MARKET WATCH: Hurricane's effects so far 'minimal' on oil, gas markets

By OGJ editors
HOUSTON, Sept. 2 -- Oil and natural gas prices were not as affected Aug. 29 as would normally be expected on the anticipation of a storm the size and speed of Gustav, which made landfall Sept. 1 as a Category 2 hurricane, to the south of Houma, La., about 70 miles southwest of New Orleans and 100 miles southeast of Lafayette, La., according to the National Hurricane Center. Markets in the US were closed that day due to the Labor Day holiday.

Analysts in the Houston office of Raymond James & Associates Inc. reported Sept. 2 that Gustav would have "minimal" impact on midstream operations along the Gulf Coast. They said, "While it is still too early to determine the exact magnitude of any damage and associated impact on volumes/cash flow, several partnerships are reporting short-term shut-ins and decreased pipeline throughput from diminished refining and production activity. All in, the focus will hinge on refinery utilization, as the Gulf of Mexico experienced over 2.8 million b/d of refinery capacity that was shut in due to Gustav."

They said, "Likewise, attention will also be focused on reopening several Gulf Coast ports, including the LOOP, Houston ship channel (inbound deliveries), etc. Although very preliminary in nature (and exclusive of any declarations of force majeure), we would anticipate the aggregate impact to throughput to materialize less severe vs. perception."

Production, damage reports
The US Minerals Management Service reported Sept. 1 that personnel have been evacuated from a total of 626 production platforms, equivalent to 87.3% of the 717 manned platforms in the gulf. Also, personnel from 100 rigs also have been evacuated, which represents 82.6% of the 121 rigs currently operating in the gulf.

Based on reports for operators in the gulf, MMS estimates that 100% of the 1.3 million b/d of oil production in the gulf has been shut-in. Also, 95.4% of the 7.4 bcfd of gas production in the gulf has been shut-in.

Both markets and industry await damage reports from refiners and exploration and production companies following the storm. Refiner Valero Energy Corp. reported than an initial assessment of the company's St. Charles, La., refinery near New Orleans "has found no significant structural damage to operational units."

The company's Texas refineries, at Port Arthur, Texas City, and Houston, all remain at reduced rates, Valero reported, while its Corpus Christi plants are currently operating at planned rates.

Operator Swift Energy Co. reported that an initial airplane fly-over of its coastal Louisiana properties is being coordinated to assess the impact of the storm. Swift began implementing standard shut-down procedures in its coastal Louisiana properties due to weather risks from then Tropical Storm Gustav, which was forming in the gulf. "With the subsequent strengthening and path of the storm, Swift shut in all fields in its South Louisiana area, moved all drilling rigs to safe harbor, and all personnel were safely evacuated by early afternoon on Aug. 31," the company said.

Swift said that the eye of Gustav passed about 35 miles west-southwest of its Bay de Chene field in Jefferson and Lafourche Parishes and about 50 miles west-southwest of its Lake Washington field in Plaquemines Parish. "Production from these fields and…other fields in the South Louisiana area will remain shut-in until it can be determined that a field can safely be returned to operation," the company said.

It reported, "A full inspection is planned as soon as personnel can safely reenter each field and physically inspect all the properties and facilities. No assessment can be made at this time of actual damages, or how long it will take to restart production."

Energy prices
The October contract for benchmark US light, sweet crudes closed at $115.46/bbl Aug. 29, down 13¢ for the day on the New York Mercantile Exchange. The November contract dropped 14¢ to close at $115.85/bbl.

On the US spot market, West Texas Intermediate at Cushing, Okla., was down 13¢ to $115.96/bbl. Heating oil for September gained 1¢ to $3.19/gal on NYMEX. The September RBOB contract declined 50¢ to $2.52/gal.

The front-month October natural gas contract dropped 11¢ to $7.94/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., fell 4¢ to $8.22/MMbtu.

The average price for the Organization of Petroleum Exporting Countries' basket of 13 reference crudes lost 91¢ to $110.32/bbl on Sept. 1.

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