NY Times: Refineries Escape Major Damage, but Gas Prices May Still Rise

2005-09-26

Richard Moore

Friends,

Given the relative mildness of Rita, compared to Katrina, some
of you may be thinking that I was way out of line with my
'national emergency' posting. My own reaction is that I was
wrong about the worst scenario - the large-scale destruction of
rigs and refineries - but that it is too soon to tell how much
of an 'oil shock' is likely to occur. Consider this excerpt
from this NY Times report:

    The situation was less sanguine in and near Port Arthur, Tex.,
    and Lake Charles, La., near the Texas-Louisiana border, where
    officials said they expected refineries and industrial plants
    to be out of service longer because of heavy wind damage,
    power failures and scattered flooding.
         Depending on how much of the nation's already stretched
    refining capacity is affected and for how long, that could
    cause shortages of gasoline and other fuels and push up retail
    prices again.

With even this much damage, plus Katrina, we cannot know - as
the NY Times says - just how much fuel prices will rise. There
certainly will be some natural 'market forces' increases, and
the oil cartel has the power to increase prices still further
if they choose to, under the cover of the 'natural' increase.
I had already read in mainstream reports, prior to Rita, that
the Katrina increases had only begun, that there would be more
increases as the effects of lowered supplies gradually
'reached the street'.  Rita, though milder than predicted, can
only add to this increase trend. In addition, there is the
longer term effect of the rapidly increasing fuel requirements
of China, which is one factor that would encourage the cartel
to 'adjust prices' upward, so as to profit at China's expense
in a 'higher demand' era.

How much might prices go up, over the next several weeks? 50%?
100%? Would anyone be surprised? Even at 50%, as a 'stable'
new price level, that represents quite an economic shock. It
significantly affects hauling prices, food prices, and
indirectly all prices. Keep in mind that these increases go
directly to the 'bottom line' of commercial consumers. Even if
the absolute increase is not impressive, the marginal increase
is still very large compared to commercial profit margins, so
that the entire increase would need to be passed on to
customers. Increased wholesale prices then get multiplied at
the retail level. These kind of increases would be
significantly inflationary, and the Fed is likely to respond
with interest hikes, which were already in the works anyway.

The scenario is unfolding slower than I feared it might, but
the essential 'oil shock' picture remains. Although at a slower
rate, I still suspect that we will see big increases in food 
and other commodities, and that the housing bubble  is
likely to be punctured. Defensive measures by consumers
are still recommended.

we'll see,
rkm

PS> for those who realize that weather control is a deployed 
technology...

Rita changed course a few days ago, and then headed in a straight
line, so that the strongest winds would hit the refineries at 
Port Arthur. A possible scenario is that they could steer the
hurricane, but had no way to stop the dissipation of its 
energy, so that they were unable to cause as much damage
as they hoped for.

In the case of Katrina, there's a very interesting photo that 
reveals what appears to be an ionization column extending
upward from the eye of the hurricane. This would be the
steering mechanism. The photo is on a government website:
    http://www.noaanews.noaa.gov/stories2005/s2496.htm

The interesting photo is the second one down on the right.
On some of the other photos, you can see reflections from 
interior of the plane, but the ionized column is clearly
not an interior reflection.

rkm


--------------------------------------------------------
http://www.nytimes.com/2005/09/25/national/nationalspecial/25refine.html


September 25, 2005 
Refineries Escape Major Damage, but Gas Prices May Still Rise 
By SIMON ROMERO and VIKAS BAJAJ 

TEXAS CITY, Tex., Sept. 24 - Hurricane Rita caused some damage
to oil refineries near the Texas -Louisiana border and raised
the prospect of gasoline shortages and higher prices during
the arduous process of restarting refineries all along the
Gulf Coast. But it did not cause the widespread destruction of
the energy infrastructure that some had feared.

