By Matthew Carr
Thousands of residents flee. Others stand by the riverside taking witness to an event never seen in their lives… and will maybe never see again.
The Mississippi River is swelling to dangerous and deadly proportions.
It’s a precarious situation. The Mississippi crested last week in Memphis, Tennessee at 48 feet… 14 feet above flood stage. Just inches below an all-time record.
The devastation and loss on an individual level is tragic. But the rising Mississippi poses a serious threat to the nation’s refining capacity from New Orleans to Baton Rouge. Ten refineries in the area produce some 2.5 million barrels per day – roughly 12 percent of total U.S. refining capacity.
Largets Refiners in Nation Keeping an Eye on Rising Levels of Mississippi
The nation’s largest refiners are battling back or keeping a vigilant eye on the encroaching water levels:
- Valero Energy (NYSE: VLO)
- ExxonMobil (NYSE: XOM)
- Marathon Oil (NYSE: MRO)
- Murphy Oil (NYSE: MUR)
- Alon USA Energy (NYSE: ALJ)
- ConocoPhillips (NYSE: COP)
- Royal Dutch Shell (NYSE: RDS.A)
These operations include Exxon’s 504,500-barrel-per-day refinery in Baton Rouge, the second largest in the country… directly in the path of the Mississippi’s wrath.
The docks at Exxon’s refinery are flooded and now closed. The company’s fuel distribution terminal in Memphis closed at the end of April due to flooding.
Alon’s Krotz Springs 83,000 barrel-per-day facility sits in a mandatory evacuation zone. But the company received an extension for employees to build a temporary levee to protect the refinery and 250 nearby homes. During the next two weeks, floodwaters will surround Alon’s facility. The heart of the refinery is fine. But it’s docks and other facilities are unprotected.
The Good and Bad of Opening Spillways in Louisiana
The U.S. Army Corp of Engineers opening spillways is a difficult situation.
On the good side for refineries in District III is the extensive levee and spillway system built after 1927′s Great Mississippi Flood – the most destructive in U.S. history. This keeps the floodwaters near New Orleans in check, meaning tankers can still deliver crude for processing. But opening the spillways floods crops and forces evacuations. So eight of the 10 refineries in the wake of the Big Muddy’s swell should be okay… as long as the levees hold.
But there’s another problem here. Barges use the Mississippi to transport gasoline and other refined petroleum products. Rising water levels will force the U.S. Coast Guard to shut down portions of the Mississippi. This creates logistical hiccups for transporting gasoline from the area to market. And the prospect of closures isn’t far-fetched. For example, if water levels peak over 18 feet in New Orleans, the Coast Guard will have to halt shipping in that area.
If that happens, the refineries are still able to get crude, but it would come via pipeline either from the Louisiana Offshore Oil Port or the Plains All-American Pipeline.
An Instantaneous Impact on Gasoline Prices
The National Weather Service projects flood waters to hit Baton Rouge on May 23, at a height between 45.5 and 46.5 feet. The following day, New Orleans expects the Mississippi’s girth to pour in.
A major disruption to refining capacity would impact the price of gasoline almost instantly.
In 2005, when Hurricane Katrina swept through the Gulf of Mexico and smashed into Louisiana, it took nine refineries offline. The effect was immediate. Between August 29 and September 5, 2005, the average price of gasoline in the United States rose almost $0.50 per gallon – from $2.58 to $3.04. The price then averaged over $2.75 through the next nine weeks of September and October.
The current flooding also threatens more than 2,250 oil and natural gas wells in Louisiana. These produce 10 percent of the state’s onshore oil output and 253 million cubic feet of gas.
As it stands now, corn growers along the Mississippi’s swath of destruction are feeling the largest impacts. But keep an eye on refiners over the next couple of weeks as the crest surges south.
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