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Interior Secretary Says Restoring Gulf Gas Output to Take Months

Restoration of Gulf of Mexico natural gas production to pre-Katrina levels is expected to take a fairly long period of time, lasting through the end of the year and into 2006, Interior Secretary Gale Norton said last week.

The pace of returning of Gulf gas production after Katrina hit was similar to what was seen after Hurricane Ivan, which struck the Gulf Coast in September 2004, but the industry is seeing a "much slower response" in the wake of Hurricane Rita, Norton said during a press briefing at the National Press Club in Washington, DC, last Tuesday. "It's not coming back in the same quick fashion that we saw from Ivan and Katrina."

About six weeks after Ivan last year, Norton noted that less than 10% of the Gulf oil and gas production remained offline. But production is just edging up after the back-to-back hurricanes.

The Minerals Management Service (MMS) said on Friday that 6.44 Bcf/d of gas was still shut in offshore in the Gulf, compared to peak production shut-ins following Rita of 8.6 Bcf/d on Sept. 26. The peak after Katrina was 9.4 Bcf/d. The industry added about 1 Bcf/d of production over the course of last week, with shut-ins last Monday totaling 7.49 Bcf/d. MMS said cumulative shut-in Gulf gas on Friday was 246 Bcf, or about 6.8% of total annual offshore Gulf production.

Golden, CO-based Bentek Energy said Friday that onshore and offshore Gulf gas production was up to 6,889 MMcf/d compared to 5,384 MMcf/d the previous Friday (Sept. 30) and 13,820 MMcf/d on Aug. 26, prior to Katrina. Between Monday and Friday last week a total of 1.2 Bcf/d was added, Bentek said based on nominations data from official pipeline company bulletin boards. As of Friday, Bentek estimated that 6,931 MMcf/d of gas production was still shut in both onshore and offshore Louisiana and Texas, and cumulative production shut-ins since Aug. 26 totaled 262.1 Bcf.

If shut-ins average 3 Bcf/d through the end of the year, a total of more than 500 Bcf of 2005 gas production will have been lost, or about 14% of the annual total from the offshore Gulf of Mexico. To put that in perspective, consider that the total annual production of the Powder River Basin in Wyoming is expected to be about 420 Bcf this year.

Norton declined to speculate how much of the Gulf of Mexico gas production would still be offline on Nov. 1, the official start of the winter heating season. She said she expects the remanning of undamaged platforms and restoring their operations to take an additional 10 days because of Rita; restoring platforms that sustained minor damage to take several more weeks; and major repairs to take months and in some cases into next year. About 2,900 of the 4,000 platforms administered by the MMS were in the path of the hurricanes and 108 were destroyed (63 by Rita and 46 by Katrina) compared to only seven by Ivan last year. MMS said 1,600 platforms were in Rita's path, compared to 1,300 with Katrina and only 150 with Ivan.

In addition to the many destroyed platforms from Rita and Katrina, approximately 53 other platforms suffered extensive damage from the two hurricanes, five drilling rigs were destroyed, 19 other rigs were sent adrift, 19 additional rigs suffered extensive damage and the fate of three others has not been determined.

Norton attributed the slower recovery following Rita and Katrina to the fact that platform workers were personally affected by the twin storms (many lost their own homes); disruptions occurred to Gulf ports; onshore oil terminals and natural gas processing facilities sustained heavy damages; and drilling rigs were ripped from their moorings and dragged along the sea floor, potentially damaging pipelines. "We...need to see more checking of pipelines before those are restored," she said.

Although assessments of damage to offshore pipelines have been slow, Johnnie Burton, director of MMS, noted there was more damage caused to underwater pipelines by Ivan last year than by Katrina and Rita combined. A total of 44 pipelines were damaged by Rita and Katrina compared to 102 by Ivan.

The "most significant" factor keeping offshore gas production offline is the damage to onshore gas processing facilities, Norton said. She estimates it will take several months for these facilities to be fully restored to service. In the meantime, Gulf gas production is bottled up. Following Katrina, the MMS said about 35% of the offshore gas production was shut in because of the damage to onshore processing facilities and pipelines.

The Department of Energy last Thursday reported that 20 gas processing plants in Texas, Louisiana and Mississippi remain shuttered either for lack of power, gas supplies or damage to the facilities themselves. Eleven of the plants with a total capacity of about 7.7 Bcf/d were shut down due to damage. The remaining nine plants, representing about 5.4 Bcf/d of capacity, were out of service due to power outages or other external factors.

Norton said mostly older platforms were destroyed by Katrina and Rita. These "were not significant producers," accounting for just seven-tenths of one percent of the Gulf of Mexico gas production and 1.5% of the Gulf's oil output. These platforms were "end-of-life" producers, Norton said, adding that she doesn't expect most to be rebuilt. The majority of them were constructed prior to the agency upgrading its design standards for platforms in 1988.

Only one platform that was built using the 1988 standards, Chevron Corp.'s Typhoon platform, was destroyed during the recent hurricane activity, Norton said. The Department of Interior suspects that a rig ripped from its moorings collided with Typhoon, causing the extensive damage. Not one of the platforms in the Gulf was capsized during the hurricanes, said MMS' Burton, so "common sense tells us that something else...happened" to cause the damage.

Noble Corp. disputed an industry publication's report that one of its rigs, Max Smith, was ripped from its moorings and blown straight into Chevron's tension leg platform, Typhoon. After its mooring lines broke, Noble said Max Smith passed 2.5 miles to the south and west of the fixed location of the Typhoon platform, based on Noble's global positioning system technology onboard. Both Interior Department and Chevron are investigating the matter.

Approximately 53 platforms sustained significant damage during the hurricanes, of which four were major platforms, according to Norton. She noted that repairs currently are under way on the four major platforms, with production expected to resume in a couple of months.

At this stage, there is no official dollar estimate on the destruction to offshore oil and gas production facilities, but "it will clearly be in the billions of dollars," Norton told reporters. The Congressional Budget Office last week estimated the capital losses to the entire energy-producing industry (including refineries and the power sector) ranged from $18 billion to $31 billion, or about a fourth of the total losses from the two hurricanes (see related story).

She reported that 19 mobile offshore drilling rigs were torn from their anchor moorings and set adrift, creating a "collision risk" to other platforms and pipelines along the ocean floor. Norton said the Interior Department has been studying the problem with the mooring systems of Mobile Offshore Drilling Units, following Ivan last year. Norton said she has called a Nov. 17 conference for industry executives and regulators to come together in Washington, DC to address the issue.

The MMS also has undertaken several actions to ease the process of returning domestic energy resources, including expediting the review of requests for temporary barging of oil or flaring of small amounts of natural gas; expediting the approval process for pipeline repairs; waiving cost recovery fees until January 2006; and maintaining continuous operations in the Gulf area despite evacuation and relocation of the MMS New Orleans office and damage to district offices.

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