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Friday, September 23, 2005 - Page updated at 12:00 AM

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Rita may deliver punch to pocketbooks

The Associated Press

DALLAS — Drivers, homeowners, airlines and businesses will end up paying higher fuel bills if Hurricane Rita magnifies the damage last month's Hurricane Katrina inflicted on the oil-refining industry.

Most of the refineries on the Texas and Louisiana coasts were shut down yesterday, and oil and natural-gas rigs stood empty on the Gulf of Mexico as Rita bore down on the heart of the nation's energy industry.

About 5 percent of the nation's oil-refining capacity is still out from Hurricane Katrina's sweep through Louisiana and Mississippi. At least a third of the nation's oil-refining capacity is in the Gulf region, and if offshore production and refining are knocked out of action for a long time, gasoline prices will go higher and stay there for a longer time.

Although Western Washington's gas comes from local refineries and not those that are being shut down in the Gulf of Mexico, there's an indirect effect on gas prices here when they rise in the rest of the country, said Jennifer Harbison, a spokeswoman for the AAA Auto Club.

Tim Hamilton, the executive director of the Olympia-based Automotive United Trades Organization, predicted that gas prices would rise to about $3.10 a gallon after Hurricane Rita, but he said the long-term effect on prices here will depend on how long prices stay high in the rest of the country.

In the Houston area, representing 13 percent of U.S. refining capacity, every major refinery was closed or in the process of shutting down yesterday. So were most refineries around Port Arthur, Texas, another 7 percent, and some in Louisiana because of Rita, expected to hit shore tomorrow.

"It's potentially a bigger threat than Katrina because there is more refining capacity in the Houston area," said Bob Slaughter, president of the National Petroleum & Refining Association. "This is a double whammy for the industry — it's an amazing thing to contemplate."

Larry Goldstein, president of the Petroleum Industry Research Foundation, estimated that precautionary shutdowns would cut refining capacity by more than 3 million barrels of oil a day — about one-seventh of the U.S. total — for a week. Any damage to the plants would compound the loss, he said.

Energy Secretary Samuel Bodman said even if the Gulf Coast refineries escape serious damage, "the public should be ready for interruptions of supplies for two or three weeks. ... We will be dependent on attracting cargoes [of gasoline] from abroad which are already en route."

Later, an Energy Department spokesman clarified Bodman's remarks, saying he was referring to local disruptions in Texas and that the administration does not expect a significant national impact.

To make up the shortfall from Katrina, the United States has imported more gasoline and other refined products from Europe. But the imports are costly, and further cuts in capacity due to Rita are likely to drive up prices, experts said.

Tom Kloza, an analyst with the Oil Price Information Service of Wall, N.J., said pump prices along the Gulf Coast may soon jump above $3 a gallon because wholesale gasoline prices in the region have climbed by about 75 cents in the past week to $2.50 a gallon before taxes and dealer markup. Motorists in the East and Midwest would see smaller increases, he said.

Ken Stern, managing director of FTI Consulting, which advises refineries on business strategy, predicted $4 a gallon at the pump for gasoline within two weeks in some areas.

After an early jump, oil prices eased at midday yesterday on news that Rita had weakened slightly, to a Category 4 storm. But futures for natural gas, a key fuel for heating homes and producing electricity, continued climbing past $13 per 1,000 cubic feet, nearly twice the level of a year ago.

Inside Texas refineries, crews were conducting what company officials termed orderly shutdowns of the massive machinery that turns crude oil into gasoline, jet fuel, heating oil and all the other petroleum products that consumers and businesses use every day.

After watching the storm's path through the Gulf of Mexico on Wednesday, ExxonMobil decided yesterday morning to shutter the largest refinery in the country, at Baytown, Texas, and another in Beaumont, Texas.

That brought to at least 11 the number of Texas refineries hunkered down for the storm, including the nation's third-largest, a BP PLC plant in Texas City, Texas.

Some experts said the Houston refineries would withstand the storm but that other parts of the energy-supply chain were more vulnerable, including electricity needed to run the plants.

Fuel supplies were pinched after Katrina because two pipelines that carry gasoline, diesel and jet fuel from the Gulf Coast to the East Coast were closed. Those pipelines are open now, but others closed as Rita approached.

In the Gulf of Mexico, evacuations continued from drilling rigs and oil and gas platforms. The U.S. Minerals Management Service said yesterday that nearly three-fourths of the manned platforms had been cleared and oil production was only about 8 percent of normal — a loss of 1.38 million barrels of oil a day.

Since Katrina evacuations began Aug. 26, the storms have cut 28.5 million barrels of oil production, or 5.2 percent of the Gulf's annual production, the agency said.

AP Business Writer Brad Foss in Baton Rouge, La., and AP Writer H. Josef Hebert in Washington contributed to this report.

Copyright © 2005 The Seattle Times Company

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