Dolly has minor impact on U.S. energy output

Refineries watching storm path across Gulf of Mexico

by Tom Stundza -- Purchasing, 7/23/2008 10:56:00 AM

U.S. Gulf of Mexico producers shut 5% of crude oil and natural gas production ahead of Hurricane Dolly, the first seasonal storm to menace energy production areas, but the shutdowns were expected to be short-lived. "Dolly is a short-term sidebar," energy analyst Tim Evans at Citi Futures Perspective in New York tells the Reuters news service. "We're talking about a very modest amount of production."

Rain started to fall along the Gulf Coast this morning as Dolly closed in on towns straddling the Texas-Mexico border. The Category 1 hurricane was expected to strengthen slightly before making landfall this afternoon and bringing with it up to 15 inches of rain. The National Hurricane Center says Dolly will miss rigs in the region that accounts for 25% of U.S. crude production.

Still, Dolly has caused producers to turn off 395 million cubic feet per of daily natural gas production out of a total of 7.7 billion cubic feet/day and 60,631 barrels of crude oil output out of 1.3 million barrels taken daily from the Gulf of Mexico, according to the U.S. Minerals Management Service

While Dolly's path will take the threat away from the heaviest offshore production areas, the storm still poses a potential threat to three refineries in Corpus Christi, Texas. Valero Energy, Citgo Petroleum and Flint Hills Resources are monitoring the storm and readying the refineries, but production remains normal.

While the 2006 and 2007 hurricane seasons had little impact on offshore production areas, the companies have prepared for a possible repeat of 2005 when hurricanes Katrina and Rita temporarily shut a quarter of U.S. oil and fuel production, sending prices to then-record highs.