Gustav May Hit Gulf Platforms Harder Than Katrina

By Jim Polson

Aug. 31 (Bloomberg) -- Hurricane Gustav threatens to hurt U.S. oil and natural-gas production and refining more severely than hurricanes Katrina and Rita did three years ago.

Gustav, downgraded to a Category 3 storm by the National Hurricane Center in Miami this morning, may strengthen to Category 4 later today and will make landfall as a ``major'' hurricane. The storm shut three-quarters of oil output in the region and refineries operated by Valero Energy Corp., the largest U.S. refiner, ConocoPhillips, Marathon Oil Corp. and Exxon Mobil Corp. There will be a special trading session today at the New York Mercantile Exchange.

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

The center issued a hurricane watch from High Island, Texas, to Florida at 2 a.m. today. Gustav's winds were estimated at 150 miles (240 kilometers) per hour as it made landfall in western Cuba. While they slowed to 125 miles per hour this morning, the storm is forecast to gain strength as it passes into the central gulf today. Gustav was 425 miles southeast of the Mississippi River's mouth and traveling northwest at about 15 mph at 4 a.m.

BP, Exxon, Shell

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

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

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.

Exxon Mobil is shutting its Chalmette, Louisiana, refinery. Nonessential employees have been released so they can evacuate as requested by local officials, Irving, Texas-based Exxon Mobil said in a notice posted on its Web site yesterday.

Refineries Shut

The refinery, which can process 192,000 barrels a day, is run by Chalmette Refining LLC, a joint venture between Exxon and state oil company Petroleos de Venezuela SA.

Marathon Oil Corp. began closing its 256,000-barrel-a-day Garyville, Louisiana, refinery, yesterday, according to a statement posted on its Web site. Valero was shutting its St. Charles refinery west of New Orleans and may decide today whether to shut its Port Arthur, Texas, refinery, spokesman Bill Day said in an e-mailed message.

Three Louisiana parishes with refineries have ordered mandatory evacuations.

Refinery production slowed at some complexes owned by Shell and Motiva Enterprises LLC, its 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 Closed

Enbridge Inc., Canada's largest pipeline company, and its U.S. affiliate closed 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 said yesterday 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 yesterday. 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 yesterday that it had shut the equivalent of 105,000 barrels a day of production, with all of it to be closed tonight.

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

Workers Evacuated

Workers from 45 rigs and 223 production platforms were evacuated as of 12:30 p.m. yesterday, the Minerals Management Service said in a statement on its Web site. About 998,000 barrels of daily oil production have been halted 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 on Aug. 29 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 an Aug. 29 statement that electronic trading will begin at 2:30 p.m. New York time today with trades dated Sept. 2.

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

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

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

Katrina, Rita

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.

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 record-keeping 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.