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As Rita picks up steam, it's deja vu all over again for U.S. energy industry

WASHINGTON—Hurricane Rita threatens serious damage this week to the energy infrastructure in and around the Gulf of Mexico and could send fuel prices skyrocketing anew.

Oil companies battened down offshore oil rigs and platforms Tuesday in the central and western Gulf and evacuated offshore personnel.

"All of the operators and drilling contractors are taking extra precautions for Rita because they've seen what can happen after Katrina," said David Kent, an owner and editor of the Houston-based Web site, focused on the offshore oil industry. "I think it's a matter of getting out of Dodge right now."

On Tuesday the Web site, a favorite of energy analysts, warned that Rita threatens the most productive area of deepwater oil rigs and platforms.

Rita was upgraded to a Category 2 hurricane Tuesday and is forecast to become Category 4 on Wednesday—with winds from 131 to 155 mph—as it heads toward the Texas coastline. It could make landfall Friday.

Texas is the country's largest oil producer, accounting for 20 percent of national production. Much of it comes from offshore activities coordinated through Houston, America's energy capital.

The state boasts 26 refineries, or about a quarter of the nation's refining. At least 14 are located on or near the Gulf Coast. They turn oil into gasoline or distillates for home heating. Most are built on higher ground in and around Houston, and most are further inland than refineries damaged by Katrina. Even if Houston dodges a direct hit, Rita could force precautionary shutdowns that could severely impact the availability of gasoline.

That could drive gasoline prices up sharply. Most U.S. refineries have been running full throttle to make up for the four major refineries idled by Katrina. Those refineries, three in Louisiana and one in Mississippi, have a combined capacity to convert 659,000 barrels of crude oil per day.

If Rita crosses the Houston area, all eyes will be on ExxonMobil's refinery in Baytown, the nation's largest, with a production capacity of 557,000 barrels a day. Baytown's city manager, Gary Jackson, said he's in close contact with the industry.

"We know they are monitoring just as we are. There will be some critical times with decisions ahead," he said. "Those final calls will be their calls, each on an individual plant-by-plant basis."

Rita's uncertain path drove global oil prices up by more than $4 a barrel Monday, the largest one-day jump ever. Oil prices tapered off Tuesday, closing down a dollar at $66.23 on the New York Mercantile Exchange.

"Judging by what the market has done and speaking for myself, I am very nervous indeed," said Bart Melek, a senior economist and energy analyst at BMO Nesbitt Burns in Toronto, a division of the Bank of Montreal.

The world's oil supply is stretched to near capacity. Katrina knocked out almost 5 percent of U.S. oil production, and Rita threatens more damage. Add to that volatile mix growing civil unrest in Nigeria, the fifth-largest oil supplier to the United States, and it all adds up to more fuel-price volatility in the days ahead.

"It's not going to take very much to move it up. God forbid that something happened in the Middle East," Melek said. "There isn't physical spare capacity, there just isn't."

Colonial Pipeline Co. operates the nation's largest pipeline, which originates in Houston. Katrina knocked out the utilities that provide the power to push gasoline through pipes that supply much of the U.S. East Coast. At company headquarters in Alpharetta, Ga., there is understandable concern.

"We're still in a wait-and-watch mode. We're monitoring it carefully," said Steve Baker, a company spokesman.

A lesson from Katrina: Colonial will pre-position portable diesel generators on tractor-trailer rigs if necessary to try to keep its pipelines flowing in case of power outages.

"If the storm goes west of Houston, there's likely to be no impact on us or the power grid," Baker said hopefully.

Chevron, Royal Dutch Shell, ExxonMobil and British Petroleum all announced evacuations of manned oil platforms and rigs days before projected landfall. Some energy analysts believe that's an ominous admission that Rita threatens more destruction.

"They're pretty good about predicting these things," said Craig Smith, an energy expert and author of the forthcoming book "Black Gold Stranglehold," which examines fuel prices. "We hope it peters out, but if it has any strength and hits platforms or turns toward New Orleans, we cannot afford another hurricane right now. We just can't afford it. You're seeing that nervousness in the markets."


(c) 2005, Knight Ridder/Tribune Information Services.

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