Rita's Cold Winds

Get ready for a chilly winter at home. As the increasingly high winds of Hurricane Rita tore through the Gulf of Mexico Tuesday, petroleum prices soared in expectation that America's already battered oil sector could take another direct hit. The rise was tempered by an offer by OPEC to release an extra 2 million barrels a day on world markets, which helped prices to ease slightly on the New York Mercantile Exchange—where the cost of a barrel of light crude had risen by more than $4 Monday, the biggest one-day increase in history.

Still, the long-term costs for consumers are almost certain to increase. The problem is a lack of U.S. refining capacity, which means that even if extra petroleum is available, there may be no way to transform it into gasoline and other products like home heating fuel. The result: utilities in many parts of the U.S. are warning customers that winter heating costs could be up to 70% higher than last year's levels. In the event Rita hits Texas, the largest oil refiner in the U.S., disruption could be serious. That state alone has 26 refineries, largely along the coast, with a capacity of roughly 4.6 million barrels a day, or somewhat more than one quarter of the U.S. total.

It's not just refineries that are vulnerable; five oil rigs were evacuated Monday in the eastern and central Gulf, where Katrina had already sent massive half billion dollar oil rigs off their moorings and laid waste to vital infrastructure. The conditions created by Katrina in the Gulf industry are "unmatched" in history, says Johnnie Burton, director of the federal Minerals Management Service. Since August 26, according to the latest MMS bulletin issued this week, Katrina has already caused the loss of almost five percent of annual Gulf production, or some 547 million bbls of oil.

That's a big bite out of the U.S. energy diet. The Gulf of Mexico produces about a third of the oil and a quarter of the natural gas consumed in the U.S. Katrina forced the shutdown of 95 percent of oil and 88 percent of gas production. Three weeks later, the industry has brought back online some 46 percent of oil production and 66 percent of natural gas. Oil production has been limited by damages to four refineries, which are not expected to be fully operational until next year. Pipeline damage has been harder to assess since divers and boats are a limited resource and now will be sidelined as Rita moves through the area. And remember, dress in layers.