Hurricane Ike could slap entire US economy

11 September 2008 19:47  [Source: ICIS news]

WASHINGTON (ICIS news)--A heavy blow by Hurricane Ike on US refining and chemical production on the Texas coast could broadly impact the whole US economy, affecting fuel prices and availability and industrial production nationwide, industry sources noted on Thursday.

 

Data gathered by the National Petrochemical & Refiners Association (NPRA) from the aftermath of Hurricane Katrina in August 2005 show how heavily dependent the US economy is on the refining and chemical industry that is concentrated in Texas and Louisiana - much of it smack on the Gulf shoreline.

 

First, Ike could shut down much of the US oil and natural gas production in the Gulf of Mexico, just as Katrina did in 2005.  The Gulf produces about 1.3m bbl/day of crude, about 6% of total US daily oil consumption of nearly 21m bbl/day.

 

The Texas and Louisiana coastal regions also host the principal import facilities for foreign oil supplies, on which US industry and transportation are so dependent.  The Gulf region receives about 6.5m bbl/day of crude oil imports, according to the association, around 60% of the country’s total daily oil imports.

 

As the US imports about 60% of its total oil consumption needs, a storm-related shutdown of the Gulf coast could take 36% of the nation’s foreign oil imports out of play.

 

The Gulf offshore area also produces about 7.4bn cubic feet (bcf)/day day of natural gas, a crucial feedstock for the US chemicals industry and a major home heating fuel for much of the country.  The Gulf supply of natgas constitutes about 12% of total US daily demand.

 

In Hurricane Katrina and Hurricane Rita, which followed in late September, about 90% of US Gulf oil and gas production was shut down, either due to storm damage or as a precaution.  Many marginal Gulf production wells were ultimately abandoned and full pre-storm production was never restored.

 

Onshore damage from Katrina caused shutdown of ten coastal area refineries, taking 2m bbl/day or 12% of total US refining capacity off line.

 

In addition, according to the NPRA, five other refineries were forced to reduce operations, putting some 1m bbl/day of refining capacity in jeopardy.

 

“In total, we believe that at least 20% of the nation’s refining capacity - 3.4m bbl/day - ceased operations or reduced runs at some time due to the direct impact of Hurricane Katrina and the loss of crude supplies from pipelines affected by the storm,” NPRA said, adding: “This is probably a conservative estimate.”

 

Katrina damaged three pipelines that originate in the Gulf region and that are critical to fuel supplies for the US Northeast, the South and the Midwest.

 

The Colonial Pipeline originates in Houston and carries a daily average of 100m gal of gasoline, diesel and other petroleum products from Gulf refineries to the South and Eastern US.

 

The Plantation Pipeline delivers 26m gal/day of refined products to several southern US cities and to Washington, DC.

 

The Capline Pipeline carries 1.1m bbl/day of crude to Midwest refineries where it is refined into gasoline, diesel and other products for distribution in the Midwest.

 

In addition, as much as 70% of US chemicals production capacity is located along the Texas and Louisiana coasts, according to the American Chemistry Council (ACC).  Loss of those facilities for more than a few days would soon begin to have knock-on effect in a wide variety of industries that use various petrochemicals and polymers in their manufacturing processes or as components in end products.

 

Among industries that could be affected by a long-term shutdown of Gulf coast chemical plants are computer manufacturing, pharmaceuticals, plastic packaging for foods, automotive components and building supplies, among many others.

 

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By: Joe Kamalick
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