Natural gas production in the Gulf of Mexico inched up by 124.3 MMcf from Tuesday, leaving 4.04 Bcf of gas still shut-in following Hurricane Katrina, according to the latest Minerals Management Service (MMS) update, which was issued Wednesday. However, concerns were growing that potential pipeline damage and flooded natural gas processing plants in Louisiana may lead to gas shortages this winter.

Dynegy Inc. CEO Bruce Williamson fueled concern about natural gas processing during a presentation at the Lehman Brothers CEO Energy/Power Conference in New York City on Wednesday. He said that two gas processing plants, which it operates and partially owns, may be down for three to six months because of saltwater damage. The 1.85 Bcf/d Yscloskey plant and the 1.3 Bcf/d Venice plant both were flooded during the hurricane. Saltwater and silt damage is lethal for electrical equipment and not good for machinery such as turbine engines.

Williamson said a full assessment still has not been performed on site. “The estimate of damage at this point, from preliminary flyovers, puts the damage at around the $15-20 million mark, and our share would be a percentage of that to repair them,” Williamson said. “First and foremost, we are concerned about our employees; the sites have been shut down, and we were told to evacuate the region. That’s our first priority. Secondly, we want to get final damage estimates, then get the facilities up and then wait for production to ramp up in the Gulf.”

Williamson noted that of the 89 Dynegy employees who work at the region, all but five had been located as of Wednesday morning.

“Of course, the longer the sites are down, the more likely the shortages will crimp the energy supply up into the Northeast and particularly in the Southeast,” he said.

A third gas processor, also located along the devastated Louisiana coastline, is the 1.1 Bcf/d Toca facility, which is partially owned by Enterprise Products Partners LLC. Spokesman Randy Burkhalter said earlier this week the assessment of the facility was still ongoing, and he had no time frame as to when it may restart.

Could unprocessed gas be mingled into the system? “Gulf gas is pretty wet; you could blend some with other supplies, but if the delivered gas is too wet, downstream customers are likely to have equipment problems,” said Martin Edwards, vice president of the Interstate Natural Gas Association of America. “Also, in the winter, if it gets too cold you will get hydrocarbon dropout, or gas liquids accumulating in the pipeline, which creates operational and safety problems and the possibility of equipment damage.”

Edwards is concerned the public won’t see the costs of Katrina until their winter heating bills arrive. At that point it will be four or five months away from the event and it will be hard for them to see the connection with the hurricane. With gasoline the impact has been immediate, but “four months from now they are going to be a lot less willing to make that connection back to Katrina.”

Pipeline damage could render more gas production out of commission. However, the assessments were still ongoing, according to El Paso Corp. CEO Doug Foshee. The CEO also spoke at the Lehman conference Wednesday.

“With regard to our physical assets, Phase 1 of the reconnaissance will be completed by the end of this week for both onshore and offshore sites,” Foshee said. But he warned that the pipeline inspections “may take several weeks,” partially because of a lack of equipment available. El Paso is currently producing 160 MMcf/d, but “beyond that, we’re more dependent on properties operated by other operators.”

Foshee said the company was producing 210 MMcf/d before the storm. Another 15-20 MMcf will come on line in the next few days, he added. The rest of production is contingent on external factors and is “largely out of El Paso’s control.”

About 1.2 Bcf/d of gas production is still shut in upstream of El Paso’s pipelines currently. When the storm hit, 3 Bcf/d was shut in upstream of its systems, “so we’ve made material headway in a short period of time,” Foshee added. El Paso owns Tennessee Gas and Southern Natural, the two interstate pipelines that have seen the largest shut ins of any of the interstates in the region. However, Foshee said he did not think the shut-ins would have a material effect on third quarter earnings.

Based on reports from 59 companies Wednesday, MMS said shut-in natural gas production totaled 4.035 Bcf/d, equivalent to 40.36% of the daily gas production in the Gulf. Cumulative shut-in gas production between Aug. 26 and 11:30 EST Wednesday was 71.664 Bcf, or about 1.962% of the yearly production from the Gulf (about 3.65 Tcf). Shut-in oil production was 860,568 bbl/d, equivalent to 57.37% of daily oil production in the Gulf, which currently is 1.5 million bbl/d. Cumulative shut-in oil production between Aug. 26 and midday Wednesday was 13.6 million bbl, equivalent to 2.485% of the yearly production of Gulf oil. The MMS also reported that a total of 163 oil and gas platforms and 16 rigs had been evacuated as of Wednesday.

For other producers, the site assessments and repairs are ongoing. Chevron Corp. reported its Gulf oil and gas output is now at 45% of pre-Katrina levels. However, it declined to offer specific production figures for the region. Chevron’s deepwater platforms Genesis, Petronius and Typhoon did not suffer any significant damage, and both Genesis and Typhoon are producing. The Petronius is awaiting pipeline damage assessment. Only a “handful” of its offshore facilities were damaged, Chevron said.

Marathon Oil Co.’s Ewing Bank platform is producing 17,000 bbl/d and 17.5 MMcf/d. However, it said that its three South Pass platforms, which produce 1,500 bbl/d and 7.5 MMcf/d were “severely” damaged, which could take “several weeks and possibly months” to repair. Onshore facilities in Venice, LA, also were damaged, which may affect repairs.

A preliminary assessment by Dominion Resources found only “minimal” damage from Katrina, the company said. However, “further examination of the platforms’ underwater pipelines and inspection of facilities is proceeding.” It has resumed about 75 MMcfe/d of its recent daily offshore production of 400 MMcfe of natural gas, most of that from the West Cameron area near the Texas-Louisiana border. Dominion’s total offshore and onshore production before Hurricane Katrina was about 1.2 Bcfe/d.

Preliminary examinations by Dominion and its partners showed that platforms at its major sites, including Devils Tower, Front Runner, Neptune and Main Pass 281, suffered only minimal damage. However, a smaller platform, Main Pass 270, incurred severe damage and will require further assessment. Main Pass 270 was producing about 11.5 MMcfe/d net to Dominion before it was shut down prior to the hurricane.

Kerr-McGee Corp. suffered limited damage to its offshore facilities, according to COO Dave Hagar. Most production has restarted, and all of the company’s employees have been accounted for. “Overall it is a good news story for our particular company,” Hagar said at the Lehman Brothers conference. “We feel very fortunate and very lucky.”

Kerr-McGee has restarted about 105,000 boe/d of Gulf production, and another 5,000 boe/d will be brought back in a week, Hagar said. Before Katrina, the producer’s output had been 130,000 boe/d in the Gulf. Full production will depend on when repairs are made to onshore infrastructure.

All of Kerr-McGee’s staff has been contacted and is safe, but Hagar noted that some had sustained “serious damage” to their homes. Because of the hurricane, Kerr-McGee will delay its plans to sell its offshore Gulf assets, Hagar said. The bid deadline for the properties had been Sept. 15.

Shell said Wednesday that it was still assessing the damage to its Mars, Ursa and Cognac deepwater platforms and its West Delta 143 gathering platform and could not provide an update.

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