The Effects of Hurricanes in the GOM

As the hurricane season nears its end, IHS said today that the average annual impact on oil and gas production from hurricanes is relatively modest and impact on supply is typically short-lived. IHS came to this conclusion after analyzing production data spanning 45 years to better understand the overall impact of hurricanes on Gulf of Mexico production.

"While Hurricanes Katrina and Rita were an exception, historically, our data shows the overall impact to be much less than most people might expect," said Steve Trammel, a senior product manager at IHS. "IHS production data from 1960 through 2005, which includes the record levels of damage from Katrina and Rita in 2005 and significant hurricane impact from four other hurricanes in the last decade, shows that an average Gulf of Mexico hurricane season disrupts only 1.4% of the annual oil production and 1.3% of the annual gas production."

Trammel said the historically low impact on production is primarily attributable to industry planning.

"The oil and gas companies are very focused on the safety of their personnel," he said. "Operators make the decision to pull crews off rigs well before a storm moves into the Gulf, so most disruptions to production are caused by suspension of operations as a safety precaution in the event that an approaching hurricane does threaten offshore production. As a result, average hurricane disruptions are short-lived with full production re-established within a month."

Despite historic average hurricane damage and production curtailment that have been relatively modest, actions to mitigate impacts from future hurricanes are warranted. Current Gulf of Mexico production and infrastructure are more widespread than in the past so the risk is greater that hurricanes that enter the Gulf will damage and curtail the critical exploration and production activities. Also, meteorological forecasts predict a pattern of extreme storms for years to come.

When Hurricanes Katrina and Rita struck the U.S. Gulf Coast in 2005, they combined to impart record damage to offshore Gulf of Mexico oil and gas production and facilities, which helped push oil and gas prices to record levels by January 2006 and increased fears about oil and gas supply shortages. Following the two storms in 2005, The U.S. Minerals Management Service reported that 3,050 or 75% of the platforms, 22,000 miles or 67% of the pipelines, and about two-thirds of the region’s refineries were in the path of the storms.

By mid-December 2005, IHS data showed that cumulative shut-in oil (oil that was not produced during precautionary shut-down of wells) was 101.7 million barrels, 18.5% of yearly Gulf oil production, and shut-in natural gas production was 526.2 billion cubic feet, 14.4% of yearly Gulf natural gas production.

Trammel said the last decade recorded six major hurricanes, including Katrina and Rita, which caused significant production curtailments in the Gulf of Mexico. Most of the production from Hurricanes Opal (1995), Georges (1998) and Lili (2002) was restored within a month, he said, although Hurricane Ivan (2004) disrupted 47.1 million barrels of oil production and 140 billion cubic feet of gas production.

In response to the increase in major hurricanes striking the Gulf of Mexico in recent years, and meteorological forecasts for stronger storm seasons ahead, Trammel said the petroleum industry has improved evacuation plans and shut-in and restart procedures to ensure safety, and to mitigate leaks and production loss.

"Within economic limits," he said, "offshore structures are being engineered to withstand Category 5 hurricanes. In addition, the Minerals Management Service (MMS) has mandated new design specs for offshore facilities and has issued a series of Notices to Lessees and Operators, called NTLs, for rig fitness requirements, platform tie-downs and ocean current monitoring, which are all tied to hurricane season."

The U.S. Gulf of Mexico continues to be a prime contributor to domestic U.S. oil and gas supplies. IHS production data indicates the U.S. Gulf of Mexico produced 130 million barrels of oil, approximately seven percent of the U.S. total, and 1.8 trillion cubic feet of gas, representing eight percent of the U.S. total during 2006. Moreover, the deepwater Gulf of Mexico continues to yield world class oil and gas discoveries. IHS data indicates that discoveries yielded 6.2 billion barrels of oil equivalent from 2000 through 2005. As a result, the U.S. Gulf of Mexico was the seventh leading source/country in the world for discoveries during this period. According to IHS data, there are 2,332 producing oil wells and 2,765 gas wells in the U.S. Gulf of Mexico.