Hurricanes Gustav and Ike Continue to Impact the Energy Infrastructure

Two months ago Hurricanes Gustav and Ike pounded the US Gulf Coast causing significant disruption to the nation’s energy infrastructure in Louisiana and Texas. Segments of our energy infrastructure impacted include:

• drilling and exploration rigs
• petroleum and natural gas production platforms
• offshore-to-onshore petroleum and natural gas pipelines
• natural gas processing stations
• onshore petroleum and natural gas pipelines
• petroleum refining system
• petroleum product pipelines
• electricity transmission system
• electricity generation

Much has been learned about restoration from the Rita and Katrina experience of 2005. Folks working in the energy sector have performed heroically towards restoring a very complex energy system to meet demand from consumers, industry and government.

So how is the restoration effort progressing? Capstone Trading Advisors is tracking the cumulative US Offshore Gulf of Mexico production losses as reported by the US Minerals Management Service. As of 30Oct08, approximately 359.7 mbbl/day of crude oil and 2.4 Bcf/day of natural gas production continues shut-in. That equates to 27% and 33% of pre-storm production capacity, respectively. Within the last two months, cumulative production losses total 48.7 million bbls of crude oil and 253 Bcf of natural gas. See the charts below.

Lower petroleum product demand, and a corresponding reduction in refinery utilization, has cushioned the impact of this lost production. The key petroleum price drivers on a go-forward basis include 1) the depth of the global recession, 2) OPEC’s production response to lower crude oil prices, and 3) geopolitical events.

The deficit in US offshore GOM natural gas production has been made up via production from unconventional onshore sources including shale, coal bed methane and tight low-permeability formations. It is estimated that roughly 4.2 Bcf/day is being produced from these unconventional sources.

The US is expected to end the natural gas storage fill season at approximately 3.45 Tcf. The combination of storage and increased production from unconventional sources should be adequate for a normal winter season. A harsh, or early, winter could lead to significantly higher natural gas prices during the winter months. Weather is the wildcard for the natural gas market.

Disclosure: Long energy futures.

Comments

[NOWHEREMAN:]

DVR, repairing the damage.

2008 Nov 06 03:27 AM