On the edge of this workaday city of refineries and modest
ranch houses near Galveston, a flare burned silently from a
tower at the large B.P. refinery on Saturday afternoon,
evidence that it was largely unscathed.

Up and down the energy corridor between Galveston and Houston,
industry officials said refining locations had managed to
avoid extensive damage from the hurricane, which made landfall
to the east, near the Louisiana border.

Refineries sat waiting for workers to return to assess their
conditions. In Texas City, there were no signs of wind damage
or flooding at any refining installations.

Egrets gathered in the marshes in the shadow of refineries and
petrochemical complexes owned by energy giants like Valero,
B.P., Marathon-Ashland and Praxair. A toppled sign from a
Phillips 66 gas station was the only indication that a
hurricane's edge had passed through.

The situation was less sanguine in and near Port Arthur, Tex.,
and Lake Charles, La., near the Texas-Louisiana border, where
officials said they expected refineries and industrial plants
to be out of service longer because of heavy wind damage,
power failures and scattered flooding.

Depending on how much of the nation's already stretched
refining capacity is affected and for how long, that could
cause shortages of gasoline and other fuels and push up retail
prices again.

"It looks like we may have dodged some of the bullet in terms
of the impact," said John Felmy, chief economist for the
American Petroleum Institute. "It certainly is better than if
it had hit some of the bigger refining centers."

Chuck Dunlap, who rode out the storm with 50 others at
Pasadena Refining Systems, just outside Houston, said that at
first glance, his plant and other facilities in the area
appeared to have sustained limited damage. But even so, it
will take a few days for his plant, which normally processes
about 100,000 barrels of crude oil a day, to return to full
speed.

"We are actually walking through the plant and doing a more
detailed inspection," said Mr. Dunlap, the refinery's
president. "We won't be at full operations till midweek."

As the hurricane approached Texas on Friday, Galveston and
Houston seemed directly in its path, and had the storm plowed
into those cities, laden with petroleum tank farms, refineries
and natural gas processing plants, insurance experts feared
that losses could have run to $30 billion. But initial
estimates put insured damage at $5 billion or less.

With hurricane winds extending 85 miles from the center of the
storm, Galveston and Houston got heavy rain and strong gusts
of more than 75 miles an hour, and they sustained scattered
damage. Royal Dutch Shell and Valero Energy said their
Houston-area plants would be restarted as workers returned and
power was fully restored.

Companies shut down 16 refineries that make up about 23
percent of the nation's capacity in the days before Hurricane
Rita struck. Less than half of the facilities that closed were
in or near Port Arthur or Lake Charles.

Valero and Shell both said the wind knocked down cooling
towers and power lines at their Port Arthur refineries, but
they reported minimal damage from flooding. Valero said it
would take two weeks to a month to complete repairs and
restart the plant.

Hurricane-damage experts said the destruction may have been
limited because as the storm churned inland, the refineries
were on its west side, where wind speeds are lower, according
to Dr. Jayanta Guin, vice president for research at AIR
Worldwide, a Boston firm that tracks hurricanes and the damage
they inflict.

Industry officials warned that the lack of obvious damage
should not be read as assurance that things will quickly
return to normal. Offshore oil platforms still need to be
inspected, and restarting refineries, especially the kind of
hulking operations that are common in the region, can take
several days, even weeks.

During that period, gasoline supplies may start to run short
in much of the eastern half of the country, which gets most of
its fuel from the Gulf Coast via pipelines. The largest of
these, owned by Colonial Pipeline, was operating at about half
its usual volume on Saturday because it had lost power at
pumping stations.

Retail gasoline prices rose to more than $3 a gallon after
Hurricane Katrina. Regular unleaded gas sold for an average of
$2.748 a gallon on Saturday, down from $2.755 on Friday,
according to the AAA.

Simon Romero reported from Texas City, Tex., for this article,
and Vikas Bajaj from New York. Joseph B. Treaster contributed
reporting from New York.

Copyright 2005 The New York Times Company 

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