The Gulf Coast oil and natural gas industry appeared to be gaining ground on Tuesday, with production output improving and several offshore rigs back in service. However, several key natural gas pipelines, as well as onshore natural gas processing units and compressor stations, may be idled until flood waters have receded, power is restored, and integrity tests are performed.

Thirty seven shallow-water Gulf platforms were destroyed and four large deepwater platforms suffered extensive damage that will take three to six months to repair, the Minerals Management Service (MMS) said Tuesday in its first damage report on Katrina’s impact. MMS also said several pipelines suffered damage that will take months to repair, but it provided no detailed listing.

“Although Hurricane Katrina moved through a core area of offshore operations and damaged many production and exploration facilities, early reports indicate that the vast majority of facilities could be ready to come back on line in days and weeks, rather than months,” Rebecca Watson, assistant secretary for MMS, testified before the Senate Energy and Natural Resources Committee.

The agency said that of the roughly 4,000 Outer Continental Shelf (OCS) production facilities, the 37 platforms destroyed only produced about 1% of total Gulf production. However, the four large deepwater platforms accounted for about 10% of the pre-storm federal offshore Gulf oil production.

“Despite this damage, about 90% of Gulf oil production could return to the market in one month, if refineries, processing plants, pipelines and other onshore infrastructure are in operation to receive, prepare and transport it to the consumer,” said Watson.

“A full assessment of the damage from Hurricane Katrina will require several more days,” she said. “Many facilities have still not been inspected by their operators. It is important to note that there have been no reports of significant spills related to production. All safety systems worked to successfully shut-in production on the OCS platforms.”

Katrina came onshore in Plaquemines and St. Bernard’s parishes in Louisiana, home to many oil and gas plants, and four natural gas processing complexes may be out of commission for a minimum of several weeks.

Enbridge Inc. said no gas was flowing Tuesday into its damaged Mississippi Canyon pipeline offshore. The pipeline had been flowing about 511 MMcf/d of gas on Aug. 26 before Katrina’s arrival. An Enbridge spokeswoman said the Venice, LA processing plant, operated by Dynegy Inc. downstream of Mississippi Canyon, is covered by water and mud and could be out of service for some time. She said a small amount of dry gas production may be able to bypass the plant if Mississippi Canyon is able to restart later this week.

Destin Pipeline is flowing about 500 MMcf/d, but all of that is coming from storage, Enbridge said. Meanwhile, the other major offshore Enbridge systems: Stingray, Garden Banks and Green Canyon are flowing a combined 880 MMcf/d, up from zero last week.

Enterprise Products Partners LLC said its Toca Plant, which processes 1.1 Bcf/d, may not be on line for a few weeks. Enterprise also could not give a timeline for its 1.85 Bcf/d Yscloskey plant and its 1.3 Bcf/d Venice plant, both operated by Dynegy. Enterprise spokesman Randy Burkhalter said the company continues to be in an “assessment mode,” and said he expects to provide more details as soon as possible.

Tennessee Gas Pipeline Co. warned producers to keep scheduled volumes at zero flows Tuesday because it found several leaks on its system and still must assess other portions of its operations. It confirmed leaks on its 26-inch diameter pipeline at Ship Shoal 157 and Ship Shoal 144. Divers are assessing the damage. Its mainline valve 528 remains shut in due to water at the Port Sulphur Compressor Station (Station 527). It also incurred damage in the South Timbalier area on several lines (524J-100, 524J-600, and 524J-800) and has leaks on the 524C-100 line and the 524C-600 line. Tennessee said it has survey boats inspecting the West Delta, South Pass, and Main Pass areas.

Despite the problems on some pipeline systems, producers made solid progress in restoring offshore Gulf of Mexico production operations over the long holiday weekend, returning another 3.09 Bcf/d of gas production and 457,579 bbl/d of crude oil production to service by Tuesday morning, according to statistics released Tuesday by the Minerals Management Service (MMS).

Based on reports from 62 companies, the MMS said producers remanned 136 platforms and 26 rigs over the three-day weekend, but a total of 192 platforms and 27 rigs remained evacuated as of Tuesday morning.

A total of 870,374 bbl/d of oil production, or about 58% of the Gulf total, and 4,160.29 MMcf/d of gas production, 42% of the Gulf total, was still shut in Tuesday. Cumulative shut ins totaled 12,752,039 bbl of oil (2.3% of annual Gulf production) and 67.63 Bcf of gas (1.9% of annual Gulf gas production).

Despite the progress being made, some analysts, including Stephen Smith of Stephen Smith Energy Associates and J. Marshall Adkins at Raymond James & Associates, believe there could be 1-3 Bcf/d of gas production shut in for another six months. That, however, would be extremely unusual even for a major hurricane plowing through the Central Gulf. With hurricanes Ivan and Andrew, shut ins were reduced to less than 700 MMcf/d within four months following landfall.

The possibility of such a lengthy recovery has sent markets roaring to record highs, and Adkins and Smith, along with many other analysts, believe this market will remain at extreme levels for some time. The reduction in gas supply could further limit storage injections, which already had been declining sharply in recent weeks due to the hot summer and strong demand from power generation. However, the high prices also should trigger some additional demand destruction.

