Oil Industry Has Gulf Jitters

The U.S. oil industry is not publicly saying it, but there are rising worries about the ability to repair the damage of hurricanes Katrina and Rita, in time for the next hurricane season. According to the New York Times: "Few will openly say so, but oil companies are racing against the clock."

According to the New York Times: "the huge task of fixing the country's most important energy hub is far from over. Six months after Hurricane Katrina battered the gulf with 175-mile-an-hour winds and waves higher than eight-story buildings, more than a quarter of the region's oil output is still shut down."

What is important here, is that hurricane season is three months away, it is expected to be another rough one, and significant amounts of oil is still off line, although natural gas supplies are steadily returning.

Damage Assessment

The Times summarizes the overall damage: "Katrina and Rita destroyed or damaged 167 offshore platforms and 183 pipelines, shut down production for weeks and pushed prices to their highest levels since the fall of the shah of Iran led to the oil shock of the early 1980's. Nineteen mobile offshore drilling units snapped from their moorings and drifted, some as far as 60 miles."

That's good enough to have taken out 6% of the overall U.S. oil and gas domestic production.

In fact, industry insiders are noting that the Gulf was still recovering from the damage caused by hurricane Ivan, when Rita and Katrina hit.

Damage Beyond Oil Platforms

Making the job of restoration harder, is the damage caused to communities in the Gulf, where oil company workers lived. The repair work to those communities, has also been slowed, making the task of fixing the offshore damage more difficult.

According to the Times: "Shell, the top oil producer in the gulf, estimated the cost at $250 million to $300 million. The company said that three-quarters of its total capacity of 450,000 barrels a day had been returned to production."

But others did not fare as well. "Chevron put its bill from the storms at $1.4 billion, a figure that includes the estimated lost production."

Shell's Mars platform, a key structure that produced 140,000 barrels per day was nearly destroyed, and could not be towed back to port, so 500 oil workers have been living in a "floating hotel" on the Gulf trying to bring it back on line.

Industry Stress

As we've noted recently on the Financial Sense Newshour, the oil industry is facing some tough times, and there are those on the inside that are admitting the rise in stress due to the hurricanes.

["We're scrambling for resources, like everybody else," said John R. Sherwood, the chief executive of Anglo-Suisse Offshore Partners, a small oil producer that lost 5 of its 30 shallow-water platforms. "There's a tremendous strain in the service sector, which was stretched anyway because of the high energy prices and has been magnified by the two storms."]

Others are sounding a cautious note about the future: ["We haven't done anything to reduce our vulnerability," said Ted M. Falgout, the director of Port Fourchon, the largest servicing hub for the offshore industry, about 80 miles south of New Orleans. "I hate to think of the next hurricane season."]


Hurricane season is just around the corner. More damage to infrastructure is likely.

The only real question is how much damage, and how long it will take before better solutions to the current situation are found.

The ability to do repairs is obviously a positive. But, clearly, more needs to be done about prevention, and diversification.

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