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US oil and gas industry heads into hurricane season still weak

File photo of oil rigs in the Gulf of Mexico
by Russell McCulley
New Orleans, Louisiana (AFP) May 28, 2006
With exploration and production still struggling to catch up to last year's levels, the US's crucial Gulf of Mexico oil and gas industry is gearing up for what could be another dangerous hurricane season.

Offshore oil production on the US Gulf Coast, which hurricanes Katrina and Rita brought to a halt last year, remains down by about 21 percent from normal capacity, the Minerals Management Service (MMS) reported this month.

About 13 percent of natural gas production is offline, and 3.3 percent of Gulf Coast refinery capacity is not yet operational, the report said.

Government regulators and offshore energy companies, many still reeling from the damage inflicted by the back-to-back storms last August and September, are working to mitigate possible supply disruptions during the 2007 hurricane season, which begins June 1.

"We're evaluating everything that we possibly can in preparation for hurricane season," MMS spokesperson Caryl Fagot told AFP.

Forecasters at the National Oceanic and Atmospheric Administration

this week predicted another unusually active North Atlantic hurricane season, with as many as 16 named tropical storms, four to six of them rising to Category 3 hurricane strength or higher.

On average, six North Atlantic tropical storms become hurricanes every year. In 2005, there were a record-setting 28 named storms and 15 hurricanes.

Katrina and Rita, which devastated the central Gulf Coast, caused between 18 and 31 million dollars in damage to the region's energy infrastructure, according to a Congressional Budget Office estimate.

"There were significant disruptions, and continue to be significant disruptions," said Michael Kearns, a spokesperson for the National Ocean Industry Association in Washington.

But the 113 offshore platforms destroyed by the storms represent a fraction of the 4,000 platforms in the Gulf, he said, and most of those wrecked were built before 1988, when stricter federal guidelines on platform construction went into effect.

Some newer deepwater platforms suffered extensive damage, however. Shell Exploration and Production Co.'s mammoth Mars platform, which accounts for about five percent of Gulf oil and gas production, resumed limited operations only this month. A company spokesperson said the rig is scheduled to be back to pre-Katrina production levels by the end of June.

Despite ongoing repairs, Kearns said, the offshore industry fared reasonably well last year, especially when compared to the damages coastal refineries sustained.

Flooding and widespread power outages slowed the resumption of business at many refineries, and hundreds of displaced employees are still dealing with housing issues.

"It was the onshore support infrastructure for offshore activity that took the hardest hit during the hurricanes last year," Kearns said.

"So while the platforms themselves may have survived, the people onshore who run them, and the facilities and supply boats and everything along those lines that's necessary to get production going again, took a significant beating last year."

Refinery operators have gone to great lengths to ensure their employees were able to come to work.

"We had a lot of comments saying, 'we never thought we'd have to operate a refinery like an offshore platform, finding housing for people, putting them on boats and in FEMA (Federal Emergency Management Authority) trailers and trying to find day care for their kids'," said refining manager Cindy Gordon of the American Petroleum Institute.

This season, companies are beefing up preparations by stockpiling food and medicine for employees, lining up temporary shelters, establishing multiple forms of communication and getting in place advance inspection teams to assess damage quickly, allowing production to resume sooner.

So far, the threat of a busy hurricane season has had little effect on the energy futures market, said Fadel Gheit, an oil and gas industry analyst with Oppenheimer and Co. A mild winter, coupled with near-record reserves, has kept prices steady, he said.

Gheit said it's impossible to predict how the storm season will affect supply and demand. But there may be more disruptions in production this year as companies throughout the industry, with the memory of Katrina and Rita still fresh, will be quicker to call for evacuations.

"Once you go through an experience of this magnitude like we had last year, I think people are going to be much more careful," he said.

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