After Hurricanes, U.S. Energy Output is Slow to Resume

WASHINGTON Sep 30, 2005 (Dow Jones Commodities News Select via Comtex)

A lack of sufficient workers, helicopters and equipment is hampering efforts to assess damage to offshore Gulf of Mexico oil and natural-gas facilities and restart production, which remains mostly shut down nearly a week after Hurricane Rita came ashore.

The slow progress, along with estimates that restarting Gulf Coast refineries could take longer than expected, will likely keep upward pressure on fuel prices and is renewing concerns about heating costs this winter. Supply concerns have moved the administration of U.S. President George W. Bush -- who took office scoffing at the idea of a national energy-conservation policy -- to plan a national energy-conservation campaign to be unveiled next week to give consumers, businesses and federal agencies tips on saving energy during the winter heating season.

The federal government estimates that, on average, heating oil and natural-gas bills will be about 50% higher this winter than they were a year ago. "We think consumers need to know this now so that they can take steps to do something about it," said David Garman, undersecretary of energy.

The back-to-back impact of hurricanes Katrina and Rita have taxed the offshore-support industry's ability to operate. Even keeping helicopters moving is difficult because so many refueling platforms in the gulf are out of order. "A lot of dock facilities that boats would leave from are gone. Hangars are messed up. Helicopter availability is tight," says Tony Lentini, a spokesman for the Houston-based exploration company Apache Corp.

The federal Minerals Management Service reported yesterday that 99% of daily U.S. oil production and 80% of natural-gas production remains offline. Much of that was taken offline as a precaution before Katrina and Rita hit. Still, production returned much faster immediately following last month's Katrina and last year's Hurricane Ivan. The Gulf of Mexico is an energy-rich region, accounting for about one-quarter of U.S. oil and natural-gas production.

The impact of so many producing wells being closed off is having a significant impact on winter gas prices. Yesterday, the federal Energy Information Administration reported 53 billion cubic feet of natural gas was put into storage for the winter during the week ending Sept. 23, well below analysts' consensus forecast of 66 billion cubic feet.

Yesterday, a gas contract for November closed at $14.196 (11.81 euros) per million British thermal units, up 9.6 cents, on the New York Mercantile Exchange, reaching another high. Crude-oil futures also rose.

Once existing production is restarted, the hurricanes have damaged enough drilling rigs that it will slow efforts to find new pockets of oil and gas or rework wells to boost production. The two hurricanes either sank or seriously damaged 13 drilling rigs, shrinking an already tight Gulf of Mexico fleet by 12%, according to ODS-Petrodata, an offshore market-analysis firm.

"Will it be more difficult to drill? Yes? Will it be more expensive? Yes. Will the end product cost more, you bet," says Al Reese Jr., chief financial officer of Houston-based energy company ATP Oil & Gas Corp.

Onshore, many of the refineries in the Houston area were in the process of restarting operations, but BP PLC offset that good news, saying it would be several days before damage to insulation is repaired at its 437,000-barrel-a-day Texas City refinery, the country's third largest.

Meanwhile, restarting seven refineries hit hardest by Rita -- from Port Arthur, Texas, to Lake Charles, Louisiana -- could take longer than originally thought. Including refineries still out of service due to Katrina damage, a little more than 20% of U.S. refining capacity remains shut down. Reliable electricity is turning out to be the biggest hurdle for restarting refineries in the hard-hit area around the Texas-Louisiana border.

U.S. Department of Energy Secretary Samuel Bodman is expected to showcase Monday a public-education effort called "Easy Ways to Save Energy," according to department officials familiar with the plan. The department, working with the nonprofit Alliance to Save Energy, will encourage consumers to add insulation, repair weather stripping, install thermostat timers and take other steps to reduce heating bills.

The department also will expand its existing program to send energy-efficiency experts to visit factories and other businesses to provide advice, and will explore similar energy-saving steps for the federal government -- the largest single user of energy in the U.S.

Officials said the campaign won't, for the most part, address fuel conservation for cars, sport-utility vehicles and trucks, a hot political issue with the average price of unleaded gas at $2.81 a gallon, or about 74 cents a liter, yesterday.

Even so, the announcement constitutes what many energy watchers consider an about-face for President Bush, whose team is heavily stocked with former oil-industry executives who have stressed the need for exploration more than conservation.

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