Back-to-back hurricanes Gustav and now Ike, as it churns through the Gulf of Mexico, have taken the lion’s share of U.S. Gulf oil and natural gas production out of circulation, causing a major supply disruption and forcing some producers to request emergency loans from the U.S. Strategic Petroleum Reserve (SPR), evidently to keep their Gulf Coast oil refineries running.
About 25% of U.S. oil production and 15% of its natural gas production come from the Gulf of Mexico.
According to statistics furnished by the U.S. Minerals Management Service (MMS), nearly 80% on average of 1.3 million barrels of daily oil production and 65% on average of 7.4 billion cubic feet per day of natural gas output in the U.S. Gulf have been shut-in since late August when operators first began evacuating platforms and drilling rigs ahead of Gustav.
The Energy Information Administration reported that total U.S. oil product stocks fell 9.2 million barrels to 676.7 million barrels the week ending September 5, as U.S. refinery output plummeted due to disruptions related to Gustav. At 776.7 million barrels, total U.S. product stocks were 24.163 million barrels below the five-year average and 19.8 million barrels below year-ago levels. The deficit between the weekly stocks figure and the five-year average was the largest in four years.
U.S. Gulf producing at 20% capacity for oil, 35% for natural gas
With the imminent arrival of Ike, many operators appear to have delayed production startup following Gustav until after the second storm passes. This means the U.S. Gulf has been producing at roughly 20% of capacity for oil and about 35% of capacity for natural gas since MMS issued its first production shut-in report more than two weeks ago.
Moreover, depending on the extent of damage to platforms, rigs and sub-sea pipelines, it could take additional days, weeks or months to fully assess the damage and restore U.S. Gulf production to pre-hurricane levels. Though Gustav appears to have caused far less damage to offshore facilities than wrought by Category 5 hurricanes Katrina and Rita in 2005, the jury is out on Ike until after the storm makes landfall and companies can begin assessing the damage.
Soon after entering the Gulf of Mexico earlier this week Hurricane Ike appeared headed for southwestern Texas or northeastern Mexico. However, by mid-day Thursday, forecasters had altered Ike’s path to a more easterly direction toward the Galveston-Houston area, with a projected landfall late Friday or early Saturday. Ike was expected to strengthen to a Category 3 or 4 hurricane and make landfall as a Category 2-4 storm.
Meanwhile, Texas state authorities Thursday ordered a mandatory evacuation of Galveston, a barrier island south of Houston that was devastated by a killer hurricane in 1900. An estimated 6,000 to 12,000 persons perished in the storm, which to date remains the deadliest natural disaster ever to strike the United States.
"The official forecast … anticipates that Ike will be a major hurricane at landfall," according to the National Hurricane Center's mid-day Thursday report. Weather forecasters also cautioned that Ike’s dimensions are enormous, meaning high winds and deadly storm surge could affect a broad area along the Texas-Louisiana coast.
ExxonMobil, BP shutting down Houston-area refineries
ExxonMobil and BP said Thursday they were shutting down their Houston-area refineries as a safety precaution. Exxon's Baytown refinery processes 567,000 barrels of oil per day and is the largest refinery in the United States. BP's refinery, also a large facility, is located in Texas City near Galveston.
Exxon and Shell, two of the largest producers in the U.S. Gulf, along with other operators in the region, have or are expected to ask for oil from the U.S. Strategic Petroleum Reserve to help offset oil shut-in due to Gustav and Ike. The SPR is a 700-million-barrel emergency stockpile of oil managed by the U.S. Department of Energy mainly to keep the U.S. economy running in case foreign crude imports are cut off.
