Refineries hit hardest by Rita may be off for a month

Bruce Blythe

Tuesday, Sept. 27, 2005 | 10:19 a.m.

Oil refineries near Port Arthur, Texas, and Lake Charles, La., hit head-on by Hurricane Rita may be shut for a month, heightening the threat of shortages in an industry that has yet to recover from Hurricane Katrina.

Motiva Enterprises LLC said its refinery in Port Arthur had flooding and wind damage. Valero Energy Corp. said its plant there had "extensive" damage to its electricity supply and two cooling towers blew over. Citgo Petroleum Corp. said its plant in Lake Charles was without power. Valero provided the only estimate among the seven area refiners about when it may be able to start again -- two to four weeks.

The Port Arthur and Lake Charles areas "got hammered, and that's where the real damage is," said Chuck Dunlap, president of Pasadena Refining System Inc. in Pasadena, Texas. "The damage done there, you're talking weeks to get back up, or longer."

Americans should "pitch in" and conserve, President George W. Bush said Monday, repeating a request he made after Katrina, when the U.S. average pump price topped $3 a gallon for the first time and gas lines formed in Atlanta and elsewhere. Asked Monday if shortages are coming, Energy Secretary Samuel Bodman said: "In all likelihood, there will be some problems."

Gasoline futures, which are based on wholesale prices, rose 2.88 cents to $2.158 a gallon at 9:30 a.m. in New York Mercantile Exchange electronic trading. They are up 3.5 percent so far to this week after falling briefly when Rita veered away from Houston and Galveston, the largest U.S. refining region.

Pasadena Refining and eight other plants on the waterways that surround Houston and Galveston escaped major damage and are in the process of starting up again. The Houston area is home to about 12 percent of the nation's fuel-making capacity, compared with 10 percent around Port Arthur and Lake Charles.

The country was already missing about 5 percent of its refining capacity before Rita. Three plants on the Mississippi River near New Orleans and a fourth on the coast in Pascagoula, Mississippi, were damaged and flooded by Katrina, which struck Aug. 29.

Only Chevron Corp.'s Pascagoula refinery set a timetable for recovery, predicting it will be at full output by mid-November.

Before Katrina, U.S. refineries were working at about 97 percent of capacity. They were running almost flat out and were barely keeping pace with rising U.S. demand, which was being spurred by economic growth.

"These storms showed us we need additional capacity, additional refining capacity for example, to meet the needs of the American people," Bush said Monday in a briefing at the Energy Department in Washington.

No one has built a new refinery in the U.S. in almost 30 years because of regulatory and environmental hurdles and many years of low profits in the industry. The gross profit, or crack spread, from turning a barrel of crude oil into gasoline and heating oil has tripled in the past year, touching a record above $22 after Katrina. It averaged less than $5 in the 1990s.

Bush and Bodman said they would propose measures to streamline the approval process for new refineries or expansions of existing facilities.

Even a refinery project begun immediately would provide no additional fuel to the U.S. for at least five years, Exxon Mobil Corp. Chief Executive Lee Raymond said Monday in an interview on CNBC.

"We are expecting to see prices rise," said Doug MacIntyre, an economist with the Energy Department's statistical arm, the Energy Information Agency. "But how high, and for how long, it's too tough to know at this early juncture," MacIntyre said in an interview.

The U.S. average pump price jumped to a record $3.069 a gallon about a week after Katrina hit, according to Energy Department data. The price was $2.803 as of Monday.

Exxon Mobil, based in Irving, Texas, said initial assessments "do not indicate significant damage" at its plant in Beaumont, Texas, which is about 15 miles from Port Arthur. Workers at the plant, which can process 348,500 barrels of oil a day, are working to restore the water and electricity needed to run the facility, the company said in a statement Monday.

Lack of electric power has hampered recovery efforts at refineries in the New Orleans area, and it may cause delays for the refineries that were in Rita's path.

Valero said its Port Arthur plant may be without power for a month. The San Antonio company's estimate that it can start processing sooner than that is based on the company's ability to generate about 80 percent of its power on site, according to an e-mail from spokeswoman Mary Rose Brown.

Shares of Valero fell $1.19 to $111.85 at 9:40 a.m. in New York Stock Exchange composite trading. They have nearly tripled in the past year. Exxon Mobil shares dropped 60 cents to $64.

Rita knocked out transmission lines needed to get power into the areas of southwest Louisiana and southeast Texas where the refineries are located, Entergy Corp. said on its Web site. Grid damage, high temperatures and lack of generation forced the New Orleans-based utility to intermittently cut power to customers north of Houston Monday.

"Restoring power to the refineries is a priority because we understand their importance to the economy," said Entergy spokesman Morgan Stewart.

There is no power at the Entergy substation that supplies Citgo's 430,000 barrel-per-day refinery in Lake Charles, the fourth-largest U.S. refinery, Citgo spokesman David McCollum said in an e-mail Monday. "Without power, we cannot begin to restart. There's no word on when Entergy will be back up."