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Lloyds List: More than half US Gulf oil output still shut down: Hurricane recovery slow, writes Rajesh Joshi in New York: Tuesday Sep 13, 2005

 

ABOUT 60% of the US Gulf's daily crude oil production, 38% of natural gas production and four major refineries representing 5% of national capacity were still shut at the weekend, exactly two weeks after Hurricane Katrina swept across the southeast coastline.

 

About 56 rigs were damaged, with 20 total losses. An estimated 122 out of 819 manned platforms and three out of 134 rigs in the region remained evacuated, according to the US Department of Energy.

 

Although the 'shut-in' percentage of oil and gas production declined from 95% and 88% respectively immediately after the storm, the latest figures confirm a growing view that a return to normality would stretch into November.

 

The only solace was in a reported 4% decline in US weekly gasoline consumption, as pump prices skyrocketed. However, experts advised circumspection on this figure, since it was not apparent whether shortages played a role.

 

The US Energy Information Administration's monthly short-term energy outlook for September noted: 'Because of considerable uncertainty over the specific extent of damage, it is difficult to provide a single forecast for the upcoming winter.'

 

Instead, the EIA offered three scenarios based on fast, medium and slow recovery.

 

Of the total US offshore crude oil production of 5.5m barrels a day, the Gulf of Mexico accounts for 1.56m bpd or about 18%. Of the total US crude imports of 10.75m bpd, the US Gulf total region accounts for 6.49 bpd or 60%. Ports in Louisiana, Mississippi and Alabama account for 23.5% of the imports, and the Louisiana Offshore Oil Port 8.5%.

 

Of the total US refinery capacity of 17m barrels a day, the US Gulf total region accounts for 8.06m bpd, or 47%.

 

The EIA projects that total US crude production in September will be 4.72m bpd, 4.58m bpd and 4.3m bpd in a fast, medium and slow recovery, respectively. A return to the August levels of 5.4m bpd is not projected until November.

 

The August refinery throughput of 16.33m bpd is projected to drop to 15.73m bpd, 15.5m bpd and 15.1m bpd in September based on the three recovery scenarios, and not return to 'normal' until November.

 

These figures underpin the rise to record levels in transatlantic product tanker rates, as European sellers fall over each other to cash in on arbitrage. However, brokers warn that practical problems including the simple matter of non-availability of ships would ensure that the US faces a so-called 'gasoline shortage' for the near future.

 

There was no consensus on whether the drop in weekly gasoline demand to 9m barrels from the normal 9.4m barrels a figure said not to include updated Labor Day statistics would last into the autumn. One view was that the 'drop' in demand actually reflected 'shortages'.

 

Indeed, the EIA has obliquely warned of such an outcome. The Colonial and Plantation petroleum product pipelines are back up to 100% of capacity. The Dixie pipeline, which supplies propane into the southeastern US, is at 95%-100%.

 

'Supplying these pipelines with products may become an issue as long as some of the refineries remain shut down or running at reduced rates,' the EIA states.

 

According to figures available at the weekend, refineries with a combined 930,000 bpd capacity, or nearly 5% of US capacity, remained shut. The EIA said these would remain shut 'for an extended period'.

 

A premium is therefore being placed on supplying other refineries with extra crude. The US plans to release 30m barrels from its strategic stockpile to abet this process.

 

But even here, the recovery would be tied in to distribution issues, experts state.

 

Hopeful signs have emerged on this front. The Capline, a major crude oil pipeline that supplies crude oil from the Gulf Coast to some Midwest refineries, is past 90% according to operator Shell. The LOOP started operating two of its three berths last week and was understood to be approaching 100% utilisation at the weekend.

 

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