Our Insider and Rigzone say the damage is bad...but the question is how bad?

Our insider reports: "in the initial assessment, multiple rigs are missing and no word on platforms yet." (it's early days on this...there's 4k+ rigs out there)

From Rigzone: http://www.rigzone.com/news/article.asp?a_id=25553

Rita may have landed at Sabine Pass as a category 3 hurricane but she plowed through Gulf of Mexico offshore oilfields at a Category 5 level knocking down jackjup rigs and setting deepwater floating rigs adrift.  As storm generated seas rose to meet the US Gulf continental shelf drilling rigs and fixed production platforms were severely damaged and in some cases sunk [...] If these early reports are any indication of the total offshore facilities damage caused by Rita, natural gas and oil prices will be moving up smartly to new highs in the weeks ahead.
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The bad news about the drilling rigs will trickle in over the next couple of days.  Then we will hear that maybe the damage in the refineries is worse than originally thought.

I guessed that Rita was going to cause $5/gallon gas.  I am afraid I will be right in about 2-3 weeks.

I think we should avoid the temptation to get too over-excited about the hurricane damage. Crude is a global market of which GOM production is only a tiny part and the SPR and IEA treaties can mitigate it. The long term refinery damage looks like it might be limited to a single refinery. So probably NG is where the biggest danger is (but stocks are high fortunately, so there's some cushion).
agreed, Stuart.  I rather hope it isn't that bad.  Folks are already hurting from high prices.  Even $3.50/gal will change lifestyles.  Earlier in the summer, we said $4/gal would be a major pricing point...let's hope it doesn't even get that far.
Or, let's hope that it goes exactly that far.  All of the models indicate that the sooner there is national attention on the crisis, the better chance we have of cushioning the blow.  

Gasoline, as much as people rely on it, really ISN'T that important.  If people are unable to drive their vehicles anymore, they'll compensate to bicycles, public transportation, etc, only because they will be forced to do that economically.  Sure, it will be more difficult, but I sincerelly doubt there will be masses of people quitting their jobs because they can't afford to get there.  

Now, NG is important, obviously, because heating.  There is no doubt in my mind people WILL die this winter because of high energy prices.  And, I mourn them in advanced, because it will play out exactly like the Katrina disaster; the ones that need help most, that cannot honestly afford the increase, are also the ones that stand the less chance of surviving without heat, ie the elderly and poor.  And while, the loss of life is unbearable, as a culture, we've become so ADD that disaster porn is the only way to reach us.  Hopefully, out of the loss, there will be cries for solutions.

I guess I have already accepted the "gas bills will double this winter" (which is, indeed, going to be HORRIBLE for many people without means...) thesis...perhaps I have become desensitized...
And while, the loss of life is unbearable, as a culture, we've become so ADD that disaster porn is the only way to reach us.  Hopefully, out of the loss, there will be cries for solutions.
Yes, there will be cries for solutions - for about a month or so. At that point, the public will become desensitized to that particular form of suffering of others, and will be looking for new infotainment and uninterested in any more stories about poor people freezing to death.
That is SO true - a discussion on dopamine and our addiction to novelty would be very illuminating. The next hurricane will be boring for everyone if it is CAT3 and hits land as CAT2. Old news. Yawn.

In a broader sense, this quest for the 'wanting' through dopamine activation and novelty is at the heart of the Peak Oil problem - as humans we seek brain chemicals that caused us to be evolutionarily 'fit'.  In our current culture, 'conserving', using less energy than the 'Joneses', and boring disasters compared to last weeks do not give us the chemicals we crave to be 'happy'. Remember the first few weeks of the Iraqi war? We were horrified when 1 US soldier died or when 20 Iraqi were killed - now its like a daily arcade game and has become 'expected', giving us no dopamine rush. Experiments on monkeys have shown that absolute rewards decay quite rapidly in repeated tests in their impact on creating 'happiness' (dopamine activation), but 'unexpected' rewards continued to activate the feel good regions.

An analysis of human biochemical decision-making algorithms, in my opinion, is critical in looking at solutions to the upcoming "Hirsch Gap". As Jay Hanson told me, each of us has a Dr Jekyll and Mr Hyde inside us - Dr Jeckyll acts based on his pursuit of brain chemicals, then Mr Hyde puts on the public spin.

