Hurricane Rita's Threat To The Energy & Chemical Sectors
Friday, September 23, 2005SUSIE GHARIB: Energy prices fell sharply today, as traders breathed a sigh of relief that hurricane Rita was tracking further to the east and away from key oil and gas facilities on the Texas coast. Rita was also downgraded to a category three storm. In New York, November crude futures tumbled $2.31, or 3.5%, to $64.19 a barrel. Wholesale gasoline fell 2.5%. We have two reports tonight looking at how hurricane Rita could affect the energy and chemical industries. We begin with Erika Miller in New York.
ERIKA MILLER NIGHTLY BUSINESS REPORT CORRESPONDENT: As hurricane Rita swirls toward land, residents of Texas coastal cities continue to flee inland. Many businesses, including all of the Gulf Coast refineries, have been shut down as a precaution. But at the New York Mercantile Exchange, many traders were betting Texas refineries would escape catastrophic damage.
IRA ECKSTEIN, OIL TRADER, AREA INTERNATIONAL TRADING: What kind of happens a lot of times is you buy the rumor and your sell the actual event. Traders are discounting the event. We don't think it's going to be as bad, as devastating, as you thought the first few days.
MILLER: There's still plenty of uncertainty about exactly where the storm will hit. Many traders are betting Rita will skirt the major oil refining region near Houston. Plus, the Texas refineries are all above sea level, so there's less potential for flood damage. That helps explain why crude oil futures for November delivery fell by more than $2 today to $64.19 a barrel. Many analysts predict prices will continue to drift lower.
ROBERT MORRIS, OIL ANALYST, BANC OF AMERICA SECURITIES: They'll probably settle down here between $55 and $65 a barrel. There's still certainly a really big premium in the price for the lack of any global spare capacity, for the lack of any refining capacity, for the geopolitical premium.
MILLER: Still, not everyone is confident Rita's damage to oil infrastructure will be minimal. A group representing Texas oil companies warns hurricane Rita could potentially be more damaging to refining capacity than hurricane Katrina, which hit less than a month ago. The association says there could be extreme flooding in key refining centers of Port Arthur and Beaumont, both in eastern Texas. Even as the Gulf Coast braces for Rita, experts warn there could still be more ferocious storms still to come.
MORRIS: Hurricane season, the peak is September, but it officially extends through November. We're not out of the woods as far as hurricanes yet here.
MILLER: This year's hurricane season has been unusually active. And when that happens, experts warn the winters in the northeast tend to be brutally cold. All of which could mean higher energy bills this winter. Erika Miller, Nightly Business Report, New York.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: I'm Stephanie Dhue. One-hundred-sixty chemical plants lie in Rita's projected path. Dow chemical, DuPont and Chevron Phillips are among the companies that have shuttered plants in preparation for the storm.
BOB SLAUGHTER: PRESIDENT, NATIONAL PETROCHEMICAL & REFINERS ASSOCIATION: We've shut down basically a third of u.s. refining capacity and over half of the petrochemical manufacturing capacity in the united states. That's going to be gone for several days even if nothing happens, so we're going to have some impact here.
DHUE: The industry is already trying to come back from hurricane Katrina. That storm served as a reminder that even without structural damage, it takes days to shut down chemical plants and days or weeks after the storm to bring them back online.
KEVIN SWIFT, CHIEF ECONOMIST, AMERICAN CHEMISTRY COUNCIL: What we found in the wake of Katrina, that some of the biggest challenge is getting electricity, some of the logistical issues, getting raw materials in, particularly natural gas.
DHUE: Natural gas not only fuels chemical plants, but it is used to extract chemical ingredients, especially for plastics. Natural gas prices, which were already high, soared after Katrina. They have more than doubled in the last year. The complications from Rita are expected to boost prices on a whole range of products from milk containers to computers to pharmaceuticals.
JACK ALBERTINE, CEO, ALBERTINE ENTERPRISES: Prices of those products are going to go through the roof, and that amounts to a tax on business and tax on consumers, which means businesses and consumers will have less money for other things. So I think the economy is going to take a major hit.
DHUE: Already, Dow and DuPont have warned they will increase prices. Economists expect other chemical companies to do the same. Stephanie Dhue, Nightly Business Report, Washington.
