Tuesday, Aug 28, 2012

(This story was originally published Monday)

--Companies have already shut down 8% of total U.S. fuel-production capacity

--More than three-quarters of Gulf oil production is shut in

--Crude-oil prices fall as Gulf refineries reduce production

--Explosion at Venezuela refinery helps to boost gasoline prices 


 
   By Ben Lefebvre and Alison Sider

HOUSTON--With the threatening prospect of Tropical Storm Isaac turning into a hurricane and making landfall in the one of the busiest refining hubs in the U.S., refining companies have begun closing their facilities in the U.S. Gulf Coast, shutting down at least 8% of the country's total fuel-production capacity.

In addition, the storm has caused energy companies to pull workers from more than half of the nearly 600 production platforms dotting the Gulf, shutting in about 78% of the region's oil production and nearly half of its natural gas production. In total, more than 1.08 million barrels of oil a day and 2.2 billion cubic feet a day of natural gas are offline in the region.

The storm-induced refinery closures have already shut down 1.3 million barrels a day of fuel-production capacity, or 8% of total output, according to the U.S. Department of Energy.

The market will likely feel the effect of the resulting fuel-supply crunch for about a week, said Dominick Chirichella, analyst at Energy Management Institute. Isaac is "certainly a refinery issue more than a crude-oil issue," Mr. Chirichella said.

Despite more than three-quarters of offshore U.S. Gulf of Mexico oil production being shut down, Nymex crude-oil prices Monday closed down 0.7%, to $95.53 a barrel, because the refinery outages could cut demand for oil. Some traders also speculated that a prolonged oil outage in the Gulf could prompt a release from the U.S. Strategic Petroleum Reserve.

Category 2 hurricanes Gustav and Ike in September 2008 were the last hurricanes to deal a blow to Gulf Coast fuel producers. The storms disrupted offshore oil flow and briefly cut refinery operations in the Gulf Coast by half, to less than 3.5 million barrels a day, but an emergency release of 5.4 million barrels in crude-oil loans from the Strategic Petroleum Reserve and waivers on gasoline specifications averted price surges.

On Monday, Isaac was moving northwest into the Gulf of Mexico with winds gusting at 65 mph. Still a tropical storm, Isaac was expected to strengthen into a Category 1 or 2 hurricane and make landfall late Tuesday or early Wednesday along the eastern Louisiana or Mississippi coastlines, a region home to nearly 20% of U.S. refining capacity.

Isaac is expected to blow over New Orleans almost seven years after Hurricane Katrina devastated the city.

The National Hurricane Center's hurricane warning extends along the coastline of the eastern half of Louisiana, all of the coastlines of Mississippi and Alabama and parts of western Florida.

By Monday morning, Isaac's approach caused Marathon Petroleum Corp. (MPC) and Phillips 66 (PSX) to start shutting two Louisiana refineries with a combined capacity of 711,000 barrels a day, with other refiners expected to follow suit. As of Monday afternoon, Marathon Petroleum said it would keep its Garyville refinery running at reduced rates.

Exxon Mobil Corp. (XOM) Monday said it was in the process of shutting down refining operations at Chalmette Refining LLC, a 192,000 barrel-a-day joint venture the company owns in Louisiana along with Petroleos de Venezuela SA. Exxon also said it was operating its Baton Rouge, La., refining facilities at reduced rates.

Valero Energy Corp. (VLO) said it was shutting down its 270,000-barrel-a-day refinery in Norco, La., and its 135,000-barrel-a-day refinery in Meraux, La., "as a precautionary measure."

"Refinery production will resume as soon as it is safe to do so," Valero spokesman Bill Day said.

Royal Dutch Shell PLC (RDSA, RDSA.LN) and Motiva Enterprises LLC reduced the operating rates at their refineries in Louisiana and Alabama by an unspecified amount. The four refineries have a combined capacity of about 600,000 barrels a day. Motiva Enterprises is a 50-50 joint venture of Shell and Saudi Arabian Oil Co.'s Saudi Refining Inc.

Chevron Corp. (CVX) said its 330,000 barrel-a-day refinery in Pascagoula, Miss., continues to operate.

Meanwhile, emergency crews were still fighting a fire at Venezuela's largest refinery, a 640,000 barrel-a-day plant in Amuay, after an explosion left at least 41 people dead. As of Monday's market close, worries of a regional capacity shortfall had sent Nymex gasoline prices to $3.17 per million British thermal units, up 7.7 cents from Friday's close. U.S. refiners, which export gasoline to Latin America, could see demand rise to make up for Venezuela's lost production.

--Angel Gonzalez and David Bird contributed to this article.

-Write to Ben Lefebvre at ben.lefebvre@dowjones.com.

(END) Dow Jones Newswires

28-08-12 0347GMT