The Aftermath of Hurricane Ike on the Oil & Gas Industry

Sunday, Sep 21, 2008

Offshore oil and gas operators continued restaffing their installations Friday in the wake of shutdowns for hurricanes Gustav and Ike, but production startup was slowed by needed inspections and testing of subsea pipelines that bring resources to shore.

The federal government said nearly 90 percent of oil and more than 75 percent of natural gas production remained off line Friday, with companies saying some installations could resume production as pipelines and other infrastructure permit.

Eileen Angelico, spokeswoman for the Interior Department's Minerals Management Service, said natural gas pipelines retain pressure when shut down, so companies can detect problems before production begins. But oil pipelines need some production running to induce pressure to allow such testing.

"It's a slow process," she said.

However, gasoline supply in Southeast Texas was stable enough to prompt the U.S. government and the Paris-based International Energy Agency to conclude that releasing emergency stockpiles is unnecessary.

In Houston, gas station lines started to thin out as the post-Ike demand spike lessened and more stations opened with restored power. The average price of a gallon of regular unleaded gasoline in Houston dropped a penny overnight to $3.68.

"Producing platforms in the Gulf now seem generally to have fared well, as did other infrastructure," the IEA said in a statement Friday.

The MMS so far has counted 49 platforms destroyed by Ike, but they were near shore and produced a collective 13,000 barrels of oil and 83 million cubic feet of natural gas per day — a fraction of the Gulf's normal daily output of 1.3 million barrels of oil and 7.4 billion cubic feet of gas.

Refineries continued post-Ike damage assessments as four of the 14 shut down for the storm continued working toward restarting. Most have regained power, the first step toward planning startups.

"Not all refiners are ready to produce yet, but the assessment of the U.S. government and the IEA on balance is that, despite a significant loss of crude oil and product due to the shut-ins, there remains adequate flexibility in the system to offset this supply disruption," the IEA said.

Throughout the week, oil companies have increasingly restocked dry gas stations as they rounded up more drivers for tanker trucks and gasoline terminals regained power. Companies also have brought gasoline from other parts of the country, and some increased imports from their operations abroad.

Oil and gas companies also announced multimillion-dollar donations to hurricane relief efforts throughout the week. For example, Exxon Mobil, Shell, Marathon Oil, ConocoPhillips, Chevron, Devon Energy and BP pledged a collective $30 million to such efforts.

Oil prices, which had shrugged off hurricane-related supply issues earlier in the week, returned to three-digit territory Friday after spending a week between $100 and $90 a barrel. Crude closed up $6.45, or 6.6 percent, at $104.33 a barrel on the New York Mercantile Exchange. Gasoline futures increased 11.63 cents, or nearly 5 percent, to close at $2.598.

Analysts said crude's reversal stemmed from constrained supply and moves by the Federal Reserve and U.S. Treasury Secretary Henry Paulson to boost confidence in financial markets.

"Beyond the moves by the Fed, crude and products are being supported by tight U.S. supplies in the wake of hurricanes Gustav and Ike," said Addison Armstrong, director of market research for Tradition Energy in Stamford, Conn.

Natural gas, however, fell as it has throughout the week, with higher-than-expected additions to inventories despite the storms. Unlike oil, natural gas is more influenced by weather factors than movement in stocks and economic concerns, Ritterbusch & Associates in Galena, Ill., said in a note to investors.

 

Source:  Houston Chronicle