A tropical storm now forming in the Atlantic Basin is “a storm with the potential we are really looking out for,” a Wood Mackenzie energy analyst said Wednesday. If the developing storm becomes the next hurricane, to be named Ernesto, “it has a much more favorable pathway to affect Gulf of Mexico (GOM) production” and “could turn into a threat by the end of this week potentially,” said Eugene Kim, Wood Mac’s senior analyst for North American natural gas research.

Kim and several members of Wood Mac’s energy team spoke about the “calm before the storms,” — plural — in preparation for what could become another active hurricane season this year. Thus far, storm activity has been relatively calm, but Kim noted that most of the GOM’s worst hurricanes have occurred after mid-August, with many of the most damaging in September. The potential Ernesto is a storm to watch, but he added its “development and pathway have yet to be determined.”

Overall, Wood Mac assumes that the 2005 season, which spawned 28 GOM hurricanes, “will not be repeated,” he said.

“There will be a steady but slow recovery of Gulf of Mexico production through the fourth quarter…But development and exploratory activity was severely hampered by the impaired offshore Gulf of Mexico drilling fleet and its supporting infrastructure, as well as the diversion of available resources for assessment, restoration and upgrade operations,” said Kim. “We expect exploratory efforts will recover in 2006 and beyond.”

Besides the loss to exploration efforts, costs to production losses “have been staggering.” He said the American Petroleum Institute estimates $18-31 billion in offshore rigs and platforms were lost. Lost oil and gas revenue was “conservatively” estimated at $16 billion.

The past two years’ hurricanes in the GOM have led to a real reduction in gas output, Kim noted. Following last year’s storms, the Minerals Management Service tallied the gas infrastructure damage as it related to the annual gas output, which it measured at around 10 Bcf/d. However, Kim said that because of the massive destruction and ongoing infrastructure damage, current output may not rise above 8-8.4 Bcf/d. As of mid-August, Wood Mac estimates that about 804 Bcf of gas remains shut in from the storms. By the fourth quarter, it estimates about 871 Bcf will be shut in.

Despite the decline in overall gas production, Wood Mac is more optimistic about the future of the GOM, “especially in the resource areas such as the deepwater, the deep shelf and the ultra-deep shelf,” said Kim. “A lot of deepwater fields will be ramping up, new fields started as well, and there is still a large area that remains to be developed…” He said the decline in production is “short term production, rather mitigated by the lasting impacts of storms. Moving out forward, we still see supply growth.”

©Copyright 2006Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.