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Saturday, September 24, 2005 - Page updated at 12:00 AM

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Early signs from Texas oil patch encouraging after a weakened Rita hits

AP Business Writer

BATON ROUGE, La. — Hurricane Rita smacked a key region for oil-refining with less force than feared today, an encouraging sign to industry officials and analysts who cautioned it was still too early to assess the full extent of any damage.

But pump prices for gasoline and diesel fuel still could spike higher both in the region and around the country in the short term if pipelines and oil refineries — especially those near Lake Charles, La., and Beaumont and Port Arthur, Texas — are slow in resuming production.

Power outages were reported across wide swaths of Texas and Louisiana, leaving more than a million customers without electricity and one utility spokeswoman said it could be weeks before service is fully restored.

Valero Energy Corp. said it received reports that the lights were on at its refineries in Houston and Texas City, Texas — facilities that refine almost 300,000 barrels of oil per day. And BP PLC spokesman Scott Dean said that was encouraging since "they're right next door to us there." BP's Texas City refinery processes 437,000 barrels per day.

Valero spokeswoman Mary Rose Brown also described as "good news" the fact that storm surges in Port Arthur, Texas, where Valero has a 255,000-barrel-a-day refinery, were smaller than expected.

Based on computer modeling and initial reports, "We're cautiously optimistic about (the Houston) ... region" and "that the petroleum supply will be OK," Energy Department spokesman Craig Stevens said in Washington. "But we really need to look at the Port Arthur region and other areas directly impacted. ... It may still be two or three days before we get a sense of the actual picture."

Before Rita hit, 16 of the 26 refineries in Texas shut down and evacuated crews as a precautionary measure. Four refineries in Louisiana and Mississippi remain closed almost a month after Hurricane Katrina, and a significant amount of oil and natural gas output has not returned almost a month after that storm.

The refinery closures in Texas account for 4.7 million barrels per day of capacity; the refinery capacity lost in Louisiana and Mississippi adds up to more than 800,000 barrels per day.

Crude oil prices dropped sharply Friday as traders welcomed news that Rita had weakened, suggesting that damage to refinery capacity in the Gulf could be less severe than originally feared. The International Petroleum Exchange in London will extend its oil and product trading hours over the weekend, with Brent futures markets opening at 11:15 p.m. GMT.

The New York Mercantile Exchange will open electronic trading for crude oil futures and other energy futures at 10 a.m. Eastern Sunday, rather than the usual 7 p.m.

Analysts said they were eager to find out about the impact on refinery operations near the Texas-Louisiana border. "Lake Charles looks like it's the closest in terms of any kind of real impact. That's where we've got to focus our attention," said John Felmy, chief economist of the American Petroleum Institute in Washington, D.C.

"Remember, the power outages are what bedeviled recovery efforts after Katrina," said oil analyst John Kilduff of Fimat USA in New York.

ConocoPhillips, Calcasieu Refining Co. and Citgo Petroleum Corp., a subsidiary of Petroleos de Venezuela S.A., have refineries in Lake Charles. In Port Arthur, refineries are owned by Valero, Total S.A. and Motiva Enterprises Inc., a joint venture between Royal Dutch Shell PLC and Saudi Refining Inc.; Exxon Mobil Corp. has a refinery in Beaumont.

Energy Secretary Samuel Bodman has said the government stands ready to provide additional oil from the government's Strategic Petroleum Reserve should refiners start up as the storm subsides.

Motorists are already paying the price for the hurricane-related disruptions.

The average retail cost of gasoline nationwide was $2.75 a gallon on Friday, up from $1.87 a year earlier, according to the Oil Price Information Service of Wall, N.J.

Several oil and fuel pipelines that carry product from the Gulf Coast to markets in the East and Midwest were also shuttered prior to Rita's arrival, but there was no word yet today about any potential damage.

The Louisiana Offshore Oil Port, through which 10 percent of all U.S. oil imports flow, stopped offloading tankers earlier in the week, and flooding in southern Louisiana could be an issue in getting it back in operation.

The U.S. Minerals Management Service said 634 platforms in the Gulf were unstaffed on Friday, up from 605 on Thursday. More than 99 percent of the region's oil production was blocked, while more than 72 percent of natural gas production was affected.

More than 675,000 CenterPoint Energy Inc. customers in Texas were without power and company spokeswoman Patricia Frank said it may be weeks before service is fully restored.

Entergy Corp. spokesman Chanel Lagarde said there were 504,000 homes and businesses without power in Louisiana. About 212,000 of those were in the New Orleans area, where Hurricane Katrina knocked out electrical service, while the rest were caused by Rita and were concentrated in southwestern and south-central Louisiana.

Entergy also reported 251,000 outages in east Texas, all of them caused by Rita.

Lagarde said it would be several hours before crews can get out and begin restoring service. "Right now the biggest obstacle for us is the weather," he said. "We're going to have to wait until the weather subsides before we can get out there in full force."

The Florida subsidiary of Progress Energy Inc. is sending more than 250 employees and contractors to Texas this weekend to assist with restoration efforts. That number could increase, if necessary, a spokesman said.

Meanwhile, three nuclear power plants that had been put on alert because of Rita continued operating, escaping the storm path by 100 miles, the Nuclear Regulatory Commission said today.

The South Texas Project twin reactors near Bay City, Texas, were not affected. One or the units was at 100 percent operation; the other continued a previously scheduled shutdown for maintenance.

Two reactors owned by Entergy in Louisiana — one near Baton Rouge and the other 20 miles west of New Orleans — were unaffected by the storm and continued full power operation.

Associated Press Writer H. Josef Hebert contributed to this report.

Copyright © 2005 The Seattle Times Company

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