Ike Arrives

Hurricane wreaks havoc on Gulf Coast; petroleum industry assessing impact on all levels

Published in CSP Daily News

HOUSTON -- Gasoline prices jumped Saturday as Hurricane Ike pounded the refinery-rich regions of Texas and Louisiana, threatening to shut down the nation's vast energy complex in the Gulf of Mexico for days, the Associated Press said on Saturday. Gasoline prices nationwide rose nearly six cents a gallon to $3.733, according to auto club AAA, the Oil Price Information Service and Wright Express.

Geoff Sundstrom, AAA's fuel price analyst in Orlando, Fla., said Ike has disrupted supply at the wholesale level in the Gulf Coast, where prices struck $4.85 a gallon Friday. Refineries may remain [image-nocss] shut for days, even if there was no serious wind damage or flooding. "The reality is, we're facing a temporary shortage in wholesale gasoline," he said.

Ike ravaged southeast Texas early Saturday, battering the coast with driving rain and high wind. Thousands of homes and buildings were flooded, roads were washed out and power outages were approaching two million customers from Houston into Louisiana.

Ike was about twice the size of Hurricane Gustav, which rammed into the Louisiana shore two weeks ago.

Refineries along the upper Texas Gulf Coast account for about one-fifth of the nation's refining capacity. Exxon Mobil's refinery in Baytown, outside Houston, is the nation's largest. Valero's refineries at Houston, Texas City and Port Arthur remain shut down, and all three have lost power. The company said it was unable to provide a damage assessment. Valero's other Gulf Coast refineries remained in operation at planned rates. Thirteen Texas refineries had been shut down due to Ike, according to the Department of Energy. In Louisiana, refineries were just coming back online after Hurricane Gustav.

Retail prices for gasoline may not reach as high as wholesale, with anti-gouging laws in some stakes kicking into effect, Sundstrom said. In other instances, gas stations have long-term price contracts with oil companies. There could be instances where stations on the same street have big disparities in price because of the price they paid for fuel, he said.

"You may find stations that are out of gasoline, not because it's available, but because they don't want to pay the price," he said.

He said the increase in prices may be for just a short time. Prices also spiked after hurricanes Katrina and Rita in 2005.

Ben Brockwell, director of data, pricing and information services for the Oil Price Information Service, Wall, N.J., said prices could climb sharply in the Gulf Coast region—50 cents a gallon perhaps—if wholesale prices remain at inflated levels for a sustained period. "That question still needs to be resolved," he said. "This is panic-buying in advance of a storm that we don't know what's going to do."

Gasoline became scarce along evacuation routes, reported The Houston Chronicle on Saturday, and the domino effect went as far as the Carolinas as supplies veered toward the Gulf Coast, ready to restock where terminals closed and gas stations ran dry.

Gretchen Fox, spokesperson for the Texas Fuel Team affiliated with Governor Rick Perry's Task Force on Evacuation, Transportation & Logistics, said Friday afternoon that shutdowns were largely complete and all that was left was to wait for Ike to pass. She said focus has shifted to replenishing supplies as soon as safety allows, and that advance planning had the state and the industry far better prepared to respond to outages than after Hurricane Rita hit in 2005.

"We are communicating, as we have been from the beginning, with all levels of the fuel industry and are now preparing to restart after the storm," she told the newspaper.

Chris Newton, president of the Texas Petroleum Marketers & Convenience Store Association, said tanker trucks cannot safely travel in winds over 40 mph, well below the hurricane-force speed of Ike. So the winds will have to drop before trucks get the go-ahead to refill stations.

And with downed power lines, flooding and wind damage to assess, the process will take time. Fox declined to speculate about how long it could take to restore the fuel supply chain.

Also, officials are concerned that refinery shutdowns will pinch supplies already tightened by Hurricane Gustav nearly two weeks ago.

More than 3.55 million barrels of oil refining capacity—a fifth of the nation's total—has been shut down by Ike, government and industry officials said, according to the report.

''We expect to see constrained supplies of refined product…in the Gulf region and the East Coast," Kevin Bolívar, the U.S. Energy Department's assistant secretary for electricity delivery and energy reliability, told the paper.

On Friday, some gas station owners were paying nearly $5 a gallon for gasoline, roughly double what they paid early in the week.

But just finding fuel was a challenge for customers in some parts of the region Friday as stations closed or had empty tanks, the report said. Shell said that 50% of its branded stations were out of fuel in the Galveston-Houston area and in Victoria due to a storm-related spike in demand. Valero Energy Corp. closed 64 of 200 company-operated stations in the Houston region ahead of the hurricane. While customers could still swipe credit cards at the pump to buy fuel at the shuttered stores, the company also received reports of ''sporadic'' fuel outages, Valero spokesperson Bill Day said.On Friday, The Pantry asked customers in 11 states, mostly across the Southeast, to limit gasoline purchases to 10 gallons as Hurricane Ike shuts down some refineries on the Gulf coast, reported the Associated Press. Meanwhile, some communities in North and South Carolina reported people lining up at gas stations Thursday night to top off their tanks, fearful that fuel could run out.

Pantry CEO Pete Sodini said the company's request was designed "to head off any panic buying. What you're going to do if you go out and fill up every car in the household, you're going to run this market out of supply temporarily."

Melissa Anderson of Sanford, N.C.-based The Pantry said Thursday her company did not have supply problems, but was being proactive. "It is voluntary, just to make sure that during this period of time that people are acting responsibly. We did the same thing during Hurricane Katrina," she told AP. "We found that our customers were receptive, appreciative and acted quite responsibly to the suggestion."

The Pantry has about 1,600 stores in Virginia, Georgia, Florida, Alabama, Mississippi, Louisiana, Tennessee, Kentucky and Indiana as well as the Carolinas.