Hurricane Irene Could Disrupt Energy Demand

Hurricane Irene could temporarily knock out a chunk of the U.S.'s oil refining capacity and other big parts of the nation's energy infrastructure, as the storm wreaks havoc in the heavily populated Northeast this weekend.

Phil Flynn, vice president of research of commodities trading firm PFGBest in Chicago, said Hurricane Irene is expected to shut in about 7% of the U.S. refining capacity. But even worse, the storm could endanger the fragile U.S. economy and negatively impact the thirst for energy.

"I'm more worried about the demand side," Flynn said in a phone interview. "Irene could have a huge impact on the economy."

Flynn pointed out that gasoline futures fell on Friday, a sign that traders are worried less about supply disruptions and more about a weak economy.

Plenty of other concerns persist ahead of the storm's expected surge past North Carolina starting on Saturday.

"If the storm damages docks and closes down New York Harbor there would be no way to deliver on some futures contracts -- but that's a worst-case scenario," Flynn said.

An estimated 1.5 million barrels a day of refining capacity could be shut in by the storm, according to published reports. That accounts for the bulk of the refining capacity in the U.S. government's PADD 1 energy district that stretches from Maine to Florida.

Besides refining capacity, the ports in and around New York Harbor also mark the entry point for crude oil and liquid natural gas imports. The region is also served by the massive Colonial Pipeline, which could be affected by a severe power outage.

The U.S. has five Petroleum Administration for Defense Districts, as part of the government's regional organization of the energy infrastructure.

Some refiners with operations in the PADD 1 area include Sunoco Inc. (SUN) and ConocoPhillips (COP) . Privately-held Colonial Pipeline Co., jointly owned by ConocoPhillips, Koch Capital Investments, and a unit of Royal Dutch Shell (RDSA) provides transportation of gasoline from Houston to Linden, N.J.

Besides oil and gas infrastructure, Irene will no doubt impact power producers and construction firms.

Power companies with operations in the states between North Carolina and New York include Duke Energy (DUK), Dominion Resources Inc. (D), Constellation Energy Group (CEG) , Exelon (EXC), Public Service Enterprise Group (PEG) , Pepco Holdings (POM) and Consolidated Edison (ED).

On Thursday, Pepco, which covers the Washington area, said customers could face "extended power outages."

Among the companies that could benefit from the storm, Pike Electric (PIKE) will likely play a role in patching up power lines as the largest emergency response electrical distribution contractor, analysts at FBR said on Friday.

Power infrastructure firms Quanta Services (PWR), MasTec (MTZ), Dycom Industries (DY) and Emcor Group (EME) may also see an uptick, analysts at FBR said in a note to clients.

On the down side, companies with fixed-price projects not related to emergency repairs will face lost work time and productivity from rain and flooding.

"Most engineering and construction firms will feel some negative pressure from this hurricane, but are unlikely to change their respective earnings outlooks for the third quarter," FBR analysts said.

-Steve Gelsi; 415-439-6400; AskNewswires@dowjones.com

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