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Gulf Oil And Gas Output Trails Pre-Katrina Production

Oil rigs in the Gulf of Mexico.
by Russell McCulley
New Orleans (AFP) Louisiana, Aug 25, 2006
Gulf of Mexico oil and gas production is still recovering from massive damage inflicted by hurricanes Katrina and Rita last year and the industry is nervously watching to see what this year holds in store.

A "blessedly quiet" storm season thus far has allowed exploration companies and refineries to continue repairs and bring damaged offshore rigs back into service, said Caryl Fagot, public affairs specialist with the Gulf of Mexico regional office of the US Minerals Management Service in New Orleans.

As the 2006 hurricane season enters what is typically the most active period, there has been no tropical weather threat to the Gulf of Mexico. The National Weather Service is still predicting an unusually busy hurricane season, but has downgraded its initial prediction of as many as six major hurricanes to three or four.

As of late June, offshore oil production was down 12 percent from last year and gas extraction was running nine percent below normal, Fagot said. The numbers were the most recent available, although Fagot noted that more storm-damaged drilling sites had come back into service in the last two months.

"I'm sure those numbers have gone down, but it got to the point where we didn't feel it was necessary for the companies to continue reporting" their progress in repairing shut-in wells, she said.

Hurricane Katrina slammed into the Gulf Coast August 29, killing more than 1,500 people and devastating New Orleans and large swaths of its coast. Hurricane Rita made landfall on September 24 after ripping through the western gulf oil fields.

The twin storms destroyed or heavily damaged 165 offshore platforms and shut down a significant amount of domestic oil and gas production.

The Gulf of Mexico yields about 1.5 million barrels of oil per day, or 25 percent to 30 percent of the nation's overall production.

Many of the platforms damaged or destroyed last year, which are a fraction of the more than 4,000 offshore platforms in the gulf, will not come back into service, said Michael Kearns, a spokesperson for the National Ocean Industries Association.

Many were built before 1988, when the federal government introduced more stringent construction guidelines, or were located in low-producing tracts.

"We're probably at a point where the things that could be fixed have been fixed," Kearns said, adding that any improvement in the numbers will likely come from new production.

Some large, deep-water platforms were shut down by the storms, however, most notably Shell Oil Co.'s Mars platform. Mars resumed partial service in May, and is now producing 145,000 barrels of oil and 155 million cubic feet of gas per day, a 10 percent increase above prior production rates, according to a company statement.

Nearly all gulf oil refineries that were affected by last year's storms are "running at or near capacity," said Cindy Gordon, refining issues manager with the American Petroleum Institute.

Lessons learned during the 2005 hurricane season have left refineries better equipped to handle disruptions such as the power outages and communication problems that affected production last year, she said.

"I think they've taken a good look at pre-positioning supplies and updating and evaluating their emergency response plans," Gordon said.

Even though oil production has remained relatively stable for some time, several factors have converged to make the current market volatile, including the partial shutdown of BP Exploration Alaska, Inc.'s Prudhoe Bay production, continued violence in the Middle East and fresh memories of last year's deadly hurricane season.

In such an environment, even a dip of one or two percentage points in production can have larger reverberations in the market, said Fadel Gheit, an oil and gas industry analyst at Oppenheim and Co.

"When you have a tight situation, everything counts," he said.

"It's a very delicately balanced market," Gheit said. "If we have a two million-to-three million barrels per day shortage for any meaningful period of time, say 30 or 40 days, I guarantee we will see prices of a hundred bucks" per barrel.

A large stockpile in the nation's strategic reserves has helped stabilize prices, he said. But the calm is tenuous: several weeks ago, a small disturbance in the gulf sparked fears that another tropical storm could develop.

"Everybody ran for the hills, and gas prices spiked by 20 percent in one day," Gheit said.

Source: Agence France-Presse

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