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Oil Producers Prepare for Storm in the Gulf

Oil Producers Prepare for Storm in the Gulf

Published: August 28, 2008

HOUSTON — Oil producers have begun to halt drilling and operations in the Gulf of Mexico, anticipating that Tropical Storm Gustav could pick up speed as it feeds on warm waters over the next several days.

BPConocoPhillips, Shell and Transocean, a large drilling contractor, have begun evacuating hundreds of workers from rigs and production platforms in deep waters of the Gulf.

Conoco suspended drilling of some new wells in southern Louisiana and evacuated workers from its Magnolia field, whose daily production had previously been suspended for maintenance. Valero and other refiners have put their workers on alert to prepare for a possible direct hit on operations along the Texas and Louisiana coasts.

“We’re planning for a major hurricane in the Gulf, and we are taking appropriate steps,” a ConocoPhillips spokesman, Bill Tanner, said.

Chevron and Motiva Enterprises, which supplies Shell-branded gasoline across the Gulf Coast, took steps to ensure that terminals and gasoline stations had additional supplies to anticipate any increased demand in the event of an evacuation of New Orleans or another city. Most companies maintained production levels near normal, but there were signs that they were preparing to shut down a significant number of platforms over the next several days.

Shell announced that it was shutting down a few production wells Thursday morning and that it would complete an evacuation of all its 1,300 workers in Gulf waters by Saturday.Anadarko Petroleum announced that it was also beginning a total evacuation of 600 employees and contractors from drilling and production platforms around the Gulf to be completed by Sunday.

Forecasts vary widely on how powerful the storm could become and where it will eventually hit the mainland.

Overnight, the storm moved south toward Jamaica with 70 mile-an-hour winds, meaning that oil and gas companies may have an extra day or two to prepare. It could regain hurricane strength by the end of the day.

Final landfall could come anywhere from South Texas to the Florida panhandle.

Crude and natural gas prices had been edging up over the last several days, but prices plummeted on Thursday. Crude oil declined by $2.56, to $115.59 a barrel. Natural gas prices declined 55.8 cents, to $8.05 per million B.T.U.’s.

As the Labor Day weekend approached, gasoline prices had not been seriously affected by fears that the storm could disrupt supplies. The average national price for a gallon of unleaded regular gasoline on Thursday was $3.66, down 28 cents from a month ago.

Energy analysts said oil prices were easing because traders were relieved that the International Energy Agency, the policy adviser to 27 industrialized countries, announced that it would release strategic oil stocks if the storm caused major damage to Gulf facilities.

“The announcement eased fears that we will have a supply issue over the next couple of weeks,” said Brian Youngberg, an energy analyst at Edward Jones.

The Energy Department said the government was prepared to release crude oil from the Strategic Petroleum Reserve in the event Gustav disrupted production, as it had after the 2005 hurricanes.

“D.O.E. is closely monitoring the situation and stands ready to use every available tool to ensure continuous and reliable supplies of energy,” the department said.

The drop in natural gas prices came in response to an Energy Department report of the largest increase in inventories since early July, suggesting that demand for power generation had slackened at a time when domestic production was surging.

The region produces about a quarter of domestic oil production and almost 15 percent of natural gas production. Gustav could be the first storm to directly hit a large portion of the region’s energy infrastructure since 2005. That year the hurricanes Katrina and Rita crippled more than a hundred platforms, flooded several refineries and power stations and sent oil and gas prices soaring.

Over the last three years, producers and refiners have taken action to better secure their facilities from heavy storms. More anchor lines have been installed on platforms and rigs, and equipment has been raised higher out of the water. Many of the older platforms that were not properly reinforced for storm surges were paralyzed during the 2005 hurricane season and remain out of order. New platforms that have been built since then are considered more storm resistant.

The Gulf region is relatively less important for the country’s energy supplies than it was in 2005, because of a natural gas production boom onshore and because production in several Gulf fields is in decline. Consumption of oil is down this year by about 130,000 barrels a day, or 1.5 percent over the six months, according to the Energy Department.

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