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Rita could equal $5 gas
The timing and strength of the latest storm could cause worse spike at the pumps than Katrina did.
September 22, 2005: 3:49 PM EDT
By Chris Isidore, CNN/Money senior writer
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Gas prices may skyrocket even more if Hurricane Rita knocks out Texas' oil refineries. CNN's Ali Velshi reports (September 22)
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NEW YORK (CNN/Money) - Remember when gas spiked to $3-plus a gallon after Hurricane Katrina? By this time next week, that could seem like the good old days.

Weather and energy experts say that as bad as Hurricane Katrina hit the nation's supply of gasoline, Hurricane Rita could be worse.

Katrina damage was focused on offshore oil platforms and ports. Now the greater risk is to oil-refinery capacity, especially if Rita slams into Houston, Galveston and Port Arthur, Texas.

"We could be looking at gasoline lines and $4 gas, maybe even $5 gas, if this thing does the worst it could do," said energy analyst Peter Beutel of Cameron Hanover. "This storm is in the wrong place. And it's absolutely at the wrong time," said Beutel.

Michael Schlacter, chief meteorologist for private weather service Weather 2000, said that it now appears the eye of Rita could come ashore near Port Arthur, Texas, near the Texas-Louisiana border, sometime Saturday morning. The forecast from the National Hurricane Center puts the most likely track of the storm a bit further west, coming ashore between Galveston, Texas and the border. (For a look at CNN.com's coverage of Hurricane Rita, click here.)

Both areas have big concentrations of refineries. Schlacter warned that Rita is now so large that refineries in both areas would be affected by Rita making landfall at either location. And he said it's a fair bet that Rita will be even stronger than Hurricane Katrina was when it hit most of the oil facilities in Louisiana and Mississippi.

"It's splitting hairs as to where the eye is coming ashore," he said. "Anywhere within 60 miles of the eye will get clobbered."

Offshore oil rigs and platforms, even some of them further east off the Louisiana Gulf Coast, are also at risk from the heavy surf being kicked up by the storm as it moves through the Gulf of Mexico.

"She is spending the longest possible time she could spend in the Gulf, and because of that she has days and days to build up momentum and churn up the waters," he said.

Still, a downgrade in status of Rita to a Category 4 storm from the most damaging Category 5 status it had earlier in the day sent oil prices down from earlier highs to close slightly lower. Gasoline futures closed higher, though.

Oil started climbing higher in after-hours trading after the American Petroleum Institute gave a late afternoon briefing at which it said seven refineries in the projected path of Rita had already started shutting down operations. Those refineries have combined capacity of 2.4 million barrels, or about 14 percent of national capacity.

"It is too soon to estimate the extent of fuel supply disruptions, if any. However, even if we are fortunate enough to escape with minimal damage, the shutdowns in preparation for Rita will have some effect," said API CEO Red Cavaney. He asked Americans to conserve fuel in anticipations of disruptions.

Compounding Katrina's impact

When Katrina hit, 15 refineries, nearly all in Louisiana and Mississippi, with a combined capacity of about 3.3 million barrels a day, were shut down or damaged, according to the Energy Department. That represented almost 20 percent of U.S. refining capacity.

Within a week, almost two-thirds of that damaged capacity had resumed some operations, according to the department. But four refineries with nearly 900,000 barrels a day of capacity are still basically shut down.

If Rita hits the Houston-Galveston area, as well as the Port Arthur-Beaumont region near the Texas-Louisiana border, that could take out more than 3 million barrels of capacity a day, according to Bob Tippee, editor of the industry trade journal Oil & Gas Journal in Houston.

"Before Katrina, the system was already so tight that the worst-case scenario was for a disruption that took 250,000 barrels of capacity out of the picture. That would have been considered a major jolt," said Tippee.

"We're already in uncharted territory now. We can't project what happens from another shot the size of Katrina or worse."

Part of the problem is that skilled crews needed to make refinery repairs are already busy trying to fix the Katrina damage. That would extend recovery time from Rita.

"It's not like you can call just anyone to come in and fix a refinery. The specialists are already in Louisiana fixing the ones there," said J.W. Vitalone, energy analyst with Soleil Securities Group.

Vitalone said that he doesn't think any gas spike following the storm will be long-term. "We'll see the markets take over and $5 will go away sooner rather than later," he said. Both he and Fadel Gheit, oil analyst with Oppenheimer, both believe imports of gasoline should help limit the price hikes here. But Vitalone said that there are likely to be disruptions not just from refinery shutdowns but from problems with pipelines that carry the product.

Gas not the only concern

Problems could spread beyond the gas pumps.

Tippee said that natural gas prices could see a further spike, since so many of the offshore platforms off of Texas produce natural gas, not crude oil.

And while gasoline imports have helped bring gas prices down from record highs, there isn't as much potential for heating-oil imports, he noted.

"Gasoline tends to obscure everything, especially since we aren't paying heating bills right now," said Tippee. "But we were already looking at a winter fuel problem. We're about to take another hit that will cause a lot of problems."

Schlacter said even the oil platforms off the Louisiana Gulf Coast, which are not likely to take a direct hit from Rita, could be affected by large waves churning up the Gulf of Mexico as the storm passes to the south. Waves of as much as 40 to 50 feet could hit the platforms off the Texas Coast, he estimated.

Tippee said that production across the Gulf is already being affected by oil companies pulling workers off platforms ahead of the storm. And it's not just domestic oil being interrupted.

The Louisiana Offshore Oil Port (LOOP), the nation's largest gateway for overseas oil, stopped accepting deliveries of its 1.2 million barrels of oil a day Wednesday afternoon due to high seas, LOOP spokeswoman Barb Hesterman told Reuters. She said the disruption was expected to be "for a short time."

But if Katrina is any guide, it could take several days after Rita passes for production to resume even at oil and gas platforms that escape damage.

"There were several days where if you could have gotten out to the platform, you could have started it back up, but you couldn't find the boats or helicopters you needed to get back to the platforms," he said.

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High gas prices? Shhhhh .....

For a look at more stories about this year's oil crunch, click here.  Top of page

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