Is this related to the fact that humans are evolutionally predisposed to being very capable of dealing with immediate crisis but are very poor at responding to the emergency that happens in slow motion and takes a decade or more to unfold? I think this is another huge problem that we face with the Peak Oil problem.
Absolutely! I think we are this way because it's adaptive - especially in a hunter gatherer context. The future is hard to predict, so acting too forcefully on our theoretical beliefs about it is likely to be maladaptive. However, bad or good things that happened to us, or almost happened to us, are probably a pretty serious factor in the environment so we learn from them. If we didn't become habituated to an existing situation but instead kept enjoying it, we'd sit on our asses instead of going out restlessly to improve it still further. The latter is likely to be more adaptive than the former. Correspondingly, if the situation inevitably degrades, there's no point in being permanently miserable - instead we get used to it and only get miserable again if it gets worse still (since something that has just happened might be reversible, whereas something that's been that way for a while is probably not, or we would have reversed it already).
I actually think this is more up my academic alley anyway, as my background is in Psychology, Political Science, and Philosophy (undergrad, so take it with a grain of salt).  

My first thought process on this is interesting:  It's said often of Americans, that we are the only group of people who don't expect suffering.  So, when suffering happens to us in a tertiary sense, it creates a sense of novelty.  Who of us, in private conversation, haven't said something along the lines of "I'm looking forward to the next disaster"?  The interesting thing about novelty is that is actually stimulates our dopamine sensors, and is more of a "amusement" reaction than an "alert" reaction (imagine prairie dogs, or such).  Could it be possible we're flooding our reactions with our constant perception of novalty?  After all, that's the same type of reaction that happens under the use of Ecstacy, and one of the long-term side effects of X use is known to be severe depression, as the receptors become "numb."  So, I sort of feel all of the novelties in our lives are actually contributing to this American crisis with depression.  

Now, onto my Fruedian/Jungian analysis (I'm neo-Freudian, with hints of evolutionary and behaviorism thrown in, in case anyone cared).  It's my feeling that we're in a definite existance of Baudrillardian hyperreality, something that's especially set in over the past 5 years with the Bush illusion of government.  When we break down the Freudian model of the brain we have the Id (the pleasure-seeker), the Ego (the reality principle, ie the sharer), and the Superego which acts as the reconciler between desires and reality.  This process has served us well throughout our more "natural" history, but has started failing as we've entered into modernity.  As reality degrades, and the meme of living life "reconciled" to hyperreality spreads through the collective unconscious, our Superego cannot reconcile between the Id and the Ego, and our consciousness degrades.  We rely more and more on the Id and Ego, and cannot conceive of the long-term, nor can we apply any longer the moral and social constraints that create our modern life, causing collapse of our social construct.  So, in this sense, you can almost imagine a Bell curve of modernity, matching almost identically with the Peak Oil curve.  This is why we cannot escape the path we are on.  You can say that we lack Der Wille zur Macht.

Ok, all that babble behind me, I think it's obvious I'm a rather pessimist in the situation.  And further, despite my ability to recognize these trends, I am still helpless to escape the course, which is a huge source of the undercurrent of nihilism in our culture.

My rather long-winded $.02

Nice try, sir, but it's my impression that Freud and Jung were debunked years ago. They need to be filed under "mythology," not "psychology." see Frederick Crews, a Freudian literary critic who underwent a transformation when he began asking tough questions of Freudian "theory" (which, like literary "theory," ain't really theory).

It's now my point of view that the default way of looking at mental phenomena is through an evolutionary lens, unless proven otherwise. Hence, my attraction to Hanson, et al.

Well, in all fairness here, let's note that they were "debunked" when psychology changed from an art of philosophy into a science, c the behaviorists.  Freud wasn't attempting a scientific explanation of the mind as much as a pragmatic explanation of the functions of the mind.  There isn't literally an Id in your mind, but there are several functions, et al which combine to produce something very close in nature to that.

Further, you cannot simply say, "Freud and Jung have been debunked" and not argue my point off of that.  That's ad hominum, and comparable to saying something like, "Jung was a Nazi, therefor, your arguement is completely false."  

