Hurricane Irene may cause gas price spike

Hurricane Irene is becoming an increasing concern for those on the East Coast as it gets closer and closer to the coast. Because of this hurricane, gas futures have rose and are expected to increase even more due to the many refineries that are along the path of the hurricane.

By Steve Hargreaves
August 26, 2011: 2:13 PM ET
CNN Money

NEW YORK (CNNMoney) -- Hurricane Irene is bearing down on the East Coast, threatening nearly 10% of the nation's refining capacity that lies in Philadelphia, New Jersey and Delaware.

Gasoline futures traded in New York have already spiked, rising 10 cents a gallon this week, largely on fears there will be a disruption in output from the refineries, barge routes or pipelines serving the heavily populated eastern seaboard.

Output for the refineries in the hurricane's path is over a million barrel per day, according to the Oil Price Information Service.

Analysts are expecting the refineries may close for several days thanks to Hurricane Irene.

That, combined with heavy travel during the upcoming Labor Day weekend, could send prices at the pump up 15 to 20 cents over the next couple of weeks, said Stephen Schork, publisher of the industry newsletter the Schork Report.

"You'll probably see a temporary pop," said Schork. "It really all depends on how bad the disruptions are."

Refiners are already taking precautions.

At PBF Energy refineries in Delaware and New Jersey, large ships have been sent to sea to avoid potential damage from crashing into docks, said Michael Gayda, the company's president.

Gas spending and prices by state

Other pre-storm precautions include clearing away debris from drainage pipes and disassembling any construction equipment like cranes or scaffolding that could get blown down during the storm.

Gayda said no decision has been made yet as to whether the refineries will shut down or move into a "warm" mode. That mode is a partial shutdown. The company is monitoring the weather via weather services that tailor forecasts specifically to the refineries before making that decision.

"'We have a comprehensive emergency response plan in place," said Gayda.

A spokeswoman for ConocoPhillips (COP, Fortune 500), another big refiner on the east coast, said the company is taking similar precautions.

Refineries are generally built to withstand winds from a category 5 hurricane. But they often rely on outside electricity to refine oil, and even downed wires inside the plant can cause trouble for the operation.

Irene is a Category 2 hurricane. Category 2 storms have winds of 96 mph to 110 mph. Winds of that speed are described as extremely dangerous and capable of causing extensive damage.

"The restoration of power supplies is crucial, and electricity disruptions are common after a hurricane," according to an American Petroleum Institute hurricane fact sheet.

It's far better for refineries begin an orderly shut down of their facilities, which can take many hours, than deal with a sudden power outage that could lead to dangerous conditions, said Tom Kloza, chief oil analyst at the OPIS.

Kloza expects retail gas prices, already at $3.59 a gallon, will rise over the next few days as the spike in futures prices from this week works its way into the market.

But both he and Schork think that over the long run, gas prices should fall.

Schork noted that come mid-September the nation shifts to less expensive "winter gas," which doesn't need to be refined as much because the cooler air is less conducive to smog formation.

And Kloza noted that despite all the hype around the hurricane, the end result is that big storms tend to keep people off the road.

"Bottom line: Hurricanes are much more reliable demand destroyers than supply destroyers," he said.

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