Capital losses in the energy-producing industry from the back-to-back hurricanes in the Gulf Coast will range from $18 billion to $31 billion, the head of the Congressional Budget Office (CBO) told a House panel Thursday.
"Capital losses in the energy sector appear to [make up] about a fourth of total losses from the two hurricanes," which has been estimated to range from $70 billion to $130 billion, said CBO Director Douglas Holtz-Eakin during a House Budget Committee hearing examining the economic and budgetary effects of Hurricanes Katrina and Rita.
While the Interior Department's Minerals Management Service (MMS) has reported that more than 100 platforms in the Gulf of Mexico were destroyed, he said that "fortunately most of the high-volume platforms that operate in deep waters...appear to have escaped significant damage."
However, Chevron Corp.'s high-producing platform, Typhoon, was completely destroyed, and another large platform, the Mars facility, "was damaged badly enough by Katrina to be out of service until early 2006," Holtz-Eakin told House lawmakers.
He anticipates Gulf oil and gas production capacity will be below pre-hurricane levels for a number of months. "Levels of oil and natural gas extraction may be lower than usual through the middle of 2006, but the bulk of the Gulf Coast's pipeline and refinery operations will probably be repaired by the end of this year. The pace and scale of repairs will become clearer in the near future as assessments of damages to Gulf drilling and undersea pipelines becomes available," according to Holtz-Eakin.
"The largest offshore facilities may be able to resume operations in the next few weeks; if they can, oil and natural gas production from the Gulf of Mexico may average half its normal level for the rest of this year. Other offshore facilities will probably return to production during the first half of 2006," he noted.
"The electric power industry in Texas and Louisiana incurred significant damage as a result of the two storms," he said. "The industry...claims that the costs of repairing downed transmission towers, substations and local power lines, as well as recouping lost sales revenues during the period, will total $2.5 billion." Holtz-Eakin estimated that 400,000 customers in the two states still are without power.
In the petroleum refining sector, "damage from the hurricanes has resulted in the loss of three million barrels a day of refining capacity (or nearly 20% of the nation's total capacity), but much of that disruption of activity seems to be related to flooding and power outages. Onshore losses of capital for refineries, petrochemical plants, natural gas plants, bulk terminals and pipelines appear to be smaller than the offshore losses," he said.
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