Accessibility links

Breaking News

Refineries and Prices in Peril Due to Hurricane Rita

Hurricane Rita is expected to make landfall by early Saturday. In addition to the potential damage the storm may cause to homes and businesses, the U.S. oil industry is bracing for possible major disruptions. As VOA's Bill Rodgers reports, the Texas Gulf coast is a key oil production center for the United States.

About one-fourth of the oil and natural gas produced in the United States comes from the Gulf of Mexico -- an area that contains about one-third of the nation's refineries which convert petroleum into gasoline and other products.

The area along the Texas Gulf coast where most of these refineries are located could be damaged by Hurricane Rita. But U.S. Energy Department official, Howard Gruenspecht, says the potential impact of the storm is hard to assess.

"The question is, ‘Will they have any permanent damage?’ and a lot will depend where the storm hits and exactly how the refineries are situated, said Mr. Gruenspecht. “In the case of Katrina four refineries suffered significant damage that will take another month, to two or three months to repair. There's more refining capacity in the Texas area but it's still pure speculation to suggest they may have similar problems or different problems."

Not only are the refineries at risk, but so are the offshore oil rigs that number in the hundreds off the Texas coast. Forty offshore rigs were damaged when Hurricane Katrina roared through the Gulf to hit Louisiana and Mississippi.

Natural gas production is also at risk. A significant amount of natural gas is produced in the Texas area, and Mr. Gruenspecht says replacing this gas would be difficult.

"Oil products can be brought in from Europe, and following Katrina significant amounts were. There's some limited capability to bring in liquefied natural gas but the opportunities in increased imports there, as a percentage of the market, probably is lower than in the case of oil. So natural gas and heating bills I think would be a concern if natural gas prices rise significantly."

But it is the potential impact on gasoline prices that worries most Americans. As Katrina hit, gasoline prices soared at the pump, rising on average by more than 18 percent in just a few days. Some analysts believe if Rita causes a lot of damage, prices could go up by more than 50 percent.

Denise McCourt of the American Petroleum Institute, which represents 400 energy companies, says the hurricanes are exacerbating what is already a tight global supply of petroleum, creating speculation in trading markets.

"Before the hurricanes came along we were talking about India and China and the great demands they were making on global supply. This is a global industry and what is happening is that any time there is a disruption anywhere in the world it impacts the price on the NYMEX (New York Mercantile Exchange),” she told VOA. “The NYMEX has this mindset that says, ‘OK, what is the price of a barrel of crude going to cost?’ That's why we've seen the barrels of crude staying up there at the $60 and above range because there is this concern about global supply. Because it's so tight, anything that happens anywhere in the world impacts the price."

The refineries are built to withstand high winds, but cannot resist flooding -- especially the kinds of storm surges caused by a hurricane. The refineries shut down by Katrina were all damaged by high water. The fear is that the same may happen in the Texas Gulf coast, causing an even greater economic impact on the United States.