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Gustav shuts 15% of U.S. refining capacity

Prices at the pump are stable, but a long disruption could spur large increases.

September 01, 2008|From Times Wire Services

Hurricane Gustav's threat to the Gulf Coast halted about 15% of U.S. refining capacity Sunday, though prices at the pump haven't risen dramatically.

However, analysts and others say a prolonged disruption in refining operations could cause price increases of 20 cents a gallon or more, not unlike the surges after hurricanes Katrina and Rita damaged the region's energy infrastructure three years ago.

Exxon Mobil Corp., Royal Dutch Shell and Valero Energy Corp. were among the companies that said they had shut down Gulf Coast refineries, primarily in southern Louisiana.

Altogether, about 2.4 million barrels of refining capacity have been halted, roughly 15% of the nation's total, according to figures from Platts, the energy information arm of McGraw-Hill Cos. The U.S. Gulf Coast is home to nearly half the nation's refining.

"The impact is larger than meets the eye," said Eswaran Ramasamy, director of Platts' U.S. market reporting. "Louisiana refineries supply a chunk of the southern states' product needs -- gasoline, diesel, whatever."

Yet prices were climbing only slightly. A gallon of regular gasoline jumped half a cent overnight to a national average of $3.687, the AAA reported Sunday. The price rose slightly more than a penny Saturday. A month ago, the average price was $3.898, AAA said.

Oil and natural-gas production in the gulf was largely nonexistent Sunday. Oil companies, drilling contractors and others spent the last several days evacuating thousands of offshore workers from a region that accounts for about 25% of domestic oil production and 15% of natural-gas output.

Although U.S. markets generally are closed through Tuesday morning for the Labor Day holiday, the New York Mercantile Exchange began early electronic energy trading Sunday afternoon. During the day, light sweet crude for October delivery rose as high as $118.60 a barrel but retreated to about $117. The closing price Friday was $115.46.

With attention focused on the petroleum industry as Hurricane Gustav takes aim at the Gulf Coast, billions of dollars are at stake in other economic sectors: New Orleans' trademark tourism industry, shipping, sugar harvesting -- even such niche products as red-hot Tabasco sauce.

And the affected states face another wild card. Depending on the storm's damage, some of the storm evacuees may decide that twice is enough, aggravating the region's labor problem by never coming back.

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