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US oil production is spared Gustav's fury

Jerry Frank and Martyn Wingrove - Tuesday 2 September 2008

NEW ORLEANS and the Gulf of Mexico’s offshore energy sector have escaped the full brunt of Hurricane Gustav, prompting sizeably lower multi-billion dollar damage estimates than earlier feared. 

Initial assessments of the impact of the storm, which missed New Orleans as it made landfall on Monday, are well clear of the $41bn insurance bill connected with Katrina in 2005. 

Rebuilt levees held and the Gulf’s energy infrastructure has emerged largely unscathed, with the hurricane weakening to a tropical storm as it ploughed inland, west of New Orleans. 

Risk modelling specialists are estimating insurance losses of around $10bn, which would still make it the fourth highest for a US storm after Katrina, Wilma and Andrew. 

Gulf of Mexico shipping channels yesterday began to reopen, while oil companies evaluated from the air their offshore platforms as workers began to return to their installations. 

But, with the majority of more than 1,000 offshore platforms and rigs in the Gulf abandoned and at least nine refineries closed, stateside concerns have focused on the impact of the storm on the US economy.
The Gulf of Mexico produces some 25% of the US’ oil production and 15% of its natural gas, with coastal refineries providing around a third of fuel consumed in the world’s largest economy. 

Energy companies had shut in all of the Gulf’s 1.3m barrels per day of oil production and around 7bn cu ft of daily natural gas output, plus 2.6m bpd of refining capacity in 13 refineries. 

Aerial surveys so far indicate only minor damage to offshore infrastructure and coastal refineries, but efforts to bring fields back on line could be hampered by flooding in the Louisiana towns of Port Fouchon and Morgan City. 

It could take up to five days to get all offshore production back to normal levels, said the International Energy Agency. 

The Houston ship channel had also reopened to traffic and other channels were opening today, according to the US Coast Guard. 

Leading US catastrophe analysts Risk Management Solutions’ yesterday said its would lower its pre-storm insured losses forecast of $3bn-$7bn on land and at between $1bn-$3bn offshore. 

RMS figures only related to the private insurance market, and do not include coverage from the National Flood Insurance Programme. 

Boston-based catastrophe analysts AIR Worldwide also gave a lower estimate for damage on land of around $3bn, with a range of between $2bn-$4.5bn, with offshore insured losses of between $1.8bn-$4.4bn. 

After weakening to a category two hurricane as it approached offshore platforms in the Gulf, the storm also veered west and narrowly avoided New Orleans. 

A third US risk modeller, Eqecat, which is part of the ABS group, estimated that personal and commercial insured losses on the coast of $6bn-$10bn, although this figure did not include losses to offshore energy producers. 

Reinsurance broker Carvill’s atmospheric specialist Steve Smith estimated for Bloomberg damage offshore in the region of $1bn-$2bn. 

Extreme weather modellers are now likening the impact more to Hurricane Charlie in 2004, than the worst storm in US history, Katrina, which hit the region a year later. 

However, the Atlantic storm season continues with tropical storm Hanna due to make landfall at the end of the week, and Ike forming in the Atlantic Ocean.