Because of unprecedented damage from last year’s record hurricane season, Gulf of Mexico (GOM) oil and natural gas production and infrastructure remain vulnerable to even modest storms this year, according to energy consultant Wood Mackenzie.

The UK-based consultant noted in a report that even without actual structural damage, storms in the GOM most likely will affect commodity prices this season. It noted that commodity prices rose on Aug. 2 “partly due to Tropical Storm Chris,” which had been headed toward GOM producing areas (see Daily GPI, Aug. 3).

“Although Tropical Storm Chris dissipated before entering the GOM, this shows how sensitive market traders will be to potential supply disruptions during the remainder of the hurricane season. While the industry has made great strides in recovering from last year’s record-setting damage, the peak 2006 hurricane season starts with the GOM production and infrastructure not yet fully recovered.”

The 2005 Atlantic Basin hurricane season was the most active season since accurate record keeping began in 1933. Of 15 storms, seven were classified as major hurricanes, or Category 3 or higher. According to a Minerals Management Service (MMS) report in June, the storms accounted for cumulative shut-in oil and gas volumes totaling approximately 173 million bbl of oil (31.6% of annual GOM oil production) and 833 Bcf of gas (22.8% of annual GOM gas production).

“Moreover, as we head into the peak hurricane season, 180,000 bbl/d (12%) and 936 MMcf/d (9.4%) of pre-storm GOM oil and gas production remains shut-in. Steady, but slow recovery of GOM oil and gas production is expected through the 4Q2006.”

Besides the shut-ins, Wood Mac noted that development and exploratory activity “was severely hampered by the impaired offshore GOM drilling fleet and its supporting infrastructure, as well as the diversion of available resources for assessment, restoration and upgrade operations.”

Also, several deepwater GOM fields that had been slated to ramp up in 2005 were delayed for several months or longer. Some have since started production, but, BP plc’s Thunder Horse field has been delayed until the start of 2007 because of subsequent manifold leaks discovered post-hurricanes, Wood Mac noted. “Several field projects have been indirectly delayed through the diversion of resources and modified corporate development plans. Originally projected to commence production in late 2006, Wood Mackenzie forecasts the Atlantis field’s production start-up will be delayed at a minimum to early 2007.”

Exploration efforts in the offshore deepwater GOM also declined in the last half of 2005. “This was the result of the record 2005 hurricane season along with the longer drill times and increased focus on appraisal and development drilling. In addition to the impaired offshore GOM drilling fleet, several rigs in the area are migrating to other regions because of the lure of higher day rates and longer-term contracts.

“However, with more than 1,100 offshore GOM blocks slated to expire in the next couple of years (and hence needing to be drilled up), as well as favorable fiscal regimes, Wood Mackenzie forecasts that exploration efforts will recover in 2006 and beyond.”

Most of the damage to upstream facilities in the offshore GOM as well as in onshore Louisiana and Texas has been repaired. But “some longer-term implications exist with certain offshore GOM oil and gas production most likely perpetually lost. This includes 112 shallow water platforms destroyed (MMS assumes these accounted for 1.7% and 0.9% of GOM oil and gas production, respectively).

“To date only four replacement platforms for GOM shelf fields have been proposed and there are as yet no plans to replace the facilities for the deepwater Typhoon field, where the tension leg platform (TLP) capsized, which also keeps its satellite Boris field out of commission. Slow but steady production recovery in 2006 and beyond is expected as several new fields start up, hurricane-affected fields recover, and existing large fields ramp up their production.”

But as GOM production shifts more toward the deepwater, “the potential damage and economic implications of the hurricane seasons are focused on multi-million to billion dollar offshore production facilities,” Wood Mac noted. “Newer, more technologically advanced offshore GOM production facilities and precautionary measures will continually help to mitigate potential damage. Tougher design specifications, stronger steel, new alloys, better framing and joints, and pilings driven deeper into the sea floor have also helped insulate the system from major hurricanes.

“However, as GOM production continually shifts from the shallow water shelf to the deepwater, several fields are being developed jointly utilizing integrated and shared production facilities. Potential damage to such production facilities through hurricanes could effectively shut in production not only from a single field, but from multiple fields.”

Because of the unprecedented damage last year, industry has directed its assessment toward key damage areas and tried to restore those operations to pre-storm levels. “Although several design upgrades and facilities improvements have been proposed, little could be done before the peak 2006 hurricane season as manpower, assessment, repair, supply, logistic, and contractor resources were overstretched. Emphasis has been directed mainly at improving contingency planning in terms of having enough supplies on hand, duplicity of major communications and logistical equipment, and access to supplemental onsite standby power generation.”

Historically, only a small amount of GOM production volumes are affected annually by hurricane season. However, because of the above-normal storm activity forecast, “a larger than average volume of shut-in oil and gas production can be forecast to occur in the 2006 hurricane season. While the 2006 oil and gas production forecast is less than favorable, Wood Mackenzie assumes that the record 2005 hurricane season was an outlier and will not be repeated in 2006 in terms of storm frequency, damage, or production losses.”

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