Gas prices spurt as Gulf's rigs, refineries brace for hurricane Isaac (+video)
For safety, about half the oil refineries in the Gulf region have shut down as hurricane Isaac approaches. Gas prices are up 4 cents a gallon over a week ago – and will go higher if down time is extensive.
Just before millions of Americans get ready to hit the road for a Labor Day getaway, the price of gasoline is on the rise. Blame hurricane Isaac.Skip to next paragraph
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In advance of the storm hitting the New Orleans area, about half of the refineries in the storm's path had shut down for safety reasons. With the Category 1 hurricane starting to slow down and gather strength Monday afternoon before coming ashore, concerns are rising about the potential for flooding and electricity outages. Pipelines that send crude oil north to Chicago and gasoline east to Atlanta and the East Coast could also be shut down. And, it will take days to know whether offshore oil rigs, which have also been shut down ahead of Isaac, sustain damage.
On Monday, the price of gasoline on the futures market ran up 28 cents a gallon. On Tuesday, it backed off about 4 cents a gallon, but if it doesn’t come down a lot more, consumers will start to pay much more when they go to fill up the family sedan.
At the pump, gas prices are up about 4 cents a gallon to $3.76 from a week ago, up 27 cents a gallon from a month ago, and up 15 cents a gallon from a year ago, according to AAA.
Seem like déjà vu?
After hurricane Katrina wreaked havoc in New Orleans and the Gulf Coast region in August 2005, the price of gasoline spiked by 40 cents a gallon – from $2.65 a gallon to $3.04 in a week.
Energy analysts say it’s too early to make similar predictions. Isaac is a less powerful a storm than Katrina. In addition, the oil industry learned a lot from 2005 and, presumably, will get refineries back up and running more quickly.
In a best-case scenario, refineries in the Gulf region remain shut for a couple of days. “That will push up gasoline prices,” agrees Sander Cohan, a principal at Energy Security Analysis Inc. (ESAI) in Wakefield, Mass. “But it’s not as bad as it could have been.”
That’s because gasoline inventories are plentiful, and after Labor Day demand for gasoline starts to diminish, he says. “It really depends on how many refineries shut down,” he says.
As of midday Tuesday, refiners had shut down plants with the capacity to produce at least 1.3 million barrels of oil per day. The Louisiana Gulf Coast area produces about 3.2 million barrels of oil per day, or about 18 percent of the nation’s gasoline.
How long everything stays shuttered will depend on Isaac. If the hurricane hangs around the New Orleans area, it could dump 15 to 18 inches of water on the region.
“That is the real danger – massive flooding,” says John Felmy, chief economist at the American Petroleum Institute (API) in Washington. “If there is flooding, that is a whole different kettle of fish – you have to get the water out, dry everything out, check the equipment to make sure there is no water damage, and get power back up and running.”
Government officials have already said they expect widespread power outages as a result of the storm. “You can’t do much without the power grid up,” says Mr. Felmy. “If the power outages last a week, this could be trouble because a week's worth of supply of gasoline is substantial.”