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Gas Prices Could Rise As Gulf Battens Down For Gustav

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The Associated Press

Published: August 29, 2008

HOUSTON - Oil companies and drilling contractors on Thursday accelerated the evacuation of thousands of workers and secured offshore rigs and other equipment in the Gulf of Mexico as Tropical Storm Gustav churned toward the United States.

With top sustained winds just below hurricane strength, Gustav was projected to become a major Category 3 hurricane after it passes between Cuba and Mexico and enters the warm, deep Gulf waters. Some models showed Gustav taking a path toward Louisiana and other Gulf states devastated by hurricanes Katrina and Rita three years ago.

Gustav is forecast to slam into the Gulf Coast early next week.

Hundreds of workers were being pulled from Gulf facilities Thursday, and oil companies prepared to stop production, if necessary. About 35,000 people work in the Gulf, staffing offshore rigs and production facilities, among other tasks, according to the U.S. Minerals Management Service.

Consumers will likely face higher prices at the pump during the busy holiday period as Gustav swirls toward the Gulf and disrupts energy production. Any damage to oil and gas facilities - especially along the vulnerable Gulf Coast - could send retail gas prices spiking back above $4 a gallon, analysts say.

Fears about the storm pushed crude oil above $120 a barrel Thursday, but prices later fell into negative territory as traders bet the government will tap the Strategic Petroleum Reserve if supplies are threatened. Light, sweet crude for October delivery rose as high as $120.50 a barrel on the New York Mercantile Exchange, but prices later settled $2.56 lower at $115.59.

San Antonio-based Valero Energy Corp. said that because of projected storm paths, it was paying particular attention to its refinery in Port Arthur, Texas, and another refinery just outside New Orleans at Norco, La.

Emergency supplies were being obtained for all of Valero's coastal refineries, which include Houston, Texas City and Corpus Christi, Texas, the company said.

The company learned from the double punch of Katrina and Rita in 2005, Valero spokesman Bill Day said. Valero put advance contracts in place for extra emergency equipment such as generators.

"Probably the main lesson we learned from Katrina and Rita is to take care of employees, make sure they have a place to stay, food, generators and a place for their families," Day said.

Motiva Enterprises LLC, a partnership between Shell and Saudi Arabia's national petroleum company, delivered extra gasoline to terminals Thursday in anticipation of huge demand should storm evacuations occur. The company has refineries at Convent and Norco in Louisiana and Port Arthur.

A refinery shutdown is not an instant stop-and-start process. Motiva said that even without storm damage, restarting production could take anywhere from a day to week.

The U.S. Gulf Coast is home to nearly half the nation's refining capacity, while offshore operations account for about 25 percent of domestic oil production and 15 percent of natural gas output.

"It's likely that we'll see a 10 cents per gallon increase in gasoline in Texas and Louisiana prior to the storm's arrival," said Bruce Bullock, director of the Maguire Energy Institute at Southern Methodist University.

Major utilities from across the region are holding teleconferences every day, preparing a joint response.

Gulf Power Co., a Southern Co. utility that has 425,000 customers in the Panhandle, has put all of its employees on alert and canceled vacations, said spokesman John Hutchison.

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