THE NEW YORK TIMES: No Quick Fix for Gulf Oil Operations: "The market can't afford any disruption whatsoever," said Ben Dell, an analyst at Sanford C. Bernstein & Company in New York. "As it happens, we just had the worst disruption ever.": Wed 31 August 2005

By JAD MOUAWAD

Published: August 31, 2005

As the extent of the damage to offshore facilities in the Gulf of Mexico slowly became apparent a day after Hurricane Katrina's passage, oil prices soared above $70 a barrel and gasoline futures jumped by 20 percent yesterday on concerns it would take months to restore production to prestorm levels.

For consumers across the nation this means that retail gasoline prices are likely to jump above $3 a gallon - matching inflation-adjusted records reached in the early 1980's - just as millions of drivers hit the roads on the Labor Day weekend.

On the New York Mercantile Exchange, crude oil futures settled at $69.81 a barrel yesterday, a 3.9 percent jump, after touching a high of $70.85 a barrel earlier in the day, a reflection of how little slack there is on global energy markets to make up for shortages in the gulf.

The hurricane, one of the most severe storms to hit the United States, crippled the nation's foremost oil-producing region at the worst possible time for American and global energy markets.

It will probably take days, or even weeks, before the full extent of the damage is fully revealed. Repairs are likely to drag on for months.

"The market can't afford any disruption whatsoever," said Ben Dell, an analyst at Sanford C. Bernstein & Company in New York. "As it happens, we just had the worst disruption ever."

Most of the oil and gas production from the Gulf of Mexico remained shut off yesterday. The region, which usually produces 1.5 million barrels of oil and 10 billion cubic feet of gas each day, accounts for nearly a third of domestic oil production and a fifth of its natural gas output.

Because of flooding and power disruptions, many refiners along the gulf coast in Louisiana and Mississippi remained shut for a second day.

The prospect of lengthy delays in restarting refineries sent gasoline futures up 41.39 cents, their highest-ever jump, to $2.47 a gallon on the Nymex.

Information trickled in slowly because the offshore industry's base is concentrated near New Orleans.

The Coast Guard said that its crews had spotted several sunken platforms and rigs. The destruction was often accompanied by oil spills.

"We're still in the preliminary stages of identifying what damage had been done," Petty Officer Larry Chambers, a Coast Guard spokesman, said. "It could take a couple of days. Some of them are definitely sunk and some of them are definitely out of place."

The Coast Guard was starting to dispatch hazardous-materials teams to deal with oil and chemical spills yesterday afternoon, although most of its activities remain focused on rescuing people, he said.

Offshore platforms were damaged by the storm's winds and waves, and some had snapped out of their moorings and were drifting away; 10 refineries, accounting for 10 percent of the nation's capacity, were shut down and remained without power yesterday; strategic pipelines linking the gulf to major markets in the rest of the country were still closed because they too lacked power.

Because of the experience from Hurricane Ivan, which slammed into the gulf last September, much of the concern centered on the underwater pipelines that link the 4,000 platforms in the gulf to the mainland. These were buried, uprooted or damaged by last year's storm, and many feared that they might have suffered a similar fate from underwater mud slides or swells on Monday. The damage from Ivan took months to repair.

Hurricane Katrina, which made landfall early Monday, left a grim picture in the south, killing at least 70 people, submerging most of New Orleans and devastating communities in Louisiana and Mississippi.

Its impact also highlighted how reliant America's domestic production has become on this region. The United States imports more than 10 million barrels a day of crude oil and more than 1 million barrels a day of gasoline - 60 percent through ports along the gulf. Nearly half the nation's refining capacity is along the coast, from Texas to Alabama.

"We are very dependent on energy resources produced in the Gulf of Mexico, not just the Persian Gulf," said Stephen P. Brown, director of energy economics at the Federal Reserve Bank of Dallas.

http://www.nytimes.com/2005/08/31/business/31oil.html

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