How Katrina turned off the oil

By Platts Oilgram News

updated 3:17 p.m. ET Aug. 31, 2005

After a severe pummeling from Hurricane Katrina, a big segment of the U.S. energy industry is struggling to get up off the mat. Several major Gulf Coast refineries remained shut Aug. 30, battling pipeline and power outages in the aftermath of the storm.

The amount of lost production is enormous. Roughly 1.9 million barrels per day of the refining capacity on the Gulf Coast was off-line, with many plants down completely and others operating at reduced rates.

Platts has received reports that terminals were running out of product. While the White House's early-morning announcement of Aug. 31 that it's ready to tap the Strategic Petroleum Reserve may offer refiners some relief, the plan's details were still unclear as of 8:26 a.m. ET.

Emergency loans
Thee Environmental Protection Agency has granted waivers for required gasoline additives and sulfur rules to help alleviate supply shortages. And European gasoline sellers were waiting in the wings to take advantage of the increased demand.

As refineries began to use up available feedstock, the list of requests for emergency loans of crude from the SPR started to grow. Gulf Coast refiner Placid Refining intends to ask for a 1 million barrel loan of sweet crude from the SPR, President Dan Robinson tells Platts, which like BusinessWeek Online is a unit of The McGraw-Hill Companies. So far Citgo is the only refiner that has officially requested an SPR loan, seeking 250,000 to 500,000 barrels of light sour oil.

Placid is attempting to restart its 50,000-barrel-per-day (b/d) Port Allen (La.) plant after putting it in "circulation mode" during Katrina. The refinery takes crude via pipeline from the St. James (La.) area, says Robinson.

'Completely shut down'
As far as we can tell, nothing is getting into St. James," he says. "The [oil] supply lines are completely shut down, and we have no reliable estimate on when they might be reestablished," says Robinson, adding "unless something is in our refinery in a week or so, we're starved."

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Placid was awarded a 300,000-barrel sweet crude loan from SPR during Hurricane Ivan last year. It hopes to draw its latest SPR crude loan from the Energy Dept.'s 72 million-barrel Bayou Choctaw (La.) site, which was closed as a precaution on Aug. 29. SPR's four underground caverns, including Bayou Choctaw, are now open and undamaged, an Energy spokesman said on Aug. 30.

Refiners awaited resumption of crude loadings at the key Louisiana Offshore Oil Port, which remained closed Aug. 30. LOOP handles an estimated 1 million b/d of imported crude, about 10 percent of U.S. weekly imports.

Waiting for power
LOOP sustained "no apparent catastrophic damage" and should be able to quickly resume offloading tankers once power is restored to its onshore pipeline systems, a spokesman says.

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He tells Platts that utility Entergy was working to restore power to the onshore systems, which must be in operation before the offshore terminal can begin unloading crude from tankers. The offshore terminal, 20 miles south of the Louisiana coast, has its own power source.

"Power is our biggest need... It shouldn't take us terribly long to get back once we get power," he says. LOOP could resume offloading vessels once power is restored "probably within a matter of hours.

Further assessment
A more ore extensive assessment of LOOP will be carried out shortly, the spokesman says. Additional testing of the offshore terminal can be done only once power is restored.

Power loss to the area surrounding the Capline and LOCAP crude pipelines were keeping both lines down on Aug. 30, according to a source close to the lines' operations. The Shell-operated 1.1 million b/d Capline was shut late Aug. 28. It's not clear when LOCAP, which connects Capline to LOOP, was shut.

LOCAP is operated by LOOP and has a capacity in excess of 1 million b/d. Capline carries crude from St. James, La., to Patoka, Ill. Shell and LOOP officials couldn't be reached for comment.

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