The threat from hurricanes

As the path of Hurricane Dennis becomes clearer it is interesting to contrast this with the location of the major new fields that are currently being developed in the Gulf. A detailed map of their location can be found at Rigzone but for the sake of simple reference I have put a couple of dots on the map that I took from the NOAA site showing the projected path for Dennis.

The black dot on the edge of the green and yellow zones south of New Orleans, represents the Thunder Horse platform which is scheduled to ramp up until it is producing 250,000 bd of oil at a water depth of about 6,000 ft.

The white dot further out and in the blue zone nearer the left side, represents the Mad Dog development that will ramp up to 100,000 bd; the Holstein development that will also produce, at peak, around 100,000 bd of oil; and the Atlantis field that will begin production next year and will ramp up to around 200,000 bd in all.

Put together these projects have the potential of around 650,000 bd, but as can be seen, they are sitting in an uncomfortable spot relative to the tracks of the hurricanes.

And with the hurricane season showing the promise of being worse than usual, this has the potential not just to threaten completion of these projects, but also in the years to come posing some threat to their continued ability to reach the target levels required in the times of the year that will be most critical (from now through the end of the year). As J has pointed out before, there is only a certain amount of repair capacity available, and if the storms keep coming, this will diminish overall the supply that we will increasingly need.

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Production is one thing; a substantial chunk of total US refining capacity is also located within the strike zone(s) of Gulf of Mexico desinted hurricanes. Alabama, Mississipi, Louisiana and Texas all have refineries at risk. Plus there are offshore loading terminals such as LOOP off the Louisiana coast and supporting infrastructure. Ivan last year hit particularly hard, exacerbating problems in an area already softened up by prior storms.

Reading though EIA reports from last fall we can get an appreciation for the scope of potential distruptions:


As of Wednesday, September 22, U.S. Minerals Management Service (MMS) reported that 2.4 billion cubic feet (Bcf) per day of natural gas and 578 thousand barrels of oil per day still remain shut in. (However, MMS did not include in these estimates the volumes lost owing to the destroyed rigs and platforms.) According to MMS, preliminary damage assessments reported by the industry as of Tuesday include 7 destroyed fixed platforms, 5 adrift Mobile Offshore Drilling Units (MODU), 4 platforms with extensive damage, and 13 pipeline leaks. While the shut-in volumes of gas and oil represent about 19 percent and 34 percent of daily GOM production, respectively, the volumes shut in have been significantly reduced since last Thursday, September 16, when 545 platforms and 69 rigs were evacuated and 6.5 Bcf of gas was shut in. The cumulative (9/13/04-9/22/04) shut-in production is 38.6 Bcf of gas and slightly more than 9 million barrels of oil.

Stockpiles are enough to prevent shortages if a similar event takes place, although it should be noted that some lost production due to Ivan was never replaced.

Storm may affect US Gulf oil, gas ops

On Friday the U.S. Minerals Management Service said 15 percent of daily crude output and 10 percent of daily natural gas production had been shut by Dennis.

Energy companies were reporting greater amounts of shut production on Saturday.

There's an interesting statement in this Italian news release. Noting the pressure that Hurricane Dennis is putting on the market, there is this additional statement:

After the weekend it will be possible to estimate damage caused by Dennis and its influence on oil markets. Opec consultations opened today by the current president, Kuwaiti Sheik Ahmad Fahd al Sabah, focus on a further production increase of 500,000 barrels a day. According to analysts the problem is that Opec capacity reserves are gradually reducing and a more stable situation in Iraq would be necessary for sensible production increases.

I get the gradually reducing reserves part, but what about the statement about Iraq? Does anyone know what that is supposed to mean?

Before the war in Iraq, the country had a relatively stable, if antiquated oil production system. Since then production has steadily dropped under terrorist attack. Just recently they said that they could not expect to produce more than 1.5 mbd. This is down from the 1.9 mbd they were producing and the up to 3 mbd they could have been expected to produce if everything had gone favorably. This is probably the most "available" oil, if the terrorist threat could be overcome.

HO, thanks for your thoughts. This was my initial interpretation as well and I'm glad you provided some numbers. So we're down 0.4/mbd in Iraq. Here's my thoughts on this:

1) This is the first time that I ever heard OPEC claim that they could not raise output as a whole because of Iraq.
2) If Iraq was mostly an oil-move by the US, as I and many others believe, then this is the most straightforward statement that this is a totally failed policy. (We will all recall statements made by neocons to the effect that with increased oil revenue after the invasion, the Iraqis could finance their own recovery.)
3) I wonder if the other Gulf states are worried about their own security with respect to expanding their oil producing operations, if they are able to do so.
4) Claiming that because Iraqi production is decreasing and therefore other OPEC nations can not increase output just simply means that they are not able to offset Iraqi losses considering again OPEC production as a whole. In other words, they are simply bankrupt in terms of spare capacity.

