Cristobal strengthens back to tropical storm as 30% of Gulf oil production comes offline

Houston — Energy producers shut about 30% of the US Gulf of Mexico's crude oil production and more than 20% of natural gas supplies as Cristobal strengthened back into a tropical storm and began its projected trek from southern Mexico to Louisiana.

About 545,000 b/d of crude oil volumes and 601 MMcf/d of gas were shut with more expected to come offline late June 5 and through the weekend, according to the US Bureau of Safety and Environmental Enforcement, as operators evacuated 65 platforms and rigs in the Gulf -- roughly 10% of the US Gulf's total platforms with working personnel.

Tropical Storm Cristobal has battered southern Mexico and shut down ports and is now expected to move more quickly through the Gulf and make landfall along the US Gulf Coast early June 7, the National Hurricane Center projects.

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BP, Occidental Petroleum, Equinor and other Gulf producers are busy temporarily shutting oil and gas production from their platforms that are near the path of the storm.

"To ensure the protection of our people and the environment, we have safely removed all personnel and shut-in production at our central and eastern Gulf of Mexico facilities," Oxy said June 5 in a prepared statement.

Equinor confirmed on June 5 it was in the process of removing workers from its Titan platform.

"We are in the process of shutting-in production on Titan and expect to evacuate remaining personnel later today," said Equinor spokesman Erik Haaland on June 5.

Total Gulf oil production was nearly 2 million b/d before the coronavirus pandemic cratered global demand and oil prices. BSEE is now estimating Gulf oil production at closer to 1.85 million b/d.

However, S&P Global Platts Analytics data estimates that Gulf crude oil production will fall to an estimated 1.62 million b/d average for June as some producers reduced their volumes because of lower prices.

BP was the first to say it had begun ramping down its output ahead of Cristobal

"With forecasts indicating that Cristobal will begin moving north across the Gulf of Mexico later this week, BP has begun removing offshore personnel and ramping down production at BP's operated facilities Thunder Horse, Atlantis and Na Kika," BP spokesman Jason Ryan said June 3. "Nonessential personnel are being evacuated from BP's operated Mad Dog platform, but production remains unaffected at this time."

Those three BP platforms churn out more than 200,000 boe/d.

Shell has evacuated nonessential workers but hadn't reduced production volumes as of June 5.

The last major hurricane to significantly interrupt production from the US Gulf of Mexico was Barry, which made landfall last July. Barry caused the shut-in of close to 1.4 million b/d of crude oil, about 73% of the US Gulf crude output, according to BSEE. On a monthly basis, Barry triggered US Gulf production to dip by about 330,000 b/d for the month.

Some offshore drillers such as Transocean are evacuating nonessential personnel from their moored drilling rigs and repositioning any drillships in the path of the storm.

GAS AND ONSHORE

Estimated US offshore natural gas production dipped below 2 Bcf/d on June 5, down from a prior 30-day average at nearly 2.5 Bcf/d, S&P Global Platts Analytics data showed. The Louisiana offshore sample has taken the biggest hit, recently falling by more than 350 MMcf/d. The data showed a more modest decline of around 80 MMcf/d in the Alabama offshore, while Mississippi samples weren't impacted.

Declining offshore gas production in recent years, which has fallen from an average 4 Bcf/d in 2015, has limited the impact that hurricanes and tropical storms have on the US upstream gas industry.

In October 2017, Hurricane Nate followed a similar path to that projected for Tropical Storm Cristobal. The category 1 storm briefly cut US production by nearly 2.5 Bcf/d. By comparison, in 2005 Hurricane Katrina – a massive category 5 storm – cut US offshore production by some 8 Bcf/d.

Onshore, gas liquefaction terminals in Louisiana and Texas are also monitoring Cristobal to determine if they need to implement contingency plans.

"We're monitoring the storm and have contingency plans, as we always do, especially during hurricane season," said Jenna Palfrey, spokeswoman for Cheniere Energy, which operates the Sabine Pass LNG terminal in southwestern Louisiana.

A storm warning is in effect from Grand Isle, Louisiana, just south of New Orleans, to Ocean Springs, Mississippi, just west of Chevron's Pascagoula, Mississippi refinery. The storm surge is expected to be between 2-4 feet of water, depending on the final track and intensity of the storm.

As a result, the US Coast Guard has tightened shipping restrictions for Mobile, Alabama, and Pascagoula to port condition "X-Ray," which reduces the access of movements of ships to the ports.

The tropical storm watch stretches from Intracoastal City, Louisiana, to the Alabama/Florida border, impacting ports that serve most of Louisiana's refining capacity. Shipping sources expect the Mississippi River to crest at 17 feet on June 8.

Refiners monitoring the storm face an added issue outside of the operational impact – ensuring proper protocol for dealing with the coronavirus pandemic.

"With hurricane season in effect, Valero's hurricane preparedness protocol includes activities such as monitoring potential storms, assessing refining operations, securing equipment, and ensuring we have adequate supplies available," said Valero spokeswoman Lillian Riojas June 5 in an email.

In Mexico, Cristobal forced ports to close in three states in the Bay of Campeche area on June 3. Ports in the states of Veracruz, Tabasco and Campeche have been closed to all ships and remained closed June 4, said the head of Mexico's civil protection agency, David Leon.

Campeche is one of the most active oil and gas exploration and production regions in the country.