“We should note this reduced supply will be somewhat offset by reduced demand from higher natural gas prices and storm damaged electric generation infrastructure,” Adkins said in a report to clients on Tuesday. “That being said, Katrina will have a very meaningful lasting impact upon U.S. natural gas prices and we would expect natural gas to remain near the 6:1 ratio with crude for the foreseeable future.” Given that ratio, if crude is near $68/bbl, natural gas would be priced near $11.33/MMBtu. Henry Hub cash traded about 20 cents above that on Tuesday.

Adkins said he does not expect a similar upward spike in crude oil prices because of Katrina. “Crude prices should be held in check by the opening of the U.S. Strategic Petroleum Reserve (SPR) and the fact that oil is more of a global commodity than a regional commodity.”

Smith said he is predicting a November bidweek natural gas price range of $10.50-11.00/MMBtu. He believes demand destruction due to high prices could substantially offset any longer-term storage impact from the shut-in production. Smith is expecting an injection this week of about 51 Bcf in the weekly gas storage report by the Energy Information Administration, compared with a 1994-2003 average of about 76 Bcf. The prediction assumes only 2 Bcf/d of shut-ins, significantly less than MMS has reported. Some other storage forecasts have been much lower.

Smith, whose Natchez, MS-based offices escaped the storm, said Tuesday that because platform damage assessments are still underway, there are unanswered questions as to when certain pipelines and gas plants will resume full operations.

“This is probably new ground for a lot of people,” Smith told NGI. “I don’t think they know yet what the answers are.” His forecast was based on the initial shut-in reports last week, but “there may be more to it than that. We’ll know more a month from now.”

If some of the damaged gas processors cannot take the pipeline gas, it could be bypassed into another pipeline for a short period of time, said Smith. Bypass gas pipelines are able to transport higher Btu gas, i.e., unprocessed, but it is only a temporary solution. “This is a problem that we’ve never faced before,” said Smith. “We’re just going along right now on a wing and a prayer that the pipelines won’t be damaged and that the gas processing plants will be repaired quickly.”

According to the Energy Information Administration (EIA), Katrina damaged four natural gas processing facilities with a combined capacity of 5.5 Bcf /d. The EIA noted follow-up reports have not indicated expected outages of more than a few weeks, with many units expected on line within a few days. However, a full assessment of some facilities will require onsite inspections.

“If these or other plants are inoperable for any length of time, the loss could delay a recovery of natural gas production in the area,” the EIA noted. “Even if platforms and pipelines are either unaffected or readily restored to service, the gas often can’t flow to market without treatment. In 2003 (the latest year with complete data), almost three-fourths of total U.S. marketed gas production was processed prior to delivery to market.”

Offshore, many of the producers are reporting minor damage to their platforms and drilling rigs — but not everyone. A big concern is the extent of the damage to Shell Oil Co.’s Mars platform, which was producing 100-150 bbl/d of oil and about 150 MMcf/d of gas (with capacity to produce 220 MMcf/d). Shell has offered no time frame on when the platform could be rebuilt and operating.

Port Fourchon, LA chief Ted Falgout said offshore production may take longer to restore than it did after Hurricane Ivan, which struck the Gulf last September.

“If this storm didn’t wreak havoc on the pipelines, we probably can recover in the same time frame as Ivan,” which took six to seven months, Falgout told the Wall Street Journal. “But, if in addition to the above-water damage there is pipeline damage, then who knows?”

The U.S. Coast Guard already has noted Katrina wreaked more damage offshore than Ivan. Ivan destroyed seven fixed platforms and damaged 24, compared to Katrina’s total so far of 37 lost and four damaged.

Apache Corp., which lost eight platforms last week, has restored 430 MMcf/d and 41,900 bbl/d, which amounts to 76% of the gas output and 60% of oil production shut by the company due to the storm. After damage is assessed and repaired, additional production will return in the coming weeks. Apache’s lost platforms had contributed 12.1 MMcf/d.

“We’ll be bringing back what we can quickly in the next coming weeks,” said Apache spokesman Tony Lentini. He said some of the output may take longer than just a few weeks to restore. Lentini noted after Ivan struck last year, it took Apache almost a year to repair platforms that weren’t completely destroyed.

BP has returned the deepwater Holstein SPAR facility to production in the Central Gulf, and it is now producing 70,000 boe (gross). The BP operated Caesar and Cleopatra pipelines, which serve the Holstein field, have also been returned to service.

BP also returned 55,000 boe to production from the western Gulf and onshore Louisiana. Efforts are continuing to inspect and return the remaining Gulf of Mexico oil and gas fields to production and pipelines to service. Inspections thus far have revealed no major damage to BP-operated deepwater facilities.

“Restoration of remaining deepwater production is largely dependent on resumption of downstream infrastructure,” BP said in a statement. Surveys of near shore facilities indicate damage to several small platforms with relatively small production volumes in the West Delta and Grand Isle areas of the Gulf.

Power also has been restored to the BP-operated Pascagoula, MS gas processing plant, however the plant is unable to resume operations until offshore pipelines are able to deliver gas to the plant. BP also noted all of its employees in Alabama, Mississippi and Louisiana have been contacted.

The Houston Exploration Co. said as a result of Katrina, an estimated 63 MMcfe/d of net production remains shut in, primarily due to pipelines and facilities temporarily out of service. The company anticipates the majority of these volumes will be back on stream within the next two to four days.

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