Some Good News On Oil

New York Times: U.S. Appears to Have Avoided Massive Oil Supply Problems

Gasoline supplies will likely remain tight through much of the coming week if not longer, industry officials and analysts said, as refiners slowly resume operations in the gulf region. It can take several days to restart those facilities, because of the danger of explosions and other accidents.

Of the 10 refineries that were shut down by the storm initially, eight have not resumed operations, two are restarting and hope to be operational in the coming days, and three still do not have electricity, the Energy Department said on Sunday.

At least four refiners that produce about 5 percent of the nation's gasoline and other oil-based fuels have sustained significant damage and could be out of commission for a month or more for repairs, officials and analysts said. Among them are ConocoPhillips' Belle Chase, La. facility; Exxon Mobil's Chalmette, La. plant; and ChevronTexaco's large refinery in Pascagoula, Miss.

Officials at the largest of the four, ChevronTexaco, said they still do not have power or phone service at their plant, where the company is building temporary housing for up to 1,500 employees and their families. It may be days before the company can say how long it will take to restart the plant, which has a capacity to process 325,000 barrels of oil a day.

"There is a cogeneration unit with Mississippi Electric there that needs to get up and running," said Michael Barrett, a company spokesman. "We need to get natural gas there. We are putting generators in there right now. The truth is we don't have telephone lines" working at the refinery.

Of the two major pipelines that bring gasoline, diesel fuel and jet fuel to the eastern half of the United States from Texas and the gulf, the smaller one, the Plantation pipeline, said it was operating at 100 percent. The other, the Colonial pipeline, was at 73 percent as of Saturday and hoped to be at full capacity by the end of the holiday weekend.

Also, the federal government and members of the International Energy Agency, a 26-nation organization created after the 1970's oil crisis, have started releasing crude oil and some gasoline to energy companies in an effort to ease supply constraints. Those moves helped push down crude oil prices 2.1 percent in London tradingtoday. The New York Mercantile Exchange was closed for the Labor Day holiday.

The United States Department of Energy has already agreed to loan 12.6 million barrels of oil to refiners so they can keep producing gasoline and other fuels as production facilities in the gulf recover. This weekend, the government went even further and said it would sell 30 million barrels or more of oil in addition to the loans, which companies have to replace when conditions improve.

But with so much refining capacity out of service, analysts said gasoline prices would remain high in spite of the crude oil that the federal government and its allies are unleashing.

"Some of these refineries will not be back to full operation perhaps well into next year," said Paul Horsnell, an analyst at Barclays Capital in London.

A spokesman for BP, formerly British Petroleum, Scott Dean, said the company was shipping gasoline from Europe to East Coast port to help alleviate shortages but it may take some time for the current supply crunch to wind its way out of the system.

"We are making fuels, we are distributing fuels," he said. "Fuels are arriving at the terminals and going out on trucks and arriving stations, but there are still disruptions."

Again, notice - it's not the crude oil supply that's an issue - it's the refinery capacity. But there is good news on that front:

Half of Damaged Refineries Near Restarting
Sep 05 5:35 PM US/Eastern
By STEVE QUINN
Associated Press Writer (JACKSON)

As half of the Gulf Coast refineries damaged by Hurricane Katrina begin to ramp up production this week, industry experts have this message: be patient.

"What you've got are a whole series of requirements and processes and that takes days, if not weeks," said John Felmy, chief economist for the American Petroleum Institute.

The going is also slow for the restoration of offshore oil and gas production. Almost 70 percent of normal oil production and half of the natural gas output remains shut down, according to the U.S. Minerals Management Service, which said activity is slowly recovering.

Eight major refineries that produce gasoline, diesel and jet fuel and heating oil were knocked out of commission and the output at two others was cut by last week's killer hurricane and the flooding that followed. That cut overall U.S. refining capacity by more than 10 percent and contributed to a surge in retail gasoline prices and spot shortages around the country.

Motiva Enterprises LLC, Marathon Oil Corp. and Valero Energy Corp. said that they hope to restart, and in some cases make fully operational, four of those refineries this week.

Motiva, a joint venture between Royal Dutch Shell PLC and Saudi Refining Inc., said its Convent, La., refinery restarted on Sunday and its refinery in Norco, La., is expected to get started by mid-week. Both are located west of New Orleans.

