HOUSTON - Energy companies closed U.S. Gulf Coast refineries and evacuated offshore oil rigs yesterday as Tropical Storm Isaac approached Louisiana at hurricane strength, Reuters reports.
Currently a tropical storm as it heads through the Gulf of Mexico, Isaac is projected to strengthen into a Category 1 hurricane, according to the National Hurricane Center (NHC), making landfall in Louisiana tomorrow €" seven years after Category 3 Hurricane Katrina ravaged the state.
As a result, U.S. gasoline futures increased 2.7% on fears the storm would impact Louisiana refineries, thus limiting supplies. Crude futures dipped 1.4% on concerns Isaac could lower demand once refineries are idled.
The NHC warned Isaac could cause storm surges of up to 12 feet in parts of Louisiana, Alabama and Mississippi when it touches down.
"Isaac looks like a smaller storm event than Katrina was, but energy companies are following their emergency drill, which means we will lose some production and some refineries will be shut," Citi energy analyst Tim Evans told Reuters, adding, "They have learned their lesson from past storms."
Louisiana plants process around 3.25 million barrels per day. Yesterday, companies including Marathon Petroleum, Chevron, Valero, and Phillips66 had closed €" or were in the process of closing €" nearly 1.4 million barrels per day of the state's capacity, according to industry and government estimates.
Those closures followed evacuations from more than a dozen offshore oil and gas platforms since last week.
In 2005, Katrina took out roughly 4.5 million bpd of refining capacity, some of which was idled for months.
As of this past Sunday, 24.2% of the Gulf€™s oil output was shut in and 8.2% of its gas production was offline, according to the U.S. Bureau of Safety and Environmental Enforcement. On Monday, around 88% of U.S. Gulf offshore crude output, or 1.16 million bpd, was shut in, with 80% of offshore natural gas production idle, according to Thomson Reuters division Weather Insight.
- Marathon Petroleum Corp. said yesterday it was shutting down its 490,000 bpd refinery in Garyville, Louisiana.
- Phillips 66 said it was in the process of shutting down its 247,000 bpd Alliance refinery in Belle Chase, Louisiana.
- Louisiana Governor Bobby Jindal said on Sunday that Chevron Corp. is "in the process" of shutting its 330,000 bpd refinery in Pascagoula, Mississippi.
- BP PLC has shut in at least seven offshore projects since last week.
After Hurricane Katrina, new levees and pumping stations were created to better absorb the impact from tidal surges.
"It's too early to know, but if all goes well this storm will only be a test of the emergency drill," said Citi's Evans. "In that case, energy infrastructure could be back up and running soon."
When hurricanes disrupt power and refinery production on the Gulf Coast, shortages of gasoline and other motor fuels products can develop more than a thousand miles away. Read more.