Rising River Floats Oil Prices—As America’s “Refinery Row” Tanker Traffic Could Be Interrupted

Some 100 million gallons of gasoline are made a day by refineries along the Mississippi River.

Gasoline for June delivery recovered on Monday nearly all of its 30-cent loss of last week, driven in part by speculation of supply disruption from refineries along the lower Mississippi River. The contract closed in trading this afternoon at some $3.30 per gallon, up from a morning open of $3.09 and resuming its Wednesday morning profile.

The contract for June delivery of crude oil rebounded to some $103 on Monday from less than $98 on Friday. The price remains shy of the $114 it reached last Monday and the more than $140 it peaked at in mid-2008.

Andy Lipow, president of Houston-based, energy-consulting firm Lipow Oil Associates LLC, tells Bloomberg today that the threat of refinery flooding along the lower Mississippi—as seen after Hurricane Katrina’s storm surge spilled over the river’s banks—is unlikely from this lock-and-levee-controlled and highly anticipated flood.

Instead, disruption to oil-tanker traffic along the river due to swiftness of current is possible. In trading crude oil and refined products, “the bias is to the upside,” he said this morning. (Watch the video of Bloomberg’s interview with Lipow.)

There are 11 oil refineries along the river, making some 2.5 million barrels of gasoline a day or 13% of U.S. daily supply, according to Lipow. (For more data, see the U.S. EIA’s fact sheet.)

Flood waters, projected to approach or exceed historical records, are pushing south from the April rain-soaked upper Mississippi (nearly 500% above-average precipitation for the year) and Ohio (nearly 400%) rivers’ regions. Memphis was to see the crest today.

The river at Baton Rouge, Louisiana, where ExxonMobil has a large, legacy oil-refining plant is already at more than 40 feet; flood stage is 35 feet. At 43 feet, “shipping and industrial activities are significantly affected,” reports the National Weather Service.

The water is to reach 44 feet on Friday morning and crest at 47.5 feet on May 22, assuming the opening of the Bonnet Carre flood-control structure downriver but not the Morganza structure upriver.

The record crest is 47.28 feet, set in the spring flood of 1927 that was also exacerbated by excessive rainfall except along the entire southern half. Currently, Louisiana and Mississippi are in the midst of a drought, thus additional water due to rainfall is not expected in the coming weeks.

Farther south, at Donaldsonville, Louisiana, near yet more oil-refining and petrochemical plants, the water was at 30 feet today; flood stage is 27 feet. At 34 feet, “river-barge traffic becomes dangerous, particularly when navigating sharp turns on this stretch of the river,” the NWS’ Advanced Hydrologic Prediction Services reports.

At 38 feet, the river spills over its banks into neighboring communities, and river traffic would be stopped. It is expected to crest at 36 feet on May 22, again assuming the opening of Bonnet Carre downriver but not Morganza upriver.

At New Orleans, the river is expected to exceed flood stage (17 feet) tomorrow and crest at about 19.5 feet the morning of May 23, again if Bonnet Carre but not Morganza. At only 17 feet, “the river will rise on the levee, making navigation and docking difficult,” the NWS reports. It also notes that New Orleans is protected by the Mississippi River levee at up to only 20 feet. (For more in-depth NWS data on river water stages, see the interactive website.)

Thomson Reuters reports in its daily energy-commentary round-up:

--“Murphy Oil Corp. said Friday it did not expect any effects on operations at its 125,000-barrel-per-day refinery in Meraux, Louisiana, due to the rising Mississippi River.” (May 6, 2011)

--“Marathon Oil Corp. said on Wednesday it was closely monitoring the flooding situation along the Mississippi River to determine if any special preparations were required at its 436,000-barrel-per-day refinery in Garyville, Louisiana.” (May 5, 2011)

--“Valero Energy Corp. said it expects no disruptions to production at its Memphis or St. Charles refineries from the flood situation along the Mississippi River.” (May 5, 2011)

The Bonnet Carre Spillway north of New Orleans—built by the U.S. Army Corps of Engineers since the most tragic Mississippi River flood in modern history in 1927—was to begin to be opened today to relieve pressure on river levees south of Lake Ponchartrain, spilling excess water into the lake, which drains into the Gulf of Mexico east of New Orleans.

The Morganza Spillway--farther upriver, north of Baton Rouge, and also built since 1927 as part of an intricate Corps locks-and-levees flood-management system—is to begin to be opened on Thursday, sending excess river water into the Atchafalaya Basin and eventually into the Gulf via the Atchafalaya River west of New Orleans.

Yet, neither assures the river’s current along America’s “refinery row” will be at a ship-manageable level. Lipow points out in the Bloomberg interview that the river has many sharps turns in its path.

The $3.30 close today of the June contract for gasoline is shy of the May 2 peak of $3.40. The contract has been traded since mid-2008 and opened then at roughly the current price, while crude oil was trading at the time at more than $140 a barrel.

The contract fell to as low as some $1.55 in early 2009, while oil fell to below $40 a barrel.

–Nissa Darbonne, Editor-at-Large, Oil and Gas Investor, OilandGasInvestor.com, OilandGasInvestor.com Today, Oil and Gas Investor This Week, A&D Watch, A-Dcenter.com, UGcenter.com. Contact Nissa at ndarbonne@hartenergy.com.