Mississippi Flooding May Disrupt Gulf Coast Oil Refineries

May 12, 2011 — -- The oil industry is watching the Mississippi River flooding closely amid fears that key oil refineries may be disrupted, possibly causing gasoline shortages and price spikes.

About half of the nation's oil refinery capacity is concentrated in the Gulf Coast region, according to the U.S. Energy Information Administration

Andrew Lipow, president of Lipow Oil Associates in Houston, said only one refinery, run by Alon USA Energy in Krotz Springs, Louisiana, is at risk for flooding in the next seven days. And that's only if the Army Corps of Engineers decides to open a spillway from the Mississippi River to the Atchafalaya River.

The Mississippi River is expected to crest, or reach its highest level, in New Orleans on May 24, when the refineries could be at most risk, Lipow said.

A spokesman for Alon, Blake Lewis, said operations at Krotz Springs Refinery are "running normally."

"Refinery personnel are continuing to monitor conditions on the Atchafalaya River and will adjust operations, if needed," Lewis said.

Oil prices have been on a rollercoaster ride, mostly in the up direction for the past year. Yesterday, crude dropped 5.5 percent to below $100 a barrel after a government report showed stockpiles increased as drivers have cut back on trips. Still, oil is up almost 30 percent from a year ago and any disruption at the refineries is likely to cause another price spike at the pumps.

Lipow said the likelihood that any of the refineries will be flooded is "rather small." Even when the river crests, he anticipates that the waters will still be held in the river system.

There are 11 refineries along the Mississippi River between New Orleans and Baton Rouge, comprising 13 percent of U.S. output.

Though rising waters could have an impact on the river transportation of oil tankers and barges -- about three to four weeks of delivery delays -- Lipow said he does not expect the same level of disruption as that of Hurricane Katrina.

"So long as the river crests below the levee height, flooding near the refineries will be averted," Lipow said.

But Lipow said transportation delays alone will not significantly affect oil and gas prices.

"The market is most concerned if there's a supply disruption from the refineries," Lipow said. "As the river rises and falls and it becomes apparent there will be little to no impact from refineries, gasoline prices will continue to fall."

Greg Flynn, spokesman for the Mississippi Emergency Management Agency. Flynn said the river is currently cresting in Tunica, Miss., south of Memphis. He said he expects the river to continue to crest in Greenville, Miss. on May 16, in Vicksburg on May 19, then in Natchez on May 21.

The flooding river will break flooding records in Vicksburg and Natchez, Mississippi. In Vicksburg, the river is expected to reach 57.5 feet, breaking the record of 56.2 feet in 1927. In Natchez, the river is expected to reach 64 feet, breaking the old record of 58 feet set in 1937.

Flynn said when a river crests, it will hold there for approximately a week before starting to lower. But in those crested areas, water levels will not decrease below flood stage levels until about a month, he said.

Shane Pochard, a spokesman for Marathon Oil, which has one refinery along the Mississippi River in Garyville, Louisiana, could not comment on its operations but said the company is "monitoring the situation." That refinery's production capacity is 464,000 barrels a day, he said.

Charles T. Drevna, president of the National Petrochemical & Refiners Association, said he does not have information about how the flooding along the Mississippi River is affecting individual refineries. But he said the refineries are taking "all necessary steps" to protect their workers, neighbors and facilities.

A spokeswoman for the Department of Energy said the office is monitoring the overall flooding situation "very closely" and does not expect refineries to be impacted.

Though none of the dozen or so refineries along the Mississippi River have closed operations because of the flood, analysts still have concerns about a disruption.

The national average price of regular gas is $3.97 a gallon, up $1.06 from a year ago, according to the Energy Information Administration.

Shell said it is preparing for the possibility that the U.S. Coast Guard could close marine traffic if the Mississippi River's water levels continue to rise. That could affect the company's ability to load barges and ships at some of its facilities' docks in Geismar, La. and Norco, La., Shell said in a statement on its website on Tuesday.

"We will continue to monitor the situation and Corps of Engineers' predictions," the company said on the website. "Our focus remains on safely operating the plants and docks, and reducing the potential impact to our customers."

Shell is also using its Twitter page to alert followers of updates on those sites.

The refineries in the Gulf Coast supply much of the petroleum needs locally and in the Midwest. They also contribute to about half of the petroleum products for the East Coast, according to the National Petrochemical & Refiners Association.

There are 13 oil refineries in Louisiana alone, which process over 3 million barrels of crude oil per calendar day, according to the U.S. Energy Information Administration in January 2010.

There are 148 operable refineries in the U.S., as of January 1, which have the capacity to handle 17.5 million barrels a day, according to the EIA.