of crude oil a day, or 11 percent of U.S. imports.

The company was returning inspection staff to its onshore storage facilities with the goal of restoring shipments to refiners, scheduling manager Mark Bugg said yesterday. An aerial survey of the marine terminal is planned for today, he said.

``The biggest impact may be damage to the port facilities south of New Orleans,'' said Adam Sieminski, chief energy economist at Deutsche Bank AG in New York. ``We have no way of knowing now how badly they are damaged.''

Natural Gas

The storm shut 8.3 billion cubic feet of natural-gas output, equivalent to 83 percent of the total amount of gas produced in the Gulf. The report by the minerals service, which is part of the Interior Department, reflects information provided by 57 companies as of 12:30 p.m. New York time.

All coastal storm warnings have been discontinued, the National Hurricane Center said at 4 a.m. Miami time. The storm continues to weaken over northeastern Mississippi, the center said. Katrina made landfall on the Louisiana coast with winds of 145 mph yesterday morning.

U.S. crude-oil supplies jumped 1.9 million barrels in the week ended Aug. 19, the fourth-straight increase, to 322.9 million, according to an Energy Department report on Aug. 24. Stockpiles are more than 10 percent higher than a year ago.

The Organization of Petroleum Exporting Countries, which supplies about 40 percent of the world's daily oil needs, is ``concerned'' about the current high crude oil prices and believe they are not justified by supply and demand levels, acting Secretary-General Adnan Shihab-Eldin said.

Venezuelan oil minister Rafael Ramirez said yesterday that raising output quotas wouldn't have an impact on oil prices because OPEC members are already producing at fully capacity.

To contact the reporters on this story:
Alejandro Barbajosa in London at [e-mail];
Will Kennedy in Singapore at [e-mail].


LINK: http://www.bloomberg.com/apps/news?pid=10000103&sid=aSOYLe6aH.j0&refer=us