Hurricane Rita missed the Houston area’s giant refining complex but hammered refineries in Beaumont and Port Arthur, Tex., and in Lake Charles, La., when it came ashore near the state line Sept. 24. Still, initial damage reports had some suggesting that the impact to the US downstream petroleum system could have been much worse.
Analyst Paul Horsnell of Barclays Capital Inc., London, derided those assessments as the “dodged-bullet” syndrome-“the view that if something is not as bad as it might have been, then it is in effect a net positive,” he said. “Rita was a negative supply-side event under any definition. The potential cumulative loss of oil product output is now perhaps 50 million bbl higher than it was before (and that assessment is tending to rise as more information comes in), bringing the total from both of the major hurricanes [Rita and Katrina, 3 weeks earlier] to around 150 million bbl of products. That is in no way a dodged bullet.”
However, Horsnell said, “We do not expect the market to buy into the dodged-bullet theory for long, and increasingly we expect traders to treat crude and gasoline as different commodities” as a result of so much US refining capacity knocked out by the two hurricanes.
Natural gas impacted
Rita had a proportionately larger impact on natural gas production than Katrina, said analysts at Earth Science Associates, Long Beach, Calif. They said 2.84 bcfd of natural gas was produced from offshore fields within 60 miles of Rita’s path, with more than two thirds of that rate produced within 30 miles of the storm center. Some 250,000 b/d, or 17%, of Gulf of Mexico crude production was from fields within 60 miles of Hurricane Rita’s path, with 130,000 b/d of that within 30 miles from the storm center. “Considering both storms, 5% of US oil and 9% of natural gas supplies were produced within 60 miles of the two storms,” the analysts said.
“Rita also had a much broader impact across operators,” Earth Science Associates noted. “In Katrina, 85% of the [offshore production] capacity within 60 miles [of the storm’s center] was operated by the top 10 companies exposed; in Rita, the top 10 companies exposed accounted for only 54% of capacity at risk.” Nevertheless, the analysts said, “Based on 2004 production, wells operated by Shell and Chevron were likely to be among the most severely affected.”
The US Minerals Management Service reported 1.5 million b/d of crude and 7.9 bcfd of natural gas production were still shut in on Sept. 30, respectively 97.8% and 79.4% of normal production from the gulf.
Robert S. Morris at Banc of America Securities LLC, New York, considers those figures low. “We believe that total shut-in volumes were underestimated given that production in state waters and onshore along the Gulf Coast are not included in the MMS data, which is the only cumulative data available on shut-ins even though several companies have noted they shut in onshore volumes,” he said. “Thus, it is still difficult to assess the real level of ‘backed-out’ demand [for natural gas] at this juncture.”
The rise in natural gas prices continued to outpace that of oil prices in the storm’s aftermath.
MMS officials said 35 offshore platforms were destroyed by Hurricane Rita, while 16 more sustained extensive damage. They said 13 rigs went adrift, with 6 becoming grounded and 9 reporting other problems.
“Hurricane Rita proved to be even more destructive than Katrina for drilling rigs,” said Angeline M. Sedita, senior vice-president of oil service equity research at Lehman Bros. Inc., New York. “In total, Katrina will likely end up claiming two jack ups, and Rita, another four to five jack ups,” she said. “The rigs are covered by insurance; however, the amount of coverage varies fairly dramatically.”
Prestorm demand surge
Demand for gasoline in the Houston area doubled during the massive evacuation of Texas and Louisiana residents ahead of the storm, said researchers at Rice University’s Baker Institute for Public Policy.
“For this time of year, normal consumption of gasoline in Houston and the surrounding area is about 22 million gal/day. For the days leading up to Hurricane Rita’s Sept. 24 landfall, the evacuation of some 3 million people pushed gasoline demand to an estimated 45 million gal/day,” the researchers reported Sept. 28. “All else being equal, this increased demand would push national consumption of gasoline during that period to levels comparable to those for the traditionally heavy-driving week of Labor Day, or about 10% higher than usual for this time of year.”
(Online Oct. 3, 2005; author’s e-mail: [email protected])
