Hurricane shows fragility of U.S. oil production.

Publication: The Dallas Morning News (Dallas, Texas) (via Knight-Ridder/Tribune Business News)

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COPYRIGHT 2005 The Dallas Morning News

Aug. 30--Facing declining output from Alaska's Prudhoe Bay to the once-prolific Texas oilfields, the U.S. petroleum industry has pinned its greatest domestic hopes on vast reserves in the deepest waters of the Gulf of Mexico.

But the fragility of those billion-dollar projects grew clear Monday as oil companies and traders nervously awaited word of catastrophic damage from Hurricane Katrina.

With growing oil and gas production and a vast network of refineries, the Gulf region has become a nerve center for the nation's petroleum infrastructure. Almost half the U.S. refining capacity sits near the Gulf. Vital oil and gas pipelines feeding the Midwest and Northeast markets start in the area.

So one of the strongest storms in history plowing through the sensitive region led traders to imagine their worst fears in a market already on edge about a shortage of U.S. refining capacity.

"The Gulf coast has always been the flywheel for the country," said David Freyman, a refining expert at Barnes & Click Inc. in Dallas. "The flywheel is now doing base business instead. We're counting on...

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