UPDATE 5-Oil companies, refiners brace for Louisiana-bound Isaac

Tue Aug 28, 2012 6:00am IST

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* About half Louisiana's refining capacity shut down

* Isaac projected to hit Louisiana at Category 2 strength

* Isaac idles 78 pct of US Gulf oil production, 48 pct of gas output

* Gasoline futures rise, crude falls on concern over refinery impact

By Kristen Hays and Erwin Seba

HOUSTON, Aug 27 (Reuters) - Energy companies evacuated offshore oil rigs and shut down U.S. Gulf Coast refineries on Monday as Tropical Storm Isaac threatened to reach hurricane strength and batter the country's oil refining belt this week.

The National Hurricane Center (NHC) projected that Isaac, currently a tropical storm in the Gulf of Mexico, could strengthen markedly before making landfall in Louisiana by Wednesday, seven years after Katrina ravaged the Louisiana coast when it swept ashore as a Category 3 storm.

Late Monday, the NHC revised its forecast for Isaac, warning that it could reach Category 2 strength -- marked by winds between 96 and 110 miles per hour on the Saffir scale -- before making landfall.

Earlier Monday, it had projected a lighter Category 1 landfall.

"Reconnaissance aircraft indicates Isaac getting stronger," the NHC said in an advisory at 4:56 p.m. EDT (2056 GMT), calling the storm surge threat "significant" for the Northern Gulf Coast.

As a precaution, as of Monday afternoon the energy industry had shut down 78 percent of Gulf of Mexico crude production and 48 percent of its natural gas production, government figures showed.

Houston-based Bristow Group, which runs a fleet of 90 helicopters in North America, has been running a military-style evacuation operation ferrying workers from oil platforms hundreds of miles offshore in the Gulf of Mexico back to heliports in New Iberia, Louisiana.

"We have been very busy in the past three or four days," said Jonathan Bailiff, senior vice president and chief financial officer. "It's not hectic, but there is a real sense of urgency."

Shut-ins are expected to increase over the next few days. The region accounts for nearly a fourth of U.S. oil output and 7 percent of its natgas output.

Oil and gas traders on Monday focused on Isaac's potential to tighten fuel supplies by idling refinery operations in the Gulf Coast, home to around 7.8 million barrels per day (bpd) of capacity, or 45 percent of the U.S. total.

U.S. gasoline futures rose by 2.5 percent on fears the storm could affect low-lying Louisiana refineries. Crude futures fell 0.7 percent to settle at $95.47 per barrel, on concerns oil consumption could drop as refineries are idled.

Isaac, currently around 255 miles (415 km) southeast of the mouth of the Mississippi River, is packing 65 mile-per-hour (100 kilometer-per-hour) winds and is expected to strengthen before reaching land, when it could cause storm surges of six to 12 feet in parts of Louisiana, Alabama and Mississippi, the NHC warned.

"Isaac looks like a smaller storm event than Katrina was, but energy companies are following their emergency drill, which means we will lose some production and some refineries will be shut," said Citi energy analyst Tim Evans.

"They have learned their lesson from past storms."

Refineries in Louisiana usually process more than 3 million bpd. On Monday, companies including Marathon Petroleum, Valero, Exxon Mobil, and Phillips66 had closed -- or were in the process of reducing rates at -- around half of the state's refining apparatus.

The Louisiana Offshore Oil Port (LOOP), a major conduit for U.S. oil imports, suspended tanker unloading to brace for the storm.

The U.S. Coast Guard said it closed the port of New Orleans temporarily.

In Mississippi, Chevron Corp. said it continued to operate its 330,000 bpd plant at Pascagoula. Chevron, like many other U.S. producers, said it had shut in some offshore oil and gas output.

Energy firms, including top offshore producer BP PLC, have already idled more than a dozen major offshore oil and gas platforms since last week.

FIRST OF SEASON

The Gulf of Mexico is also the site of a vast pipeline network and 30 percent of U.S. natural gas storage.

If Isaac continues on the trajectory forecast by the NHC, it would be the first hurricane of 2012 to make landfall.

In 2005, Katrina took out around 4.5 million bpd of refining capacity, some of which was idled for months, driving up fuel costs.

Gasoline inventories in the Gulf Coast remain at seasonally high levels. For the week to Aug. 17, they stood at 70.2 million barrels, or 1.1 million barrels above their five-year average level for the week, according to Department of Energy figures.

Since 2005, billions have been spent on new levees and pumping stations to lessen the potential blow from tidal surges like those that destroyed part of New Orleans seven years ago during Katrina.

"It's too early to know, but if all goes well this storm will only be a test of the emergency drill," said Citi's Evans. "In that case, energy infrastructure could be back up and running soon."

Marathon Petroleum said on Monday it was initiating the shutdown of its 490,000 bpd refinery in Garyville, Louisiana.

Phillips66 said it was in the process of shutting its 247,000 bpd Alliance refinery in Belle Chase, Louisiana, and that the plant would be offline by late Monday.

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