Gustav Cuts Gulf Oil, Gas Output; Refining Curtailed

By Jim Polson

Aug. 30 (Bloomberg) -- Crude-oil and natural-gas shipments from the Gulf of Mexico plummeted, and Valero Energy Corp. and Royal Dutch Shell Plc cut refinery operations as Hurricane Gustav strengthened to a Category 4 storm on a course to strike Louisiana in two days.

BP Plc, Exxon Mobil Corp. and Shell, Europe's largest oil company, led producers shutting wells and whisking staff ashore. About 77 percent of Gulf oil production and 37 percent of natural-gas output was shut, the U.S. Minerals Management Service said in a statement today. The Louisiana Oil Port, the nation's largest crude-oil terminal, closed this morning.

The National Hurricane Center issued a hurricane watch from Texas to Florida, including Louisiana and New Orleans, at 5 p.m. New York time, adding that Gustav, an ``extremely dangerous'' storm, may intensify into a Category 5 hurricane within 24 hours. Gustav's winds were estimated at 150 miles (240 kilometers) per hour, and it is expected to pass through western Cuba into the Gulf overnight.

The New York Mercantile Exchange announced an extended trading session beginning at 2:30 p.m. tomorrow because of Gustav.

`Worst-Case' Scenario

``This storm will prove to be a worst-case scenario for the production region,'' Jim Rouiller, senior energy meteorologist for Planalytics.com, said today in an e-mailed message. ``This storm will be more dangerous than Katrina.''

Fields in the Gulf produce 1.3 million barrels a day of oil, about a quarter of U.S. production, and 7.4 billion cubic feet a day of natural gas, 14 percent of the total, government data show. Hurricane Katrina in 2005 closed 95 percent of regional offshore output and, along with Hurricane Rita, idled about 19 percent of U.S. refining capacity.

Valero, the largest U.S. refiner, slowed production at four refineries in Louisiana and Texas and said it may decide later today whether to shut units and evacuate staff. Three Louisiana parishes with refineries ordered mandatory evacuations today.

Refinery production slowed at some complexes owned by Shell and Motiva Enterprises LLC, its joint venture with Saudi Arabian Oil Co., Shell said in a statement on its Web site.

``The big question for the market is going to be how quickly after Gustav passes will the industry be able to recover and get back online,'' said Andy Lipow, president of Houston-based Lipow Oil Associates LLC.

Pipelines Shut

Enbridge Inc., Canada's largest pipeline company, and its U.S. affiliate began closing conduits capable of bringing ashore 6.7 billion cubic feet a day of natural gas. Evacuation of Terrebonne Parish shut 550 million cubic feet a day of gas flow into the 10,500-mile (16,900-kilometer) Transco line to the U.S. northeast, owner Williams Cos. said in a statement.

Exxon Mobil, the largest publicly traded oil company, said today it had shut platforms producing 5,000 barrels of oil and 50 million cubic feet of natural gas.

BP, Europe's second-largest oil company, said it shut Gulf production and evacuated all staff by noon local time today. Its normal production is equivalent to 290,000 barrels a day from the region.

Anadarko Petroleum Corp., the second-largest U.S. independent oil producer, said in a statement on its Web site today that it had shut the equivalent of 105,000 barrels a day of production, with all of it to be closed tomorrow night.

Shell said it would shut daily production equivalent to 510,000 barrels of oil today. Marathon Oil Corp. and ConocoPhillips said they have shut and evacuated all Gulf production platforms.

Worker Evacuations

Workers from 45 rigs and 223 production platforms were evacuated as of 12:30 p.m. today, the Minerals Management Service said in a statement on its Web site. About 998,000 barrels of daily oil production have been shutdown in preparation for the storm, as well as 2.75 billion cubic feet of gas.

Crude oil futures on the Nymex fell 13 cents to $115.46 a barrel yesterday on speculation supplies will be adequate to meet demand after the storm passes. Natural gas futures fell 10.7 cents to $7.943 per million British thermal units.

Most U.S. financial markets are closed until Sept. 2 for the Labor Day holiday. Nymex said in a statement late yesterday that electronic trading will begin at 2:30 p.m. New York time tomorrow with trades dated Sept. 2.

Valero refineries in St. Charles, Louisiana, as well as Port Arthur, Texas City and Houston in Texas are operating at reduced rates, spokesman Bill Day said today in an e-mailed message.

LOOP Shut

The Louisiana Offshore Oil Port shut at 9:30 a.m. local time today.

``It's time to get our people off the offshore platform,'' spokeswoman Barbara Hestermann said today in an interview.

Shipments to customers continue from the port's 53 million barrels of storage on shore, she said.

Hurricanes Katrina and Rita in 2005 cut supplies for months. About 27 percent of Gulf oil production and 19 percent of gas output was still shut in January 2006, the Minerals Management Service reported.

Rising waters from a Category 4 storm can cut escape routes as early as five hours before landfall, with flooding as much as six miles inland. The coastal storm surge may reach 18 feet, and the winds can rip away roofs and walls of homes, according to the National Hurricane Center.

Category 5

A Category 5 storm can destroy the roofs of industrial buildings, flatten all trees and homes, and drive a storm surge above 18 feet. Only three Category 5 storms, Andrew in 1992, Camille in 1969, and the Labor Day Hurricane of 1935, have made landfall in the U.S. since records began.

At its forecast track and intensity, Gustav would drive a 20-foot storm surge topped by heavy waves across southeastern Louisiana, Rouiller of Planalytics.com said. ``The untested levees at New Orleans will be overwhelmed and may fail.''

A second Atlantic cyclone, Tropical Storm Hanna, was moving west-northwest to the Turks and Caicos Islands of the Caribbean without intensifying, the National Hurricane Center said.

To contact the reporter on this story: Jim Polson in New York at jpolson@bloomberg.net.