Finally, you attack my arguement from a different frame of reference than I do.  It is obvious through your perjorative use of "theory" that you are a strict empiricist, which is a complete 180 from my frame of reference as a rationalist.  There's a definite odor of the super-annoying scientific-ego in your comment, one that doesn't construct anything.

And, the default is not "evolutionary."  If by default, you mean the average, which is a bad interpretation, you would find it is more likely a strong base of behaviorism, with dashes of epigenetic and cultural.  For a base read of neo-Freudiasm, read Erik Erikson.

I always find it strange that the same people who are anti-Darwin are the same ones who preach Darwinian economics. Let's hope the better impulses win over.
HA!  That, my friend, is a funny one.
NG stocks are 100bcf below last years levels as of last week's report; if stocks continue to lag then the winter spike in NG prices is likely to remain off prices already elevated.

If the winter is unusually cold (last years was not as I recall), then who knows where the spike will stop at. Perhaps 20$ is not that fanciful a number for this year.

Thursday's report will be interesting...

Simmons commented yesterday that Katrina could turn out to be our "Energy 9/11."  We don't know yet because the assessment of damage below water was just starting when evacuations for Rita were starting.  

He was also very concerned about the long-term effects of rig losses.  The time required to build a new rig could result in lagging effects from Katrina/Rita for many years.  I also imagine (though he didn't say this) that the effect could be global because the market for rigs--like crude--is global to a certain extent.  

I agree with your general point about natural gas, though.  I imagine that quite a few brain chemicals will be released when Americans look at their gas bills this winter.  

A little research on how we use natural gas in this country came up with these stats here (a bit old- EIA 2000)

 NG is 24% of energy used in US.

NG used by sector:

Electric generation 24%
Residential - 22%
Industrial - 32%
Commercial - 14%
Other - 8%

84% of NG used in Industry is consumed in pulp and paper, metals, chemicals, petroleum refining, stone, clay and glass, plastics, and food processing industries.  

Yeah, and what's been happening in response to higher natural gas prices is increasing movement of fertilizer and petrochemical industries offshore to places that have plenty of NG still. Eg something like half of the US fertilizer industry has shut down in the last 5 years, since 95% of the cost of fertilizer is the natural gas. There's probably a lot more of this kind of thing to go - bad for the trade deficit.
The best single image I've seen of how each energy source is used, and how much each one contributes to each sector of the economy, comes from the EIA. I've screen-grabbed the PDF image as a graphic and posted it on my site: http://www.grinzo.com/energy/pecss.gif It won't win any awards for beauty, but there's a ton of information in that one graphic.
Oops.  Sorry about the messed up formatting in the post above.  

Note to self: Coffee first, preview second, post third.

Great picture! thanks!

Clearly NG has been overlooked and I don't understand why! your picture shows clearly that NG will affect the industrial sector and electricity generation severely!

Oil has consequences on personal transportation but simple mitigation and conservation plans do exist (ex: car pooling) but I don't see how we could reduce our NG consumption without major economic consequences!

"the Oil Drum" should be called "The Natural Gas Drum"!

This is an apparent timeline (first I've seen) for power restoration in the Texas & La ( Lake Charles area) based on comments in the article below.. " Entergy said it could be three or more weeks before power is restored to them".  In the immediate Lake Charles area are numerous chemical and other processing plants as well.  This headline is kind of misleading..........

WSJ: Entergy Begins Rolling Blackouts
In Service Area North of Houston

September 27, 2005; Page A2

Entergy Corp. initiated rolling blackouts north of Houston to reduce stress on its badly frayed electrical system after Hurricane Rita and a series of tornadoes left its Texas utility with hundreds of downed power lines and most of its power plants disabled.

Throughout the entire Gulf region, a total of more than 1.2 million metered accounts were without power as of Monday, including about a third of Louisiana.

Six oil refineries in Texas and Louisiana remained without electricity, and Entergy said it could be three or more weeks before power is restored to them. Some of those refineries receive electricity generated by Entergy's giant Roy S. Nelson power plant near Lake Charles, La., which suffered a caved-in wall and other damage.

