Only about 20% of Gulf of Mexico oil and gas production is back online after Hurricane Ida battered south-east Louisiana, marking a even slower comeback than in the wake of Katrina.
More than a week after the Category 4 storm made landfall, about 79% of the region’s offshore oil output and 78% of gas production remains shut-in, according to the Bureau of Safety and Environmental Enforcement. By comparison, less than 60% of oil production and just 40% of gas output was still offline this long after Hurricane Katrina in 2005.
Many in the energy industry were expecting Gulf of Mexico production to return faster than refining capacity, but now “it seems that it may be the other way around,” said Rebecca Babin, senior equities trader at CIBC Private Wealth Management.
While the loss of life and initial damage from Ida was nothing like its predecessor that struck New Orleans 16 years ago to the day, the offshore oil industry is having a tougher time restarting this time. That’s due to extensive power outages and damaged infrastructure on land. It’s also a larger industry now, pumping out about 1.8 billion barrels a day before the storm compared to 1.5 billion ahead of Katrina.
Refineries and petrochemical plants along the Mississippi River are also facing slow restarts, meaning offshore production platforms would be backed up with oil if they resumed immediately. Getting back to full production requires crude flowing freely again among the Gulf Coast’s vast network of pipelines, storage terminals and refineries.
Occidental Petroleum Corp. and Murphy Oil Corp. were the latest to report some platforms could not restart production in the Gulf of Mexico amid the lack of available takeaway capacity. Royal Dutch Shell Plc also has several platforms out of action and is still without power at its giant Norco refinery and chemical plant just outside of New Orleans, a major facility.
The resulting disruption has seen the value of regional grades such as Mars Blend reach the highest premium to Nymex oil futures since January, data compiled by Bloomberg show. Other sour crudes have also climbed.
The damage at Port Fourchon, where Ida made landfall, is expected to take weeks to fix. The area is a critical shore base that services platforms in the Gulf of Mexico with specialist equipment, helipads and pipelines.
BP Plc, one of the biggest operators in the Gulf, said full operations will only resume once it’s safe “across the supply chain.” While the company is making repairs in Port Fourchon, and nearby Houma, it has temporarily relocated its shore base to Galveston, Texas, and its heliport to Lafayette, Louisiana.
The compound effect of the outages will lift crude prices more the longer they go on. “The prolonged outage of oil production in the Gulf of Mexico could be a benefit for an industry that was already worrying that the delta variant spread has disrupted demand recovery, causing supply to slip into surplus later this year,” Babin said.
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