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Tropical Storm Isaac: New Orleans Braces As Storm Nears Hurricane Force

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* Landfall expected on Katrina anniversary

* Obama warns of "significant flooding and other damage"

* Massive new floodgate part of city's beefed-up defenses

By Scott Malone and Kathy Finn

NEW ORLEANS, Aug 28 (Reuters) - Tropical Storm Isaac strengthened into a hurricane just off the U.S. Gulf Coast on Tuesday, lashing the New Orleans area with strong winds and heavy rain seven years after the city was devastated by Hurricane Katrina.

Isaac's storm surge could pose a major test of New Orleans' new flood control systems and reinforced levees. Forecasts from the U.S. National Hurricane Center showed the storm coming ashore in the Mississippi Delta late on Tuesday, possibly taking direct aim at the so-called Crescent City.

"Isaac has finally formed into a hurricane, so we are officially in the fight and the city of New Orleans is on the front lines," New Orleans Mayor Mitch Landrieu told reporters.

"Citizens have to be prepared. I'm going to ask you to hunker down," Landrieu said, as hundreds of U.S. Army National Guard troops took up strategic positions around New Orleans.

Brandishing automatic assault rifles to ward off any threat of looting, the troops in military vehicles took up positions on mostly deserted streets. Their arrival came as driving rain and stiff winds began battering the city's iconic French Quarter and its boarded-up storefronts.

Earlier, the Army Corps of Engineers closed for the first time the massive new floodgate on the largest storm-surge barrier in the world, at Lake Borgne, east of New Orleans.

In other preparations, oil production in the U.S. Gulf of Mexico ground to a near halt, and ports and coastal refineries curtailed operations as Isaac neared the Louisiana coastline.


At 2 p.m. EDT (1800 GMT), the Hurricane Center said Isaac was centered about 135 miles (217 km) southeast of New Orleans with top sustained winds of 75 miles per hour (120 kph).

Its forward speed was a relatively slow 10 mph (16 kph), a concern for people in the path of the storm since slow-moving cyclones can bring higher rainfall totals. The storm was about 370 miles (595 km) wide.

Isaac spared Tampa, Florida, where the Republican National Convention began on Monday. But it forced party leaders to revamp their schedule and they may have to make further revisions so as not to be seen celebrating Mitt Romney getting the party's presidential nomination while Gulf Coast residents are struggling through the storm.

President Barack Obama added his concerns in a statement from the White House, saying: "We're dealing with a big storm and there could be significant flooding and other damage across a large area."

Now was "not the time to tempt fate," he added, saying people should heed warnings and evacuate if instructed by authorities to do so.

Isaac had New Orleans in its sights as the city still struggles to recover from Katrina, which swept across it on Aug. 29, 2005, killing more than 1,800 people and causing billions of dollars of damage.


MULTIBILLION-DOLLAR DEFENSE

After Katrina, the Corps of Engineers built a $14.5 billion flood defense system of walls, floodgates, levees and pumps designed to protect the city against a massive tidal surge like the one that swamped New Orleans in Katrina's wake.

The floodgate that closed on Tuesday is 26 feet (8 meters) high and 1.8 miles (2.9 km) long. It was designed to prevent the Inner Harbor Navigation Canal from breaching its walls, as it did in 2005, inundating the Lower Ninth Ward, Gentilly and New Orleans East neighborhoods, and St. Bernard Parish.

Most of the Lower Ninth, which still shows the devastation of Katrina, was deserted and quiet by lunchtime on Tuesday. Residents who hadn't evacuated were unloading water, food and fuel from their cars and trucks into their homes.

Authorities have urged thousands of residents in low-lying areas to leave, warning that the storm could flood towns and cities in Mississippi and Alabama, as well as Louisiana, with a storm surge of up to 12 feet (3.7 meters).

Rainfall accumulations, potentially totaling as much as 20 inches (50 cm) in some areas, could also trigger widespread flooding.

Isaac was not forecast to strengthen beyond a Category 1 hurricane, the lowest on the five-step Saffir-Simpson scale. Its top projected winds were about 80 mph (129 kph). While that would be well below the intensity of Katrina, which was a Category 3 storm, the size of Isaac's slow-moving system has forecasters predicting widespread flooding.

"It's going to take till the weekend before this gets out of the southeastern states," Hurricane Center Director Rick Knabb told reporters on a conference call Tuesday afternoon.

"The hazards are beginning. It is going to last a long time and affect a lot of people," he added.

In New Orleans' French Quarter most businesses were closed and boarded up by around midday on Tuesday, while a handful of workers piled sandbags along doorways. Police and military vehicles were parked throughout the neighborhood.

One of the few businesses that remained open was the Pier 424 Seafood Market.

"We have fresh food and we're here to serve the tourists who are still around," said executive chef Jeremy Latimer, 32.

"Everyone's worried about flooding, but most of our staff lives nearby, so it's easy to get home when it's time to evacuate," he said.

One tourist left in the district was Craig Drees, an accountant from Russells Point, Ohio.

"It's a little eerie how quiet it is," said Drees, standing on a street corner with a few friends. "But it seems like the city is taking this very seriously and will be working to keep people safe."

U.S. ENERGY OUTPUT DISRUPTED

With nearly 80 percent of offshore U.S. Gulf of Mexico oil production shut in and nearly half of natural gas output offline, energy companies along the Gulf Coast refining center braced for the storm's impact, shuttering some plants and running others at reduced rates ahead of Isaac's landfall.

Intense hurricanes such as Katrina -- which took out 4.5 million barrels per day of refining capacity at one point -- have flooded refineries, keeping them closed for extended periods and reducing fuel supplies.

The U.S. Department of Energy estimates that about 1.32 million barrels-per-day of refining capacity had come offline in the Gulf Coast by Monday afternoon. Louisiana usually processes more than 3 million barrels per day of crude into refined products.

Although no damage to offshore installation had been reported, some energy experts said the sweeping disruption of oil production, refineries and key import terminals could make it more likely the U.S. government would release oil supplies from its nearly 696-million-barrel Strategic Petroleum Reserve in the coming weeks.

Prior to the storm, the White House had already considered a release, as tensions over Western sanctions on Iran pushed up oil prices. Despite Isaac's disruptions to production, international benchmark Brent crude traded down slightly to $112 a barrel on Tuesday.

Isaac killed at least 23 people and caused significant flooding and damage in Haiti and the Dominican Republic before skirting the southern tip of Florida on Sunday.

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