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THE NEW YORK TIMES: Oil Prices Vulnerable as Hurricane Season Nears

Oil Prices Vulnerable as Hurricane Season Nears

Published: May 12, 2006

Filed at 2:16 p.m. ET

HOUSTON (Reuters) – Worldwide oil supplies may be even more vulnerable to disruption as the 2006 hurricane season approaches than they were before Katrina and Rita shut down nearly 25 percent of U.S. oil and gas production and 15 refineries in coastal states last year.

“We're still living in a disrupted world,'' said Guy Caruso, administrator of the U.S. Energy Information Administration, at a recent Houston energy conference.

“We have 300,000 barrels of oil shut in the Gulf of Mexico,'' Caruso said. “There are problems in Nigeria, Chad, Iraq remains below its prewar levels.''

Damaged facilities in the gulf are still being repaired. Insurgencies in Iraq and Nigeria have cut oil production in those countries. Leftist governments in Latin America are taking control over foreign-operated oilfields.

If even one of the nine hurricanes predicted for the 2006 season were to wreak the havoc of Katrina, Rita or 2004's Ivan in the U.S. Gulf, prices would likely spike above the record settlement of $75.17 per barrel and the all-time high of $75.35, both set in April.

At the New York Mercantile Exchange on Friday, crude oil futures were down $1.12 at $72.20 a barrel.

Forecasters have predicted another busy hurricane season, continuing a trend that started a decade ago. The long-term average for the six-month season, which runs from June 1 to November 30, is about 10 tropical storms, six of which become hurricanes.

Last season produced 28 storms, including 15 hurricanes.

Crude oil prices are within $10 to $15 of the $80 to $90 price range executives think would likely trigger a recession.

Oil and natural gas companies say they are repairing what failed when hurricanes Katrina and Rita hit last year. Offshore producers have focused on the giant clamps that keep drilling rigs attached to offshore platforms.

A drilling rig rests on a movable floor so it can be positioned to the best advantage over the drill site. Once in position, the rig floor is clamped to the offshore platform.


Shell Oil Co.'s giant Mars platform, which supplies 5 percent of U.S. Gulf production, was damaged when clamps failed and the drilling rig fell onto a processing facility during Katrina.

Drilling rigs were among the most damaged structures in the Gulf because they can reach up to 300 feet in the air, making them more susceptible to wind pressure.

Before Katrina, the Mars platform was producing 140,000 barrels per day in oil and 157 million cubic feet in natural gas. Shell hopes to restore production from the platform this month.withstand the force of another Katrina, which at its peak in the Gulf was a 175-mph (282-kph) Category 5 hurricane, the most powerful type.

While machinery can be improved, chance still plays a role in making it through a storm, a Shell executive said.

“Eight miles away, we had another platform with the same clamp design as Mars and it's absolutely fine,'' said Greg Guidry, Shell Gulf of Mexico manager. “Mars faced the absolute peak of the storm in the eastern eye wall.''

Companies with operations onshore, especially refineries, have been stockpiling supplies needed to keep workers on the job.

Mary Rose Brown, spokeswoman for leading U.S. refiner Valero Energy Corp., said the company learned from the storms that its employees come first.

Valero put up 116 trailers to house workers near refineries in Louisiana and Texas following the storms. Workers were fed and had shower facilities at the plants.

The company gave workers cash to provide for their families and, if their homes were without electricity, provided generators.

“Our focus on making sure our employees' needs were taken care of meant our employees were able to get our refineries up and running faster than neighboring refineries,'' Brown said.

At least 21 of the trailers at the St. Charles refinery, 15 miles west of New Orleans, are still occupied.

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