Global Insight Perspective | |
Significance | Hurricanes Gustav and Ike caused significant crude oil and natural gas production in the U.S. Gulf of Mexico (GOM) to be taken offline, while several refineries along the U.S. Gulf Coast remain closed. |
Implications | While damage assessments continue, many platforms remain evacuated, and production and refining is increasing only slowly. Refineries in the U.S. Midwest unaffected by the storms have ramped up capacity to help prop up product supplies, helped in part by the Department of Energy, which has made emergency oil volumes from the U.S. strategic petroleum reserve (SPR) available. |
Outlook | No other storms are currently being tracked anywhere in the Atlantic, and assuming this calm continues, oil and gas production from the GOM region, and refining capacity along the Gulf Coast, could return to near-normality within a few weeks. |
Even as the vestiges of Hurricane Ike dissipate and pass over the north-east of the United States, the storm's impact along the U.S. Gulf Coast and in the wider Gulf of Mexico (GOM) continues to be felt. According to the latest information from the U.S. Minerals Management Service (MMS), out of 717 manned production platforms in the GOM, some 425 remain unstaffed as firms begin the slow process of damage and hazard assessment. A further 50 drilling rigs, out of some 121, remain abandoned for the same reason. The practical fallout has been, and continues to be, the reduction of a significant proportion of crude oil and natural gas production from the region. While output has been resuming slowly, the MMS reports that some 95.9% of total oil output of 1.3 million b/d remains shut in. Natural gas production, meanwhile, also remains significantly reduced, running at just 82.3% of maximum capacity of 7.4 bcf/d. Several smaller production platforms close to the Texas shore have been completely destroyed, while the larger deepwater platforms and rigs appear to have escaped widespread damage.
Onshore, the situation remains gloomy, with much refining capacity still offline, flooding, power outages, and other damage caused by not just Ike, but Hurricane Gustav less than two weeks earlier. The Department of Energy (DOE) reports that twelve refineries in Texas and Louisiana are closed, representing nearly 3 million b/d of knocked-out refining capacity. A further nine refineries have restarted production, though output is running at reduced rates of about two-thirds capacity. Natural gas processing infrastructure is also hit, with around thirty major systems either still down or running at reduced rates.
Stock Plunge
As expected, these outages, both in production and refining, have affected U.S. crude oil and product levels. The Energy Information Administration (EIA) has released its latest stocks report showing that crude oil stocks in the latest week have dropped by 6.3 million barrels, while gasoline (petrol) stocks have dropped 3.3 million barrels. Respective crude and gasoline stock levels are now down to 291.7 million barrels (down 27.1 million barrels year-on-year, y/y) and 184.6 million barrels (down 6.2 million barrels y/y). Gasoline inventories are now at their lowest level since official records began in 1990. Compared to just two weeks ago, crude oil inputs into the U.S. refining system have dropped by over 13% to 13.2 million b/d. Total refining capacity meanwhile has dropped to 77.41% of maximum throughput, down 11.27 percentage points over the same period.
Outlook and Implications
Refineries had been in the process of drawing down summer-blend fuel stocks just prior to Hurricanes Gustav and Ike, and the subsequent damage has prompted unaffected facilities further away to ramp-up output using existing inventories. As a result of weaker demand for refined products in the wake of the record-high prices of the last few months in the country, these refineries have had some spare capacity to use to help mitigate somewhat the effects of shut-in refinery output along the Gulf Coast. As GOM oil production has been severely hit, the DOE has responded by making available emergency volumes from the nation's strategic petroleum reserve (SPR). The DOE reports that deliveries amounting to some 439,000 barrels have already begun to the ConocoPhillips Wood River refinery in Illinois, and a further 239,000 barrels is being sent to the Port Allen system in Louisiana. Some three-quarters of a million barrels are also being made available to refineries operated by Marathon and located throughout the U.S. Midwest. It is currently unknown exactly when both production and refining capacity might return to pre-Gustav and Ike levels, but given previous experience and assuming no further storms of similar scale manifest themselves over the coming weeks, it could be at least two weeks before output returns to near-normality. The U.S. National Hurricane Centre is not currently tracking any potential storm systems anywhere in the Atlantic.
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