Oil Industry Battens Down As Gustav Threatens Gulf

August 28, 2008

Oil companies ramped up preparations to evacuate some facilities as Hurricane Gustav made its way toward the U.S. Gulf of Mexico, becoming a potential threat to the region’s extensive oil and natural gas production.

Oil prices spiked briefly Tuesday and traded higher throughout the day after Gustav developed south of Haiti and the National Hurricane Center predicted it will gather strength over the Gulf’s warmer-than-usual waters. It could enter the U.S. Gulf as a major storm this weekend.

The storm was “still a long way from oil and gas infrastructure, but gas traders will be keenly focused on direction/magnitude of this summer’s first storm to potentially impact energy markets,” securities firm Tudor Pickering Holt & Co. said in a note to clients Tuesday morning.

Gustav struck Haiti and meteorologists said the storm could become “extremely dangerous” even before it reaches the Gulf.

The hurricane roared over Haiti with top sustained winds near 90 mph (144 kph) at about 1 p.m. EDT (1700 GMT), about 40 miles (65 kilometers) from the capital of Port-au-Prince.

Oil companies with operations in the Gulf watched the storm’s path closely. The companies have strict protocols for removing workers from rigs, platforms and other facilities when a storm enters the Gulf. Already this summer, Hurricane Dolly and Tropical Storm Edouard prompted the evacuation of hundreds of workers, though neither storm had a significant impact on production.

“We’ve been monitoring this one for several days already,” said John Christiansen, a spokesman for Anadarko Petroleum Corp., the largest independent deep-water producer in the Gulf of Mexico.

Royal Dutch Shell PLC said it could begin evacuating some workers Wednesday.

Even the fear of a hurricane entering the Gulf can send prices spiking.

After trading down $2 per barrel for much of the morning Tuesday, the price for a barrel of oil shot up $5 dollars. Some traders appeared spooked by the speed at which the storm was upgraded to a hurricane.

Oil prices peaked at record trading levels above $147 a barrel last month, but have since fallen rapidly. Nothing, not even Tropical Storm Fay, which spread heavy rain and wind from Georgia to Louisiana this week, has done much to stop the decline.

Traders fear Gustav may be different.

“While it is too early to project Gustav’s precise path, conditions appear right for it to grow in to a major storm,” said Addison Armstrong, director of market research at Tradition Energy.

The Gulf of Mexico holds an extensive oil and gas infrastructure. The Gulf accounts for about 25 percent of domestic oil production and 15 percent of natural gas output, according to the U.S. Minerals Management Service.

Hurricanes can damage platforms or scatter pipelines, and that can take months to repair.

Storms also disrupt tanker traffic and the Gulf Coast ports that receive the vast majority of the nation’s petroleum imports. The huge refineries that dot the coast grind to a halt when a hurricane approaches land, driving the price of gasoline and other petroleum products upward.

The 2005 hurricane season, which included Katrina and Rita, was one of the most destructive in history.

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