The output of that plant, and power from other Entergy plants in Louisiana, moves across high-voltage lines linking Louisiana and Texas. Some lines were so badly damaged over the weekend that it has been nearly impossible for Entergy to get electricity to some parts of Texas.

Entergy said it was unable to meet the local needs of a four-county area it serves north and east of Houston because only three of 13 power plants that the utility normally relies upon were capable of furnishing power. Entergy is still assessing the damage to see how long repairs to those plants, and the lines that serve them, will take. Entergy doesn't serve the city of Houston itself.

Entergy said it was about 30% short of the electricity it needs to serve the area north of Houston where it implemented blackouts. It sought to limit the suffering of customers in 100-degree heat by interrupting power to neighborhoods in one-hour rotating blocks. The forced interruptions are to continue indefinitely until supplies catch up with demand.

Outages in the Houston suburbs served by Entergy were more severe than in the city itself. Entergy draws its power from the giant electric network known as Eastern Interconnection, located in an area hit hard by the recent storms. Most of Texas, including Houston, draws power from companies within the Electric Reliability Council of Texas, Ercot, which wasn't hit as hard.

Thus, New Orleans-based Entergy's Texas unit is largely dependent on utilities and independent generators to the east when a big storm hits. Texas has kept most of its transmission system and power plants as a separate grid because that keeps it under state control. If it were engaged in interstate commerce, it would be subject to the Federal Energy Regulatory Commission.

Entergy said it has 7,000 workers trying to get power lines back up and re-energized, as of Monday. At midday, it still had about 450,000 metered accounts in Texas and Louisiana without service because of Rita, on top of the 211,000 metered accounts still without service in Louisiana as a result of Hurricane Katrina a month ago.

Other Texas utilities reported more-limited outages: 180,000 customers out at CenterPoint Energy Inc., which serves Houston proper, and 50,000 at TXU Corp., which serves areas north and east of Entergy's Texas unit.

Last week, Entergy put its New Orleans utility unit under federal bankruptcy protection, citing costly damage from Hurricane Katrina and levee failures. (See related story.)

The TX's power grid can be found here:
http://www.ercot.com/ercotpublicweb/market/ftp/Hurricane_Rita_ERCOT_Updated_Information/Electric_Gri d_Update/NetworkMap_lg.gif
Monday, September 26, 2005, 11 a.m.

The ERCOT grid is stable and secure with no fuel problems reported as a result of storm damage from Hurricane Rita.  At this time, approximately 240,000 customers in the ERCOT Region are without power.

Of the 23 high-voltage transmission lines forced out of service in the ERCOT area by the hurricane, only five 138-kV lines remain out of service.

Here in Houston, we have been looking at the Gulf, the Gulf might have Round 3
1130 AM EDT TUE SEP 27 2005


From CNN Money: http://money.cnn.com/2005/09/27/markets/oil.reut/index.htm

LONDON (Reuters) - Oil edged lower Tuesday on signs that crude supplies remain plentiful, even with all U.S. Gulf of Mexico oil output locked in after Hurricane Rita.

Saudi Arabia said there were no takers for OPEC's spare supplies, while the kingdom may pump less crude in October.

Also from this article:

Naimi said the kingdom would soon be able to boost its proved oil reserves, and that sufficient spare global oil output would be added in the next three to four years to restore "some margin of safety" to oil markets.

"The current price level is providing the returns needed to attract adequate investment and over the next several years, significant new capacity will begin to come onstream," Naimi told the World Petroleum Congress in Johannesburg.

I laughed out loud when I read this. True or not, this statement seems tailor made to soften the concerns of the markets and keep the price of oil down.

refiners have stated that they do not want Saudi Arabia's spare supplies which are all comprised of heavy sour crude.

even if SA is able to boost output, the margin of safety will be eaten up by demand which will have grown in the next 3-4 yrs.  so really, we will be back to current situation of supply=demand.

Interesting announcement that the "kingdom may pump less crude in October". So let's see, would that be because:

a) They have plenty of oil, can pump all they want, but don't like selling it at a measly $60+ (when they were happily selling it at the $22-$28 level a few years back), or

b) ???

Or perhaps c) The US's demand for oil is actually significantly down due to 1)SPR oil flooding the market and 2)Loss of significant refining capacity?

