Rated a Category 5 hurricane-the third biggest ever to hit the US-as it ripped through the oil and gas producing area of the central Gulf of Mexico, Hurricane Rita deteriorated to a Category 3 storm by the time it made landfall near the Texas-Louisiana border Sept. 24.
Initial indications are that Rita was far less destructive than Hurricane Katrina, which hit the Louisiana coast near New Orleans Aug. 29. Some 1 million b/d of US refining capacity along the Gulf Coast was back in production 2 days after Rita passed through, with a further 1.8 million b/d expected to return quickly. That’s a little more than half of the 5.4 million b/d of combined refining capacity shut down by Rita and Katrina.
Damage inflicted by Katrina on the energy infrastructure was not evenly distributed. “Current estimates suggest that severe damage was limited to about 1% of the production platforms and 5% of the drilling rigs operating in the Gulf of Mexico,” said analysts in the Houston office of Raymond James & Associates Inc. “However, the bigger and more sustainable impact occurred due to damage to refineries, and to a lesser extent pipelines, along the coast. About 2 million b/d of refining capacity (10% of total domestic capacity) was offline in the immediate aftermath of Katrina.”
When Rita blew in, four refineries disabled by Katrina-three in Louisiana and one in Mississippi with a total of nearly 900,000 b/d of capacity-were still weeks away from restart. That lost supply of oil products represents a clear detriment to the US economy, “even with increased imports,” said Raymond James.
Valero Energy Corp. said Rita damaged two cooling towers and a flare stack at its 255,000 b/d refinery in Port Arthur, with power perhaps not restored to the area for a month. Motiva Enterprises LLC’s 285,000 b/d refinery in Port Arthur sustained wind damage to a water tower and power lines.
President George W. Bush said the quick succession of hurricanes and tropical storms this summer demonstrates the need for more US refining capacity to meet gasoline demand. Because of permitting difficulties and the rising costs of environmental regulations, no new refinery has been built in the US since 1976. Bush has suggested building refineries on abandoned military bases in the US and said he would work with Congress to find ways to increase US refining capacity.
Production affected
The US Minerals Management Service reported Sept. 25 that 666 platforms and 92 rigs in the gulf were evacuated, with production of 1.5 million b/d of crude and 8 bcfd of natural gas shut in. That amounts to all of the normal crude production and 80.5% of the natural gas production from the gulf. By comparison, at its peak Katrina shut in 95% of the oil and 85% of the gas production in the gulf, much of which had not been restored before Rita struck 3 weeks later. The cumulative amount of production lost since Aug. 26 when Katrina first threatened oil and gas operations in the US sector of the Gulf of Mexico totaled 33.3 million bbl of crude and 157 bcf of natural gas through Sept. 25.
“We expect 1-1.5 bcfd of production (2-3%) to be permanently lost. Given that demand for natural gas has already begun to outstrip production, a 2-3% decline in production could have a long-term upward impact on pricing,” said Ronald J. Barone, a managing director of equity research with UBS Securities LLC, New York.
Rita was the fifth storm to disrupt gulf production this year. Hurricane Dennis disrupted production of 5.29 million bbl of oil and 23.3 bcf of gas; Tropical Storm Cindy, 312,127 bbl of oil and 1.7 bcf of gas; and Hurricane Emily, 240,024 bbl of oil and 1.58 bcf of natural gas.
“Rita could potentially exacerbate an already difficult situation, especially considering that Rita’s path covered areas relatively untouched by Katrina,” said Raymond James analysts. “For example, the concentration of oil and gas platforms and other production facilities in the western and central Gulf of Mexico, areas through which Rita passed, is higher than that in the eastern Gulf of Mexico, which was hit by Katrina.”
Industry officials and regulators are now looking into the safety of LNG terminals. “Many are concerned about the ability of LNG facilities to withstand a natural disaster and, for that matter, about having so much gas infrastructure concentrated in the gulf in the event that the unthinkable happens,” Barone said. “Some feel that having LNG terminals in other areas such as the Northeast and California would make more sense.”
(Online Sept. 26, 2005; author’s e-mail: [email protected])