Damage

By Carl Mortished

“SEND us Liberty ships filled with European gasoline. We could use some now.”
That was the exasperated response of one Wall Street energy analyst to questions about Hurricane Katrina. No one yet has a clue what long or even short-term damage the great storm has done to America’s offshore oil industry.

What the forecasters do know is that ten refineries on the Gulf coast are out of action or running at severely reduced rates. Stocks of gasoline (petrol) are already below normal levels in the United States and a key pipeline that delivers Gulf oil products to New England is shut.

Liberty ships, the merchant vessels that kept Britain in supplies during the Second World War, would not be big enough to meet the demand. What is certain is that American oil companies will now be rushing to charter large tanker ships to load cargoes of unleaded petrol from European refiners for delivery at ports on the US east coast.

Over the past decade the oil industry has become a just-in-time business and any significant disruption to one part of the infrastructure has major consequences down the chain.

Spotter planes were flying over the Gulf of Mexico yesterday, seeking signs of damage at the hundreds of platforms and rigs that cover the sea like a pin-cushion. Shell, which was forced to shut down 420,000 barrels a day of crude output, reported signs of damage to Mars, its largest platform in the Gulf, but was unable to give details. Two drilling rigs chartered by the company were adrift and Shell was trying to bring them to shallow water for repairs. Until the platforms can be boarded for inspection, no one can predict a return to full output.

At the moment, almost the entire US Gulf oil production capacity is out of commission, some 1.4 million barrels a day, and more than 80 per cent of its gas output. Last year’s passage of Hurricane Ivan, a lesser storm, might be one measure. Huge sub-sea currents damaged a pipeline on the sea-bed, causing a shortfall of 500,000 bpd for more than a month. Even today, some offshore facilities have not been fully repaired from the Ivan damage.

Adam Sieminski, an oil analyst at Deutsche Bank in New York, reckons the operation of wells is only part of the equation.

“You can produce crude but what if there are no refineries? They don’t have electricity and you can’t run refineries without electricity,” he said. Eight refineries in Louisiana and Mississippi were were shut yesterday and a further two were running at low rates, their total output representing almost 15 per cent of US refining capacity.

If experts are loath to make predictions, the same cannot be said of speculators and traders who can see profits from a price squeeze. Wholesale petrol futures jumped from less than $2 on Friday to $3 a gallon, well above the average retail price of $2.60 a gallon. Ships will soon be heading east for supplies and Mr Sieminski worries about a coup de grâce.

“The hurricane season has two months to go,” he said.