It’s been a helluva past month in Houston.
First, the Houston community responded to the worst natural disaster in America in decades by taking in tens of thousands of evacuees (posts here, here and here) from New Orleans and the central Gulf Coast who had almost everything but their lives. Then, as that relief effort was winding down, Houston confronted Hurricane Rita, a category 5 storm bearing down for a direct hit on the city. Implementation of the city’s evacuation plan led to an estimated 2.7 million Houston area residents hitting the road, resulting in unprecedented traffic gridlock and gasoline shortages throughout the region. After Rita veered off to the east to make landfall on the Texas-Louisiana border, Houston is now dealing with the not insubstantial problem of how to have 2.7 million people return to their homes in the region without experiencing the same type of gridlock and shortages that occurred when they left.
Whew!

Despite all that, the initial signs are that the feared economic repurcussions of damage from Hurricane Rita will not be all that bad. Damage to the vital concentration of oil refineries along the Texas coast appears to be relatively light, and U.S. Coast Guard aerial reconnaissance of the Ports of Houston, Galveston and Port Arthur and their related shipping lanes showed few problems as a result of the hurricane. The biggest problem at the Port of Houston is that the winds out of the north as the storm pushed onshore pushed water out of the Houston Ship Channel and Galveston Bay so that those relatively shallow waterways do not have enough water to accomodate deep sea vessels at this point. However, the water levels should should return to normal levels by Monday or Tuesday, so no substantial disruption in Port operations are expected.
Inasmuch as prices for gasoline and diesel fuel would rise if Houston-area refineries and ports are slow to resume operations, the light damage reports were good news for markets that are still recoiling from the economic impact from the damage to the New Orleans area from Hurricane Katrina.
However, even without extensive damage to refineries and Gulf oil and gas production facilities, the energy industry’s pre-Rita shutdown will at least stretch gasoline supplies for the next several weeks. Sixteen refineries were shut down in anticipation of Rita, and that accounts for almost 25% of U.S. refining capacity. That’s nearly twice as much of the U.S. capacity that was shutdown prior to Hurricane Katrina, and only about half of that capacity affected by Katrina has come back on line. It normally takes between a week and two weeks for a shutdown refinery to resume normal operations.
Nevertheless, good news emanated on Saturday from the Houston area refineries. Exxon Mobil Corp.’s Baytown plant, which is located between Port Arthur and Houston and is the nation’s largest, announced that it planned to restart a number of units beginning today. Terminals and pipelines have already reopened, and the 557,000 barrel-a-day refinery is already delivering gasoline out of storage. Similarly, Royal Dutch Shell PLC announced Saturday that its 340,000 barrel-a-day Deer Park refinery near Houston was not damaged and that both its North Houston and Pasadena distribution terminals are fully operational. BP PLC’s huge Texas City refinery is thought to be in the process of restarting, while the smaller Marathon Oil Co. and Valero Energy Corp. refineries in Texas City were also moving towards restarts after reporting no serious damage.
The initial damage reports are worse from the refining area near the Texas-Louisiana border where Rita made landfall. The Port Arthur-Beaumont area has four refineries and Lake Charles, La. just across the border has three plants. Although damage assessments are still ongoing at those plants, the restarting of those plants will take longer both because of probable greater damage than to the Houston area plants and the lack of power, which will probably not be remedied until later in this week.
As a result of the foreoing, crude oil futures fell sharply in unusual Sunday trading as it appeared that oil rig and refinery damage from Hurricane Rita was less than originally feared. Oil prices had climbed steadily last week as Rita churned through the Gulf of Mexico as a category 5 and then 4 hurricane, but fell Friday as the storm weakened before its early Saturday morning landfall just south of Sabine Pass, La. A barrel of light sweet crude for November delivery was down $1.40 at $62.80 on the New York Mercantile Exchange, and unleaded gasoline fell 10.46 cents to $1.98 per gallon. Sunday trading via the Nymex electronic Access system and on London’s International Petroleum Exchange was arranged late last week in an effort to mitigate energy market volatility resulting from Hurricane Rita. However, the lack of damage to the facilities appears to have deflated interest in early trading. On London’s IPE, Brent crude futures fell $2.59 to $62.01 in light trading.