If this is true, then I don't see how we won't be seeing severe gasoline shortages within the next month or two.

gasoline prices are soaring due to refinery outages.  the common tactic to combat gas prices is to suppress the price of crude via SPR release, make available all of OPEC's oil, i.e. flood the markets with oil.  since price of oil drives 40% of the price of gas, a lower oil price will lower gas price.  we are so hella gonna see gas shortages...
Well, the other factor is grades. The idea that "there are no takers" for their oil seems silly - they just need to lower it's price if so, until there are some takers. This has happened to some degree, but not enough I guess. I won't believe the market is over-supplied, even with heavy sour crude, until heavy sour crude is below $20/barrel.
Today's Financial Times:

Rita causes worst rig damage

By Carola Hoyos in London, Sheila McNulty in Houston and Thomas Catan in Johannesburg

Hurricane Rita has caused more damage to oil rigs than any other storm in history and will force companies to delay drilling for oil in the US and as far away as the Middle East, initial damage assessments show.

ODS-Petrodata, which provides market intelligence to the offshore oil and natural gas industry, said it expected a shortage of rigs in the US Gulf this year.

"Based on what we have right now, it appears that drilling contractors and rig owners took a big hit from Rita," said Tom Marsh of ODS-Petrodata. "The path Katrina took was through the mature areas of the US Gulf where there are mainly oil [production] platforms. Rita came to the west where there is a lot of [exploratory] rig activity."

Ken Sill of Credit Suisse First Boston said: "Early reports indicate numerous rigs are missing, destroyed or have suffered serious damage and several companies have yet to report. Rita may set an all-time record."

The US Coast Guard said nine semisubmersible rigs had broken free from their moorings and were adrift.

This damage could not have come at a worse time for oil companies and consumers. US crude futures on Monday fell 37 cents to $65.45 a barrel in midday trading in New York as refineries that were evacuated before the onset of Rita returned to operation.

Earlier in the day, Ali Naimi, Saudi Arabia's oil minister, said the market had not taken up the 2m barrels a day of spare capacity the Organisation of the Petroleum Exporting Countries offered last week. Speaking in Johannesburg, he blamed high oil prices on a lack of industry infrastructure, including rigs and refineries, rather than oil reserves. Rigs, which are movable and are used for exploration and development, were in short supply before hurricanes Katrina and Rita blew through the US Gulf in late August and September.

High oil prices and the desperate search for new oil supplies needed to meet rampant demand from the US and China have made rigs difficult to find and expensive to hire. Rigs cost $90m-$550m to construct, depending on how sophisticated the structure and how deep the water in which it will drill. A rig ordered today is unlikely to be ready before 2008 or 2009, analysts said.

As a sign of just how precious rigs are becoming to the market, Anadarko, the biggest US independent oil company, this week set a record by committing to a rig six years in advance; commitments in the past were made months ahead of time rather than years.

Initial reports from companies are ominous. Global Santa Fe reported it could not find two of its rigs. Rowan Companies reported four rigs damaged, with two having moved, one losing its "legs" and the fourth presumed sunk. Noble has four rigs adrift, with two run aground one into a ChevronTexaco platform.

Re: "Earlier in the day, Ali Naimi, Saudi Arabia's oil minister, said the market had not taken up the 2m barrels a day of spare capacity the Organisation of the Petroleum Exporting Countries offered last week."

This offer of some unrefinable heavy sour crude from Saudi Arabia - a total political ploy - is actually starting to get annoying. Many articles cite Al-Naimi's statements without including this extra bit of information. I am aware that all of us here at TOD know this -- I love the Saudi Oil Minister, of course -- but this is not a good time for phony offers given that the GOMEX damage is looking worse and worse and we will be strapped for usable oil after we go through the SPR releases.
The relationship between USA and KSA is so weird it borders on perverted.  I don't know why Americans keep asking Saudis for oil (with Bush making personaly calls to his princely friends) each time the price goes up or there is a shortage.  And even stranger, why do Saudis feel obligated to say things that make no sense just to show they care?  They know enough about the business to know there are no alternatives even at $100/Bbl. Is like a not so funny comic srip that's always the same.