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Operators Play Offense Against Gustav

With a majority of energy platforms across the Gulf of Mexico (GOM) likely to be shut in ahead of Hurricane Gustav before Labor Day barbecues are over, the enhanced offshore systems implemented since the 2005 storms -- and burgeoning onshore gas production -- could play a critical role in how well the markets perform.

In just two hurricane seasons -- 2004 and 2005 -- 123 fixed structures and one floating facility were destroyed in the GOM, according to the Minerals Management Service (MMS). Dozens of other fixed and floating structures also suffered heavy damage. By themselves, hurricanes Katrina and Rita in 2005 are considered two of the 10 most intense hurricanes to ever hit the Atlantic Basin -- and they were the greatest natural disasters to hit oil and gas development in the history of the GOM.

Weather forecasters Friday were calling Gustav a worthy successor to the terrible twins. The storm had strengthened to hurricane status by early Friday afternoon, and many offshore operators appeared to be on track to have all of their manned platforms and drilling crews evacuated by Sunday night.

If the storm is as strong as predicted, peak natural gas shut-ins from Gustav could total 80-90% of GOM production, Bentek Energy LLC estimated. The MMS in June estimated total GOM gas production was around 7.4 Bcf/d; Bentek's estimate on Friday put output at 10.3 Bcf/d.

Federal officials and offshore operators are hopeful that they are better prepared than they were in 2005.

On paper and in practice, things appear to have changed for the better in the past three years. Pipelines have been repaired and better secured, onshore processors rebuilt with better flood protections and offshore platforms' mooring systems strengthened. Earlier this year MMS issued final rules to "improve the survivability" of offshore platforms and increase environmental safety during hurricane events (see NGI, April 21). The rules incorporated three American Petroleum Institute bulletins that contained engineering design principles and good practices for new platforms and assessments of existing platforms.

The MMS identified 65 offshore structures earlier this year that it considered "high-consequence" facilities because of their location, function or proximity to other infrastructure. The agency required the offshore operators to assess the structures and strengthen them if needed. Plans also are in place to shift flows of gas and oil if there is structural damage to subsea pipelines. Oil would be transported via barges; gas would be rerouted to other pipelines.

"The Gulf of Mexico is a very mature oil and gas province, so we have facilities that have been put in from the 1950s all the way through today," said Lars Herbst, regional director of the MMS GOM Region. Design criteria for GOM structures have changed "every time there is a learning event..."

Also new this year is the addition of a Coast Guard official to the MMS "continuation of operations" committee. The Coast Guard, which is in charge of maritime law enforcement, will help coordinate safety activities during storms. In addition, MMS said it is now better prepared to temporarily shift its operations from New Orleans to Houston if necessary -- something it had to do in 2005.

Many operators, however, already have gone above and beyond to ensure the survivability of their GOM facilities, onshore and offshore.

El Paso Corp., with an extensive gas pipeline system and exploration facilities offshore, provides an example of what companies did right once the 2005 hurricane season was finally over. Katrina hit El Paso's east supply area affecting Tennessee Gas Pipeline (TGP), ANR and Southern Natural Gas assets; Rita hit the west supply area, affecting TGP and ANR assets. Thirteen of El Paso's pipe systems, 31 pipeline risers, four company-owned regulated pipeline platforms, more than 400 measurement meters and eight onshore compressor stations were damaged or destroyed by the two storms, said spokesman Richard Wheatley.

"As a result of damage from Katrina and Rita, and the need to get natural gas flowing again as quickly as we could from impacted supply areas and regions, we established asset optimization teams," Wheatley said. El Paso has 10 manned exploration platforms in the GOM; in 2005, it had 27. The Houston-based company has around 100 employees and contractors who work offshore.

With some of its pipes severely damaged and flooded onshore processors, El Paso set up response teams to deal with the damage.

"The teams were comprised of personnel from key functional areas, such as engineering, operations, and materials management and other groups, who worked in tandem to get our pipelines and onshore pipeline and compressor facilities and infrastructure back in good working order," he said. "That included prioritizing what areas needed to be repaired first and how we were going to accomplish the work, including rerouting normal gas-flow direction, installing new interconnections, and just using 'Yankee ingenuity' in a sense to carry out repairs."

Among other things, El Paso outfitted a mobile offshore repair barge, which could be moved to various locations offshore Louisiana, which minimized the need for long helicopter flights -- and refueling constraints. Many of the platforms with refueling capabilities had been damaged, which prevented helicopters from landing to take on fuel.

El Paso's best practices approach has better prepared the company, said Wheatley.

"We put in permanent pipeline interconnections at certain onshore facilities, providing for different routes for natural gas to flow," said Wheatley. "This allowed natural gas to flow in different directions to move it to undamaged processing facilities and then on to market. If we have another event, those new pathways are in place now, which will give shippers more flexibility to move their natural gas to market."

The precautionary steps implemented by offshore operators could be a key to keep infrastructure from being destroyed and hampering gas flows. However, if shut-ins prevent offshore production from moving ashore for days or even weeks, the growing onshore gas supplies could make a difference.

The U.S. gas supply and demand balance "should grow looser relative to last year through the remainder of the injection season," Lehman Brothers analysts said in a recent report (see related story). Ahead of the impending hurricanes, Lehman expected gas inventories to reach 3.52 Tcf by Nov. 1, which would nearly close the deficit to last year's record level.

Weather, of course, was the unknown variable in the Lehman forecast, and Lehman built 60 Bcf of shut-in supply into its supply model.

"Although we expect above-normal temperatures through the remainder of the injection season, we forecast them to stay significantly below last year's levels," said the Lehman analysts. "The reduced cooling load relative to last year should play a large role in helping U.S. inventories close the deficit relative to 2007."

Offshore gas production has remained steady, but that's not the case onshore, noted Ziff Energy, which tracks North American gas. Ziff estimated recently that U.S. gas output has grown "a remarkable 5 Bcf/d" mostly from shale gas, Rockies tight gas and GOM's Independence Hub. "By 2020, unconventional gas will grow to almost half of North America's supply, and 13% will come from LNG [liquefied natural gas] and the North," said Ziff's Dana Bozbiciu.

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