While Hurricane Katrina was one of the most destructive natural gas disasters to strike the United States, it did not cause the worst-case type of scenarios with respect to natural gas production, according to FERC’s Office of Market Oversight and Investigations (OMOI).

“Shut-in production has decreased…since [Katrina’s] landfall from almost 9 Bcf/d to just [under] 4 Bcf/d. While next month futures prices have increased by [16%], the response is rather measured as compared to the aftermath of Hurricane Ivan given the higher shut-in amounts, indicating the market may consider current damages to be of shorter duration,” the OMOI said last week in a two-page report.

However, the OMOI in an update Monday acknowledged that recovery of lost gas production in the Gulf of Mexico had slowed considerably in the past week. Shut-in gas volumes fell to only 3.79 Bcf/d on Monday from 4.16 Bcf/d last Tuesday, it said, adding that roughly 40% of Gulf production still remains offline.

“This pattern of staged recovery is similar to Hurricane Ivan’s when shut-in volumes decreased by over 60% in the first week after landfall, but by only another 24% in the following two weeks,” the OMOI said. “The Nymex October futures contract settled at $11.347/MMBtu [on Friday], down $0.344 for the week but up…about 16% above pre-storm levels,” it noted.

Cumulative shut-in gas volumes and price change caused by Katrina exceed those caused by Hurricane Ivan, which struck the Gulf Coast in September 2004, by approximately 60%, the OMOI said.

In the wake of Katrina, “longer term price effects will depend on cumulative shut-in [volumes] and potentially reduced storage injections,” it noted. On Monday, the Minerals Management Service (MMS) reported cumulative shut-gas production since Aug. 26 was 91.81 Bcf, equivalent to about 2.52% of the annual production of 3.65 Tcf in the Gulf.

The OMOI expects storage injections in preparation for the winter heating season to be below normal. The Energy Information (EIA) reported last week the storage fill for the week ended Sept. 2 was 36 Bcf, compared to 80 Bcf injected during the same period in 2004.

In a related development, FERC said its “State of the Natural Gas Infrastructure Conference,” which will be held on Oct. 12, will focus on the state of the Gulf Coast pipeline facilities following Hurricane Katrina, and the steps that need to be taken to restore or upgrade pipeline infrastructure in that region.

The conference will also highlight changes in the industry that impact infrastructure development, regulatory impediments, financial risks and suggestions for regulatory improvements, FERC noted.

Further information can be obtained from John Schnagl at (202) 502-8756 or Sarah McKinley at (202) 502-8004.

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