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San Antonio Express: Still in recovery: Gulf oil production off 28%, and gas off 20% as huge repair job continues: “Shell expects production from the platform to resume in the second half of next year, according to a release on its Web site.”: Tuesday 20 December 2005


Vicki Vaughan

Express-News Business Writer


Hurricanes Katrina and Rita dealt such a severe blow to oil and gas production in the Gulf of Mexico that energy experts now say the flow of petroleum won't be fully restored until next summer.


"The damage was more severe and in harder-to-reach places than many expected, such as the bottom of the ocean, that usually isn't affected that much," said Steve Parker, energy analyst at Kercheville & Co. in San Antonio. "The storms tracked right through the heart of the gulf's oil and gas operations."


The two storms plowed through 3,050 of the 4,000 drilling platforms in the gulf, destroying 108 mostly old structures and significantly damaging 53 platforms. Modern equipment fared better; only one major platform was damaged significantly, the Minerals Management Service has reported.


Even so, 28 percent of gulf oil production remains closed, amounting to almost 414,495 barrels a day. And more than 2.01 billion cubic feet of natural gas — 20 percent of the regular daily gas production — remains shut down, the Minerals Management Service said Monday.


The reduced gulf production is just part of the storm-related damage to the U.S. energy industry.


Some output from the Gulf Coast's extensive refining operations is still down. About 804,000 barrels of gasoline production a day is off line, with two refineries still closed, two operating at reduced rates and a fifth that won't be at full production for about two weeks, the Energy Department said.


Repairs continue to pipelines and processing plants.


"One of the key problems is that tremendous damage was done to offshore pipelines and the natural gas processing plants in coastal zones," said Jim Flanagan, regional manager for the deep-water gulf group at IHS Energy, a Houston-based consulting company.


"Some of the repairs are beyond the control of the company," Flanagan said, "and they have to depend on a third party to fix it."


For example, some oil and gas companies don't own every pipeline that transports the oil and gas they extract to the Texas and Louisiana coasts.


And all companies facing repairs continue to deal with shortages of equipment and workers.


"A lot of the workers the industry relies on live in the area that stretches from Gulfport (Mississippi) to Beaumont," where the storms destroyed much of the housing, Flanagan said. "That puts a crimp on the people needed to do the job."


Natural gas has made a quicker recovery than crude oil, the Energy Department said in a recent report. That's because energy companies have been able to route gas around damaged pipelines, in some cases, to working production facilities.


Crude oil is taking longer to be restored because some of the largest platforms "are projected to remain out of service through the second quarter of 2006," the report said. The Energy Department forecasts that the amount of crude oil shut off in the gulf will decline to about 297,000 barrels a day by March, or 19 percent of its June level.


How much will prices at the pump be reduced if production is restored this summer?


"It's hard to predict what prices may be because there are so many factors that go into the price of gas," including the price of crude oil, Flanagan said. "But every little bit helps."


The damage caused by Katrina and Rita continues to challenge the world's biggest energy companies. It occurred at a time when some companies "are still trying to get Ivan claims settled," said Robert Sullivan, the Houston-based managing director for the marine and energy group at Marsh Inc., an insurance services company. Ivan damaged gulf oil operations in September 2004.


One high-profile project that's undergoing repairs is Shell Oil's Mars platform, the hardest-hit of the company's four gulf platforms and one that accounted for 20 percent of its gulf production. Katrina damaged Mars when it toppled part of a drilling rig that stood atop the platform.


Shell expects production from the platform to resume in the second half of next year, according to a release on its Web site. Shell said this week that it has restored gulf production to more than 200,000 barrels a day. Before Katrina, Shell's gulf operations produced 450,000 barrels a day.


"The infrastructure of our country took a real blow with Hurricanes Rita and Katrina," Energy Secretary Samuel Bodman told the Associated Press last week.


"Even to this day, we have about a third of the natural gas and a third of the oil that is produced in the Gulf of Mexico still shut-in due to the damage that was done. That's not going to be back up and online, my guess is, until summertime."


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