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U.S. Gas Market Less Affected by Hurricanes Today, Says Analyst

A hurricane in the Gulf of Mexico (GOM) this year is unlikely to impact U.S. natural gas markets as much as it would have in years past because an overabundance of shale supplies has helped to soften the blow of GOM shut-ins, according to energy analysts.

However, offshore gas shut-ins still would impact oil production offshore and gas processing onshore, no matter how much gas is in storage, a senior analyst with energy consultant Wood Mackenzie said. And the hurricanes aren't the only problem facing producers; they continue to adjust to the "new normal" in the GOM following last year's Macondo well blowout, analyst Mohammad Rahman told NGI.

The Atlantic hurricane season began June 1 and continues through the end of November. Weather forecasters have predicted "above-average" tropical storm activity this year (see Daily GPI, June 2). However, this season is expected to be less active than in 2010, when 19 named storms formed, with 12 of them becoming hurricanes, including five intense hurricanes.

With a predicted stormy season ahead, combined with the more restrictive offshore permitting process, Wood Mackenzie is estimating that production losses in the GOM will be about 15-20% below levels of two years ago. Storms matter, said Rahman, but the more restrictive permitting process has dented output, and that loss in output is unlikely to be made up over the coming months.

"Our previous assumption was it would be some time later this year or in 2012 when we got back to the 'new normal' in the Gulf," he said. "Now we think it could be 2013 when we see a more stable permitting process."

Before Hurricane Katrina six years ago, close to 10% (10 Bcf/d) of U.S. gas supplies came from the GOM. However, a record 27 storms six years ago upended the supply picture and double-digit gas output hasn't been reached since then.

Hurricanes Katrina and Rita, the twin terrors of that dreadful and busy season, together tore anchors loose on 19 mobile rigs, destroyed or damaged 166 platforms, pummeled 461 pipelines and flooded most of the near-shore gas processors and refineries.

As the 2006 hurricane season dawned, nearly 13% of daily gas production remained shut-in and close to 21% of daily oil output still was offline (see Daily GPI, June 1, 2006). Fast forward another year to May 2007 and GOM gas output had dropped to about 7.7 Bcf/d; oil output was at 1.3 billion b/d, according to the former Minerals Management Service (MMS) (see Daily GPI, May 31, 2007).

The decline was blamed in part on some infrastructure not being rebuilt. New safety restrictions implemented by the MMS also added to the burden for producers. Close to 40% of the offshore drilling rigs and platforms had not been upgraded before the start of the 2007 hurricane season and a lot were not expected to be working for the season, the federal agency said.

Again in 2008 another hurtful hurricane season arrived, with hurricanes Ike and Gustav slamming U.S. offshore fields and cutting output by 4 Bcf/d and 1 million b/d. However, the storms' impact, while destructive to infrastructure, had little long-term impact.

Today gas production from the GOM has fallen to about 5.5 Bcf/d, about half of the pre-Katrina output. The continued drop in gas output in the offshore, buffered by the surge in the onshore, has made GOM storms "less impactful" to the gas market than they were in years' past, said an analyst at Tudor, Pickering, Holt & Co. Inc.

During the 2010 hurricane season gas shut-ins in the GOM totaled about 7.94 Bcf, according to the Energy Information Administration (EIA). About 4.3 million bbl of crude oil also was shut in last year, which was much lower than EIA had forecast.

Depending on the path of this year's storms, 97 rigs working in the GOM from June 1 through Nov. 30 could be impacted, according to RigLogix. Fifty-one jackups, 29 semisubmersibles and 17 drillships will be working for 36 different operators in the GOM, the firm reported.

"Nobody knows what the 'new' equilibrium in the Gulf will be," Rahman said. "It really will be a matter of time before we can determine what the production levels will be whether there are any hurricanes or not."

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