Oil, Gas Production Still in Catch-up Mode

Nearly three weeks after the Gulf of Mexico churned under Hurricane Ivan, oil and gas production remains well below normal levels because of slow repairs and widespread pipeline problems.

Reports of the slow comeback drove oil and gasoline prices higher Thursday, with crude prices touching $53 a barrel in early trading.

And the weather is still causing trouble. A storm system in the Gulf on Thursday led companies to stop many repair projects on the hundreds of offshore platforms that had been shut down during the hurricane.

The country is in a period of low energy use between the highs of summer and winter, but the slow production restarts, combined with relatively minor events such as a refinery fire in Texas City, helped drive oil and gasoline prices higher Thursday.

The fire, at the Marathon Ashland refinery in Texas City, is not expected to have a significant impact on already low inventories. But that doesn't stop speculators from assuming the worst.

"Anything remotely bullish is latched onto as significant," said Tom Mooney, an analyst with Southeast Energy in Houston in a report.

The price of crude oil closed up 65 cents on Thursday to $52.67, a new record for a closing price.

The price of gasoline for November delivery rose 1.44 cents to $1.4019 per gallon, the highest settlement price since May 28.

Gasoline prices in the Houston area have climbed significantly in the past month, with premium up 5 percent to $1.994 per gallon and diesel up 11 percent to $1.974 per gallon.

Nearly 28 percent of oil production and 15 percent of natural gas production remains shut down, according to the Minerals Management Service. Average daily U.S. oil production in September hit its lowest point since the 1950s, averaging 5.03 million barrels per day, according to the Energy Information Agency.

Rick Mercier, director of the Offshore Technology Research Center at Texas A&M University, notes that most offshore production facilities are coming back on line at a predictable pace, but there has been more damage to undersea pipelines than expected.

"There was a fair amount of sea floor movement due to the storm that wasn't appreciated earlier," Mercier said. "So the production facilities are getting back on line, but the pipelines to get that production onshore experienced more leaks than expected."

A Shell pipeline from the Na Kika field was broken in two places, one in 40 feet of water about 30 miles east of Venice, La., and the other in more than 200 feet of water about 15 miles farther east.

The U.S. Coast Guard reported Thursday that repairs were completed, but more than 200,000 gallons of oil and 211,000 gallons of oily water were collected by skimming vessels and other methods.

A 20-inchIdiameter Shell pipeline in the Main Pass area also was broken and is under repair.

El Paso Corp. said it continued to repair two Gulf-region natural gas pipeline systems it owns. The Tennessee Gas pipeline is carrying just 70 percent of its 1 billion cubic feet per day capacity, while the Southern Natural Gas pipeline is carrying just 370 million cubic feet per day versus the 500 cubic feet per day it normally carries.

Even though pipelines are proving to be a major bottleneck, there continue to be production issues offshore. Shell Exploration & Production Co., the biggest operator there, reported Thursday that three of the platforms it operates have yet to return to normal, with two of them not expected to return to levels they were at before Ivan until sometime in 2005.

The Cognac platform will be back to full speed by the middle of November, said spokesman Johan Zaayman, but the Ram Powell tension-leg platform in deeper water won't be up to full production until the first quarter of 2005, after reaching 70 percent by early December.

The Main Pass 252 platform also took heavy damage and won't be up to full capacity until early next year.

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