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Storm Isaac bearing down on U.S. refining hub

Date: 27-Aug-12
Country: USA
Author: Kristen Hays

The first hurricane of the 2012 season looks set to disrupt U.S. offshore oil and gas supplies and analysts say it could wreak havoc on low-lying refineries and other key energy infrastructure along the Gulf Coast.

Tropical Storm Isaac is forecast to strengthen to a powerful Category Two hurricane, which could spur short-term outages in nearly all U.S. offshore oil platforms before slamming into "refinery row" along the Gulf Coast, a low-lying area between Texas and Mississippi that is home to about 44 percent of U.S. refining capacity.

"It's going right into the heart of refinery row," said Phil Flynn, an analyst with Price Futures Group in Chicago. Two area refineries -- one in Louisiana and another in Mississippi -- were making plans to shut ahead of the storm, which threatens them with a tidal surge and heavy winds, Louisiana Gov. Bobby Jindal said on Sunday.

With the storm threatening offshore oil infrastructure as well as Mississippi and Louisiana refineries, U.S. crude oil prices traded up 75 cents to $96.90 a barrel shortly after opening early in Asia.

After initially calling for Isaac to pass well east of the U.S. offshore production zone, forecasters on Sunday predicted a more westward track over the heart of the U.S. offshore oilpatch, which produces about 23 percent of U.S. oil output and 7 percent of its natural gas production.

Isaac could be the biggest test for U.S. energy infrastructure since 2008, when Hurricanes Gustav and Ike disrupted offshore oil output for months and damaged onshore natural gas processing plants, pipelines and some refineries.

"As it drifts west, you come over more broad infrastructure," Tudor Pickering Holt & Co analyst Dave Pursell said of Isaac's westerly-shifting track on Sunday. "You've got gas plants, pipelines, refining, everything of that kind on the coast."

Isaac has so far been responsible for shutting 24.19 percent of offshore oil output and 8.24 percent of natural gas output, according to U.S. government figures released on Sunday.

Analysts said potential damage to the country's biggest hub of gasoline and diesel fuel production could give a boost to U.S. crude oil and natural gas prices.

As of Sunday afternoon, forecasters expected Tropical Storm Isaac to strengthen into a Category 2 hurricane on its way to Mississippi, heading straight toward Chevron Corp's 330,000 barrels-per-day (bpd) refinery in Pascagoula.

Chevron is "in the process" of shutting the massive refinery where the company is building a $1.4 billion base oil plant, Louisiana's governor said. Chevron declined comment on storm impacts.

Isaac may also drench and possibly damage other New Orleans-area refineries as well. Phillips 66 was "likely" to shut its 247,000 bpd Alliance refinery in Belle Chasse, Louisiana, Jindal added.

Other New Orleans-area refineries that could be affected include: Valero Energy Corp's 205,000 bpd Norco and 125,000 bpd Meraux refineries; Motiva Enterprises' 233,500 bpd Norco and 235,000 bpd Convent refineries, and further north, Exxon Mobil Corp's 502,500 bpd Baton Rouge plant, the U.S.' third-largest.

The state is home to 18.7 percent of U.S. refining capacity, second only to Texas, which is home to about 25 percent.

The U.S. Gulf Coast also houses about 30 percent of U.S. natural gas processing plant capacity and 44 percent of the country's refining capacity.

The onshore impacts were expected to come on the heels of widespread shutdowns and evacuations of Gulf of Mexico oil and gas platforms that could disrupt the majority of U.S. offshore oil output.

Outage figures will rise in the days ahead, according to forecasters at Weather Insight, an arm of Thomson Reuters, who predict the storm will spur short-term shutdowns of 87 percent of U.S. offshore oil capacity and 72 percent of its natural gas output.

Isaac has a 95 percent chance of entering the heart of the oil and gas producing region, Weather Insight said.

Meanwhile, the Louisiana Offshore Oil Port (LOOP), which can offload about 1 million barrels per day of foreign crude for delivery to Gulf Coast refiners, remained in operation on Sunday, a spokeswoman said, but it expected to suspend oil tanker deliveries by Monday afternoon.

UK-based BP Plc, the region's biggest oil producer, on Sunday evacuated all of its Gulf of Mexico platforms. The company had earlier shut and evacuated four of its seven facilities, including its giant Thunder Horse platform --- the world's largest -- which can process 250,000 barrels of oil and 200 million cubic of natural gas per day (mmcfd), and three others.

Another major offshore producer, Royal Dutch/Shell, said it planned to shut its platforms in the east-central Gulf. The company did not specify which structures would shut, but its platforms in that area include the Mars, Ursa and Brutus platforms.

"The potential still exists for the storm to move ashore as far west as the mouth of the Mississippi River, which would cause a significant storm surge to move ashore into southeast Louisiana and the Mississippi Gulf Coast," Shell said.

Anadarko Petroleum Corp, the biggest natural gas producer in the Gulf, said it will shut six production platforms including its Independence Hub, which can produce up to 1 billion cubic feet per day of gas.

(Additional reporting by Erwin Seba; editing by Chris Baltimore, Gary Crosse and Maureen Bavdek)

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