Marathon said over the weekend that its Garyville, La., refinery west of New Orleans should be fully operational early this week. Valero said it's still hoping to restart this week its St. Charles refinery about 15 miles from New Orleans.

When running at 100 percent capacity, these four represent slightly more than 1 million barrels of refined oil product a day.

In contrast, Chevron Corp.'s 325,000 barrel-a-day refinery in Pascagoula, Miss., and ConocoPhillips' 247,000 barrel-a-day facility in Belle Chasse, La., south of New Orleans have suffered major damage and are unlikely to resume production for some time, according to the U.S. Department of Energy.

The ConocoPhillips facility, along with Exxon Mobil Corp.'s Chalmette, La., refinery and Murphy Oil Corp.'s facility in Meraux, La., also have no power. They represent nearly 690,000 barrels a day of refined oil products.

But industry experts say that even after power is restored, restarting an oil refinery is a tricky and time-consuming process. Crews must be meticulous with repeated inspections, checking and rechecking for leaks. They must also ensure that all saltwater has been cleared or risk igniting a fire.

"What you have is an important set of steps in terms of these are high-temperature, high-pressure facilities," Felmy said. "And that's if you have not had any damage, and we know from preliminary reports that's not the case."

There are also work force issues. With communication lines either down or overloaded, many companies have not been able to locate displaced employees.

Last week Shell Oil and Valero spoke out about efforts to locate and assist employees. In some cases, it may require providing shelter near the refineries.

Valero estimated that almost 1,000 of its employees may have been affected by the storm, including 550 at its St. Charles refinery, scheduled to restart by week's end.

On Monday afternoon, the company said it had heard from all but nine of its employees from the St. Charles work force. The company has set up a large air-conditioned tent equipped with a catering operation, according to Valero spokeswoman Mary Rose Brown.

Additionally, the company has also dispatched 50 mobile homes to St. Charles for workers who may need temporary housing.

"It appears a lot of our employees probably lost their homes," Valero Chief Executive Bill Greehey told employees last week at the company's San Antonio, Texas, headquarters. "Rest assured, we are going to take care of our employees. Whatever financial help they need, they will be taken care of by Valero."

Cal Hodges, an Houston-based energy consultant, said companies may need to recruit retired workers for stopgap help. "We need to get the workers back, but we may need to be creative, too, in getting people to the refineries," Hodges said. "That's one way to do it."

Refineries also will receive a boost from the Department of Energy, which agreed to lend oil from the Strategic Petroleum Reserve. ExxonMobil, Valero, Placid Refining Co. LLC, BP PLC, Marathon and Total SA will collectively receive 12.6 millions barrels of oil.

More is available. Energy Secretary Samuel Bodman offered 30 million to be provided beginning Tuesday. The reserve supply, however, must be replenished by the companies once conditions return to normal.

The Gulf of Mexico normally produces 1.5 million barrels of crude oil a day, or about a quarter of the United States' domestic output, according to the U.S. Mineral Management Service.

The agency on Monday afternoon reported that about 70 percent of oil production remains shut in.

Other developments critical to the Gulf's recovery include:

_ The Louisiana Offshore Oil Port, the nation's largest oil import terminal, has been unloading tankers, operating at about 75 percent capacity. It may hit full capacity this week.

_ Colonial Pipeline Co., which transports refined products from Houston to as far away as the Northeast, is operating at 76 percent capacity, up 3 percent from its weekend report.

_ Kinder Morgan Energy Partners' Plantation Pipe Line Co., which transports fuel from refineries to Eastern markets, has been capable of full capacity operations once it receives fuel from downed refineries.

_ Shell Pipeline Co.'s Capline pipeline system, which transport crude oil into the Midwest, is operating at approximately 40,000 barrels per hour; the normal rate is 45,000 barrels per hour.

Which, when you think about it is pretty good news, considering.

So blame your high gas prices on a lack of foresight and an excess of NIMBYism*. The United States has gone from 324 operating refineries in 1981 to 149 operating refineries in 2003. Production has increased, due to expansions at exisiting refineries, but that means a greater concentration of refinery capacity in fewer sites. One accident idles more production capacity than it used to. There is more info available at the Department of Energy's website.

Boiling all this down, it means your gas prices will remain high - but there will not be any actual shortages.

NIMBY - Not In My BackYard.