In Worst-Case Scenario, Gustav Storm Could Shut Down 20% of U.S. Crude Oil Production

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Researched by Industrial Info Resources (Sugar Land, Texas)--Oil and gas producers like Shell (NYSE:RDS.A) (The Hague, The Netherlands) and ConocoPhillips (NYSE:COP) (Houston, Texas) have reportedly begun to evacuate rigs as Tropical Storm Gustav, which could reach hurricane status, continues to churn toward the Gulf Coast.

As of Friday morning, the National Weather Service was predicting the storm to move northwest past Cuba early Sunday, August 31, toward Louisiana, although the storm could switch paths as it enters the gulf. Gustav could make landfall on Tuesday, September 2.

Offshore oil and gas production in the Gulf of Mexico is about 1.6 million barrels per day (BBL/d), and natural gas is at about 8 billion to 10 billion cubic feet (bcf) per day, said Ed Weatherly, Vice President for Industrial Info's Oil & Gas Production group. "Along with the offshore and the Gulf Coast, it represents somewhere over 20% of the U.S. production of crude oil."

Considering those facts, he said, hurricanes Rita and Katrina in 2005 shut down 99.13% of the gulf's daily oil production, or about 1.5 million BBL/d. About 7.2 bcf, or 72%, of the natural gas produced in the offshore gulf region was shut down. The hurricanes also affected millions of barrels per day of onshore refining capacity, as well as natural gas plants and pipelines.

As production decreased after Rita and Katrina, Middle Eastern countries began to export excess capacity, which was basically "eaten up," Weatherly said. So, in a worst-case scenario, if Gustav proves to be as deadly as Rita or Katrina, he says, "There are not many countries -- if any -- on the planet that have that much excess capacity to turn on to replace the kind of damage that can happen." One of the reasons for that is higher consumption around the world, including India and China.

Click on the image at right to view a map of Tropical Storm Gustav's projected path, courtesy of Weather Insight.

"It's still several days before the storm does hit. ... So we don't know exactly what's going to happen," Weatherly said. "What I've basically said goes to the worst-case scenario, but one never knows what Mother Nature can deliver."

Industrial Info Resources (IIR) is a marketing information service specializing in industrial process, energy and financial related markets with products and services ranging from industry news, analytics, forecasting, plant and project databases, as well as multimedia services.