Coast Guard anticipates closing Port of New Orleans and lower Mississippi within several hours

The U.S. Coast Guard expects to close the Port of New Orleans and lower Mississippi River Friday, officially stopping all commercial shipping ahead of the arrival of Tropical Storm Barry.

A Coast Guard spokeswoman said shipping activity has already been curtailed, ahead of the announcement, which should be made after a 2 p.m. CDT meeting.

"The port's not closed from the Coast Guard standpoint, but people have gotten to the point where they know it will close," said Lt. Rachel Ault. "For the most part, there's really no movement."

Barry's winds have begun buffeting the Louisiana coast, sections of which are under hurricane watch. The National Weather Service is warning of storm surge and heavy rains from the storm, which has the potential to become the first hurricane of the season.

If Barry becomes a hurricane, it mostly likely will be a Category 1 storm, with much less wind damage potential than other storms that have hit the area. Refineries in its path could be vulnerable to storm surge and other flooding, which could keep personnel from reporting to work.

"Most of the refineries are rated for a Cat 3 and have come through Cat 4 and 5 storms pretty well," said John Kilduff, partner with Again Capital. "I'm more concerned about the flooding of the Mississippi down by its mouth because of all the water that was already coming down. I'm more worried about the shipping interests, and what it would do to both imports and exports and movement of supply."

The oil industry has already been moving tankers out of the area and shut in more than half the Gulf of Mexico's oil production. The government estimates that as of Friday morning, 59% of current production, or 1.1 million barrels of oil per day, had been curtailed, as the industry evacuated workers in the Gulf. About 49% of all natural gas production had also been shut-in.

The U.S. has become the world's largest oil producer in the last year, producing 12.3 million barrels a day, 1.8 million barrels of that from the gulf. As a result of this boom, the U.S. is now a major exporter, and shipped 3 million barrels a day of U.S. crude last week, while importing 7 million barrels a day.

"We're seeing 4 million barrels of non U.S. crude that could face delays getting into the south because of Barry. There were a couple of vessels, one called 'Dubai Glamour' that was carrying crude from Latin America, that showed a clear diversion this morning. It made a 180 to clear that path," said Daniel Graeber, chief editor of Clipperdata. The ship was carrying about 500,000 barrels of crude from Columbia to the U.S. gulf coast, he said.

Graeber said Barry strikes as fewer ships and much less oil are on the gulf than at the same time last year. Clipperdata estimates 2.3 million barrels a day has been floating on the gulf in July, down from 14.7 million barrels last year.

"I would just say the U.S. is not really drawing in as much foreign oil as it had been," he said.

Graeber said Clipperdata expects the federal government to report total U.S. crude exports of 2.3 million barrels a day in its weekly data Wednesday, 729,000 barrels less than last week. Graeber said he also expects the gulf coast area to report slightly more crude, and most of those barrels would be unloaded in Texas, away from the storm zone. He expects 71,000 barrels a day more crude is coming to the the gulf coast area, from 1.9 million barrels last week.

Mike Bradley, energy strategist with Tudor, Pickering, Holt, said U.S. export capacity is about 5 million barrels a day, but most of that is in Texas with just 700,000 barrels in Louisiana.

"I would say we're not expecting more than 1 million barrels (of crude) to be affected," said Bradley. He also said he expects about the same amount of imports to be impacted, or delayed by Barry.

"The refineries that are going down are not going to take crude. The ships are going to be sitting in the gulf and hovering around until the refiners take shipments. The imports could be affected by several days, a week at most," he said.

Bradley said he expects the industry to return personnel to offshore rigs as soon as its safe.

"They'll probably be out there in the next 24 to 48 hours, putting crews back," he said, noting the loss of oil output is not huge. "It's a blip unless there's damage."

The industry is not anticipating longer term disruptions from Tropical Storm Barry, but the amount of flooding that comes with the storm could be the wild card, with some forecasts for 20 inches of rain in some spots.

Tom Kloza, head of global energy analysis at Oil Price Information Service, said refineries were all running at high summertime rates, and so far the only refinery that had a precautionary shutdown was Phillips 66's Alliance refinery.

Kloza said the refineries have extensive plans for storm-related outages, but they do not include them in any preset schedule. They do plan for seasonal maintenance which is done twice a year before and after summer gasoline production. "They don't plan to go down in the middle of the season," he said.

Most refining operations in the area are expected to remain running. Reuters reported that Royal Dutch Shell's refineries in Norco and Convent, La. plan to remain open, and Exxon was taking steps to minimize the risk of heavy rains for its workers and equipment.

Some refiners could cutback operations, but the process of actually shutting down is much more involved and would take several days to resume.

"They have product on hand, but they have to take the refinery down very carefully and they have to take it back up very carefully. It might be a week before they're back to normal," Kloza said.

Kloza said he is watching for possible announcements from two other refineries in Lake Charles. One is owned by Citgo, the other by Phillips 66.

Paul Sankey of Mizuho notes there are refineries with capacity totaling 1.8 million barrels a day in the potential path. 

Like other analysts, Kloza said the storm may not damage much energy infrastructure but it will wreak havoc with the government's weekly oil market report, watched by the market globally for its supply/demand data. The next report is due Wednesday at 10:30 a.m., and the data could be skewed by the storm. The data could be impacted both by the storm disrupting exports and imports. The industry may also not be as focused on supplying the data in the New Orleans area as it normally would be.

"It really screws up EIA reports next week and perhaps the week after that. We're going to get some screwed up data. Also, we could get sweet crude go up in price at the Gulf Coast but Cushing doesn't match it," he said, suggesting the spot market on the coast could get bid higher than the price of crude at Cushing, the US storage hub.

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