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Gustav could mean a spike in gas prices

HOUSTON — The brief respite for consumers at the gas pump may come to an abrupt end if Tropical Storm Gustav slams into the petroleum-rich Gulf Coast and its numerous refineries, just as Americans begin packing up cars for the Labor Day weekend.

Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates, said any refinery shutdowns would likely lead to a spike in retail gas prices.

"There's a strong chance that by Friday we could see some fairly significant pump price increases," Ritterbusch said. "Crude can be replaced and brought in via tanker, but bringing a damaged refinery back up again can take a long time, as we saw with Katrina and Rita."

Oil companies with operations in the gulf began removing nonessential workers from rigs, platforms and other facilities Wednesday morning. Refiners were also preparing.

There have been some minor production cuts, but so far, output has largely been unaffected.

Still, oil prices spiked more than $2 to above $118 a barrel, rising for a third day as Gustav spun toward the gulf. Its approach is just days before the three-year anniversary of Hurricane Katrina, which along with Hurricane Rita devastated the region's energy infrastructure.

The Gulf Coast is home to nearly half the nation's refining capacity, while offshore the gulf accounts for about 30 percent of domestic oil production and 20 percent of natural gas output.

Kenneth Medlock, an energy expert and adjunct economics professor at Rice University, said a run-up in gasoline prices as a storm approaches is not uncommon, prompted in part by fears of potential supply shortages in the storm's wake.

Gas prices have dropped for seven straight weeks and, at a national average of $3.686 per gallon, gasoline hasn't been that cheap in four months.

Business weather research firm Planalytics said Wednesday up to 80 percent of the gulf's oil and gas production could be shut down as a precaution if Gustav enters the region as a major storm.

Ben Brockwell, director of data, pricing and information services for the Oil Price Information Service in Wall, N.J., said a jump in prices is not unexpected as Gustav approaches, but he doesn't foresee a long-term spike unless the storm causes major damage.

Brockwell said the oil industry learned valuable lessons from Katrina and Rita and has made changes that should expedite its recovery after the next big blow.

Companies have spent hundreds of millions of dollars in the past few years to improve their operations. Platform moorings are stronger, pipelines are deeper, backup power is in greater supply.

For refiners, the two biggest challenges after Katrina and Rita passed were power disruptions and flooding. As such, some refiners have raised critical equipment above flood levels and enhanced plans to get backup power as quickly as possible.

Bill Day, spokesman for Valero Energy Corp., North America's largest refiner, said decisions on production would be made when more was known about the storm's severity and direction.

"With Gustav, we're watching day by day, hour by hour even," Day said.

Gustav could mean a spike in gas prices 08/27/08 [Last modified: Monday, November 7, 2011 4:40pm]
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