U.S. To Tap Petroleum Reserves

Move To Help Refineries Affected By Hurricane Katrina

(CBS/AP) 
A JP Morgan report released Tuesday says Katrina has already forced a production halt in about 630,000 barrels of crude a day from the Gulf of Mexico, some 12 percent of daily output. Analysts say that figure is likely to rise significantly in the coming days, once assessments are made.

Analysts are concerned that the slower production could constrain the supply of home heating fuels for winter and they note the hurricane season isn't over yet.

And analysts believe that the operations of natural gas processors and chemical manufacturers, who depend heavily on the natural gas as a feedstock, could be disrupted for days, if not weeks.

Companies are scrambling to assess damage to their platforms, pipelines and refineries — a task easier said than done in some cases because, in addition to flooding, the Gulf Coast has been plagued by power outages. More than 2.1 million customers have reported power outages in Louisiana, Mississippi, Alabama and Florida.

Most energy companies still have not been able to visit their facilities and are relying on aerial surveillance for preliminary examinations.

The drilling rig seen washed up on Dauphin Island off the Alabama coast has been identified as the Ocean Warwick, reports CBS News Correspondent Anthony Mason, owned by Houston-based Diamond Offshore Drilling. The storm carried it 65 miles from its original location. A company spokesman said the Ocean Warwick suffered "significant damage to its legs and upper structure" and will take "at least a year to repair." All workers were evacuated from the rig, which only was involved in drilling, not production, before the storm.

At least seven Gulf refineries remain out of service, and will be for days if not weeks. Also, several pipelines that carry gasoline, heating oil and jet fuel to other markets are stymied by disruptions to the power grid.

Some analysts on Tuesday said the impact of the release of petroleum reserves would be minimal for now, because the problem is not supply, but rather refining capacity.

"The release of crude out of the Strategic Petroleum Reserve is not as critical as making sure that there is enough refined product supply and that there are refineries to process the crude," said analyst Victor Shum from Texas-based consultants Purvin & Gertz.

Katrina, which struck the Gulf Coast as a Category 4 storm, forced the evacuation of more than 700 offshore platforms and rigs. It slammed into a major oil production hub at a time when producers worldwide were already struggling to cope. The latest storm of the Atlantic hurricane season now threatens to constrain the supply of home heating fuels for the North American winter, a season of traditionally high demand.

Organization of Petroleum Exporting Countries secretary general Adnan Shihab-Eldin reiterated Tuesday that the group will supply extra barrels of crude oil to refiners if they want them. Previous OPEC pledges have done little to ease market fears over supply.

The U.S. Minerals Management Service said Monday that 92 percent of the region's oil output was out of service, with more than 3 million barrels of production lost since Friday. The agency said 83 percent of natural gas output was shut down, resulting in a loss of 15.5 billion cubic feet of lost production since Friday.

The Gulf of Mexico normally produces 2 million barrels of crude oil a day and about 10 billion cubic feet a day of natural gas.