Gulf refiners brace as Hurricane Isaac strikes land
(UPDATED at 7 p.m. with report of Hurricane Isaac making landfall)
By Ben DuBose
Online Editor
HOUSTON -- Isaac strengthened into a hurricane Tuesday just before its landfall in southeast Louisiana, but energy companies are likely to be spared from significant damage, analysts with Tudor Pickering Holt said.
“Not expecting major onshore or offshore damage to energy infrastructure,” the analysts wrote in a research note distributed on Tuesday.
“The slow forward motion is likely to cause flooding inland but should not create long term impact to oilfield operations,” they added.
Landfall expected Wednesday
As of 7 p.m. local time Tuesday night, Isaac made landfall in extreme southeastern Louisiana as a Category 1 hurricane with sustained winds of 80 miles/hour, according to the National Hurricane Center (NHC).
![[Image of 3-day forecast and coastal areas under a warning or a watch]](http://www.nhc.noaa.gov/storm_graphics/AT09/refresh/AL0912W_NL_sm2+gif/092344W_NL_sm.gif)
Isaac is likely to hold its hurricane strength over the marshes of southeast Louisiana before gradually weakening as it tracks northwest toward New Orleans and through much of the state, the NHC forecasters say.
Isaac's winds could knock out power for days, and heavy rains from the slow-moving storm could lead to flooding in coastal Louisiana, Mississippi and Alabama. Intense squalls were pounding the New Orleans area and its nearby refineries late Tuesday.
But unlike prior Gulf of Mexico hurricanes such as Katrina, Rita and Ike, Isaac is unlikely to inflict devastating or catastrophic wind damage.
“Eastern Gulf pipes and Louisiana-based NGL infrastructure remain exposed,” the Tudor analysts cautioned. “We expect modest impact.”
Refinery shutdowns and rate cuts
As of late Tuesday, five refineries in Isaac's path said they are shut down or were in the process of shutting down. Those sites have a combined output of 936,500 bpd, representing 12% of total Gulf Coast refining capacity, according to the Department of Energy (DoE).
The five Louisiana refineries shut down are the Phillips 66 Alliance refinery in Belle Chasse (247,000 bpd), Valero at Norco (205,000 bpd), Motiva at Convent (235,000 bpd), Placid Refining in Port Allen (57,000 bpd) and the ExxonMobil/PdVSA joint venture in Chalmette (189,000 bpd).
Meanwhile, rates are reduced at Marathon Petroleum’s Garyville refinery (490,000 bpd), Motiva at Norco (233,500 bpd) and for ExxonMobil at its massive Baton Rouge complex (502,500 bpd).
Gulf Coast refiners saw Louisiana Light & Sweet (LLS) crack spreads widen $7.30/bbl on Monday, and the margin may strengthen further due to the precautionary shut-ins, Tudor analysts said. Light sweet crude closed Tuesday afternoon at $96.33/bbl, up 86 cents from Monday.
However, “history would suggest that spreads are more likely than not to decline post storm passage,” the analysts added.
Offshore production effects
For the offshore industry, 93% of Gulf of Mexico oil production and 67% of natural gas production was shut as of midday Tuesday, the DoE reported. At least 503 Gulf platforms (84%) and 49 rigs (64%) were evacuated.
That, in turn, led to declarations of force majeure for several major US pipeline systems, owing to production shut-ins in the Gulf. The 1.2 million bpd Capline pipeline, which transports crude to refineries in the US Midwest, was shut down late Monday.
The production numbers could improve as soon as Thursday, when Isaac is projected to be well inland. That would presumably allow companies to begin re-staffing Gulf rigs and platforms.
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