So, there it is. I know readers and contributors to this site know a lot of this, but this should be front page news.

Actually at the time that the US went into Iraq they were producing some 2.6 mbd of oil, so the loss has to be considered to be over 1 mbd. Given that with modern technology, which, in other circumstances, the West would have been glad to install, the loss is actually greater than that. At one time they were producing over 3.5 mbd ( and could have been expected to be able to regain this level with modern technology. Right now however we are not even at half this level.

Too bad we can't harness a hurricane's energy output; or perhaps we might at least get some of it through windturbines.

I ran across a news piece in Kuwati press today linking spare capacity to Iraq - while none of this is "news" its interesting to see the discussion mounting even as "consultations" on production increases are being made between OPEC members this weekend.

Low spare capacity seen keeping oil volatile for yrs

Opec's acting secretary general Adnan Shihab-Eldin said in May that the group had a spare production capacity of more than two million bpd and this would increase to three million bpd by the end of the year. But these figures were mainly based on expectations that security situation would improve in Iraq allowing the war-torn nation to raise its output. There are strong doubts about this now. "Iraq remains a big question mark right now. If things improve there, it will have a major role to play," former Kuwaiti oil executive Kamel al-Harami told AFP. Shihab-Eldin also said Opec expects that global oil demand will rise to around 111 million bpd by 2025 at an annual average growth rate of 1.5 million bpd. By then, Opec will meet 49 per cent of world demand at 55 million bpd. "The real problem is that Opec may one day come out and say that it no longer has any spare capacity. This will be a catastrophe. Their current spare capacity is around one million bpd, mostly heavy oil," Harami said.

Those Iraq numbers are bad and no doubt will not get any better anytime soon.

Back to hurricanes. Richard Kerr in Science this week reports on the strong correlation between the Atlantic Multidecadal Oscillation (AMO) and hurricane frequency. When the AMO is in its positive mode, as it is now and has been since the mid-90's, hurricanes are more frequent. Look at the two figures in Kerr's article Atlantic Climate Pacemaker forMillennia Past, Decades Hence?. (This is a PDF file, you'll need Adobe Acrobat).

The bottom line is that for some years in the future, more frequent hurricanes will possibly disrupt oil production in the Gulf of Mexico.

Oil reclaims lost ground in after hours: Prices rebound from regular session's one-week low

Hurricane Dennis forced the evacuation of a total of 445 rigs and platforms, according to a Monday report from the U.S. Minerals Management Service, which was released a few minutes before the end of the regular trading session.

The evacuations prompted the shut-in of 96.2% of daily oil production in the Gulf of Mexico, as well as 62.4% of daily natural-gas production, according to the MMS.

The update was the main reason for the rally, said Phil Flynn, a senior analyst at Alaron Trading. "People were surprised that Dennis shut in 1.4 million barrels of daily oil production [in the Gulf]," he said, emphasizing that that was a bigger loss of oil than many expected.

But operations will likely be able to bounce back much more quickly than they did in the aftermath of Hurricane Ivan in September of last year, he said, pointing out that Ivan was a much slower-moving storm that had more time to "destroy the pipelines under the water."

CL up approx 1/2 %. Natural gas is up 2% on the day too, much of that in the regular session but certainly it spiked after regular trading hours. Doesn't mean it will stay that way until tomorrow but clearly the take away is... its going to be a long storm season with nervous trade keeping prices high.

Depression 5 to come to major hurricane status is the forecast. And on we go...

No sooner than I posted that did I note:

Big BP oil rig listing badly in Gulf of Mexico 8:08pm ET 07/11/05

The semi-submersible rig, an essential component in the development of the Thunder Horse oil and gas field on Mississippi Canyon Block 778, about 150 miles southeast of New Orleans, was heeled over at an angle of 20 to 30 degrees, the company said.

The Thunder Horse platform is among the world's biggest deepwater production platforms, designed to process about 250,000 barrels of crude oil a day, 200 million cubic feet of natural gas and accommodate a crew of 229.

Well that would explain in part the rise in prices over the past hour and puts to rest the "analysts" jumping to conclusions that Dennis wasn't bad enough to worry about.

Shut in stats as of July 12 - Dennis impact

Now up to almost 5m bbls or approx 1mb/d over the 5 day reporting period. Looks like they are getting back to biz though, 1/2 of production back on line.

Just in time for... Emily.