Hurricane outlook for 2010

June 28, 2010
At any time, one can turn on the television or read on the internet to find numerous stories focusing on the Gulf of Mexico and the devastation caused by BP's Macondo well blowout and resulting oil spill.

At any time, one can turn on the television or read on the internet to find numerous stories focusing on the Gulf of Mexico and the devastation caused by BP's Macondo well blowout and resulting oil spill. The spill's environmental and financial impact on the Gulf Coast and its inhabitants—human and otherwise—will be felt for years to come.

Normally at this time of the year, offshore production companies and service and supply firms are preparing for the upcoming hurricane season. But because of the tragic offshore incident, many industry professionals are still looking for ways to contain and clean up the spill as well as prevent such a thing from happening again. The lessons learned from this environmental nightmare will be beneficial to companies as they protect employees and facilities through hurricane season.

Offshore oil and gas producers typically shut in their facilities when severe weather poses any threats. This is to prevent spills from happening, if their production platforms or drilling rigs were to sustain any storm-related damage.

Extensive shut-ins

The US Energy Information Administration recently released a supplement to its Short-Term Energy Outlook relating to the 2010 hurricane season and the potential production outages in the gulf. With the hurricane season fast approaching, EIA is speculating that there could be as much offshore oil and gas production shut in as compared with the 2008 season when Hurricanes Ike and Gustav battered the Gulf Coast.

These results signify a 17-20% probability that the region will experience outages similar to or greater than the 2008 season. During that time, the disruption of production caused by Ike and Gustav cumulatively accounted for nearly 65 million bbl of oil and 400 bcf of gas. This is the second-largest production outage due to hurricane-related storms, behind Hurricanes Katrina and Rita in 2005.

The 2009 hurricane season was relatively quiet, only having a minor impact of shut-in cumulative production of 2.5 million bbl of oil and 11.4 bcf of gas. Tropical Storm Claudette and Hurricane Ida were downgraded and had weakened over the producing region, thus energy producers were not forced to shut in their wells.

This year however could be much different. Findings released by the National Oceanic and Atmospheric Administration at the end of May forecast the Atlantic Basin will experience 14-23 named storms during the next 6 months. Of those named storms, 8-14 could be hurricane strength, and 3-7 of those hurricanes could be rated a Category 3, 4, or 5.

Just as forecasting the severity of weather and which areas will be most affected by storms is an incredibly difficult task, so to is forecasting how much oil and gas production will be shut in from such events.

Monte Carlo simulation

The projections for the 2010 hurricane season were derived from the Monte Carlo simulation technique. Based on NOAA's prediction of an 85% chance of an above-average hurricane season for 2010, EIA used that outlook as well as analyzed past seasonal storms to come up with their probable shut-in production amounts.

The first step in the Monte Carlo technique was to "simulate the number of severe storms passing through the Gulf of Mexico, and second, a simulated estimate of shut-in production was developed for each simulated storm," NOAA reported. Tropical storms, moderate hurricanes, and intense hurricanes were modeled to come up with a mean and standard deviation of shut-in production.

In summary, based on NOAA's forecast of a higher hurricane activity season and using the Monte Carlo simulation technique to predict potential outages, EIA anticipates a median outcome for shut-in production to be 26 million bbl of oil and 166 bcf of gas in the gulf.

In contrast, NOAA's forecast found that the mean for cumulative shut-in oil production was 33 million bbl and gas was 206 bcf. The simulation allowed for the possibility of enduring another season similar to that which contained Hurricanes Katrina and Rita.

The median outages projected for 2010 are about four times greater than the simulated outages that can be estimated for a "normal" hurricane season.

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