U.S. Gulf refineries at mercy of battered power grid

By Erwin Seba

MERAUX, Louisiana (Reuters) - The normally bustling Murphy Oil Corp refinery in Meraux, Louisiana, stood in eerie silence on Wednesday, apparently undamaged but paralyzed by a lack of reliable power in the wake of Hurricane Gustav.

The plant was one of 11 refineries -- representing just over 11 percent of the U.S. fuel supply -- still shut by the storm that made landfall near New Orleans on Monday. A chunk of that fuel production remains at the mercy of a power system that took a devastating hit.

"We don't have the damage from wind and flooding, so now we're just mainly focused on a damaged power grid, which could take days or weeks to recover," said oil analyst Jim Ritterbusch, president of Ritterbusch & Associates of Galena, Illinois.

Energy experts said U.S. fuel stockpiles appeared high enough to compensate for a temporary reduction in nationwide production, particularly as energy demand shrinks under the weight of high prices and a soft economy.

But a long delay could boost retail prices for gasoline and raise heating oil costs heading into the winter.

Entergy Corp, Louisiana's largest utility, said Tuesday that five out of a dozen refineries in Louisiana had no electricity due to extensive damage to Entergy's high-voltage grid from Hurricane Gustav.

Entergy did not name the five refineries, but said the worst damage was in the New Orleans-Baton Rouge area, home to some of the biggest U.S. plants -- including Exxon Mobil's giant Baton Rouge facility.

Louisiana Gov. Bobby Jindal said as many as 1.4 million homes and businesses state-wide were without power after the storm and called on Entergy to "quicken the pace by which power is being restored." He said the outages were the biggest obstacle hampering the state's recovery.

Entergy did not give an estimate for the duration of work, but said power restoration would be a "delicate balance" of adding load as repairs allow.

Refiners Valero Energy Corp, Exxon Mobil, Shell Oil and Murphy Oil have said initial indications showed little damage to their plants, but they added restarts at some of the facilities would depend on reliable power.

"If you notice, the parish is without power," said Richard Neyland, safety supervisor at Murphy's Meraux refinery. "It makes gas," Neyland said, looking at the idle plant, "but not without power."

Gustav was the first big hit to U.S. energy supplies since 2005, when hurricanes Katrina and Rita wrecked 100 offshore oil rigs and flooded several key refineries, including Murphy's Meraux plant, idling them for months.

But the relative weakness of Gustav has encouraged a steep sell-off in oil prices in recent days, with dealers betting on a quick recovery in oil and refining production. O/R]

As of Wednesday morning, more than 90 percent of the oil and natural gas production in the Gulf of Mexico was shut, along with 11 refineries along the coast. Another eight refineries were running at reduced rates. ID:nN03480957

"It seems like we were spared the severe damage caused by Katrina and Rita in 2005, but it will probably be one to three weeks at the most before much of this is resolved," said Rick Mueller, energy analyst at Energy Security Analysis Inc.