'Marketplace' Report: Energy Prices

Hurricane Gustav has forced oil and natural gas companies to shut down production and refining operations along the Gulf Coast. The region produces about a quarter of all domestic oil and nearly 15 percent of U.S. natural gas output. Janet Babin talks about what Gustav could mean for the price of energy.

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ALEX CHADWICK, host:

It's Day to Day. I'm Alex Chadwick. The U.S. Gulf Coast is home to more than one-third of the nation's oil refining capacity. Hurricane Gustav is bound to affect the country's oil and gas supplies in some ways. That could mean higher prices, but so far it really has not. Marketplace's Janet Babin is here. Janet, a lot of the oil production has stopped, right?

JANET BABIN: Yes, that's right, Alex. The U.S. Minerals Management Service said yesterday that almost all oil production, 96 percent, had been shut down. There are about 300 oil rig platforms in the Gulf Coast, only about 700 of them are manned, many of them have been evacuated. [POST-BROADCAST CORRECTION: There are about 3,000 oil rig platforms in the Gulf Coast, not 300.]

Back in 2005, Katrina and Hurricane Rita took out more than 100 oil platforms, but experts say major upgrades have happened since then. And much of the infrastructure is stronger today than it was three years ago. Barbara Shook talked to me about this from Houston, today. She's with the Energy Intelligence Group.

Ms. BARBARA SHOOK (Analyst, Energy Intelligence Group): A lot of those facilities have been reinforced significantly. The companies have gone back through and added reinforcement to make them sturdier, able to withstand stronger storms.

BABIN: Also, Alex, Gustav is a weaker storm than both Rita and Katrina were. So, Shook is thinking that this storm hopefully won't cause as much catastrophic damage.

CHADWICK: But then there are some refining stations further inland across Louisiana and Texas. How are they expected to hold up?

BABIN: Well, many of the big names that we think of when we think of our gasoline do have refineries in an area that could be affected by this storm. Shell, Exxon, Marathon, Conoco, Citgo. At last count, nine refineries in the region had shut down, 10 had slowed production. The big fear here is severe flooding, according to the experts. They say it could take out electricity and cause trouble even for the refineries that have their own generators; and once you shut down a refinery it takes about a week or so to get it back on line. So, the refineries have already been affected, and we're likely to see some of these companies importing oil. The problem there is that about 60 percent of our oil imports have already been affected by the storm, because the Louisiana offshore oil port has been closed.

CHADWICK: Still, what you saw early today was not a kind of spike in prices - a big jump in prices, which is what I'd been expecting. You saw something else.

BABIN: That's right, Alex. The U.S. markets are closed for the holiday, but in the European markets, U.S. crude prices fell more than four dollars. I spoke to Jorge Pinion about why this is happening. He's an energy fellow with the Center for Hemispheric Policy, at the University of Miami.

Mr. JORGE PINION (Energy Fellow, Hemispheric Policy Center, University of Miami): I believe that the markets are realizing that the industry is much better prepared to handle this type of catastrophe. We will see a true reaction - if we have had a major impact, we will see a true reaction to prices here in the next 48 hours.

BABIN: So, it looks like it could still affect prices, Alex.

CHADWICK: Janet Babin of public radio's daily business show, Marketplace. Janet, thank you.

BABIN: Thank you, Alex.

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Correction Sept. 2, 2008

In the interview, we incorrectly said, "There are about 300 oil rig platforms in the Gulf Coast; only about 700 of them are manned." There are actually about 3,000 rigs.

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