IHS: Despite 2005 Hurricane Damage in Gulf of Mexico, Average Annual Hurricane Disruptions to Production are Modest
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Industry vigilance and planning remain key, especially in era of monster storm forecasts
HOUSTON, TX (June 4, 2008) – As the hurricane season begins, IHS Inc. (NYSE: IHS) said today that the average impact on oil and gas production from hurricanes over a 45-year period is relatively modest and its impact on supply is typically short-lived. IHS came to this conclusion after analyzing production data spanning 1960 to 2005 to better understand the overall impact of hurricanes on Gulf of Mexico production.
“Based on our IHS production data from 1960 through 2005, which includes record levels of damage from Hurricanes Katrina and Rita in 2005 and significant hurricane impact from four other hurricanes in the last decade, an average Gulf of Mexico hurricane season would likely disrupt only 1.4 percent of the annual oil production and 1.3 percent of the annual gas production,” said Steve Trammel, a senior product manager at IHS. “While Hurricanes Katrina and Rita were an exception, historically, our data shows the overall impact to be much less than most people might expect.”
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Trammel said this historically low impact on production is primarily attributable to industry planning. “The oil and gas companies are very focused on the safety of their personnel,” he said. “Operators make the decision to pull crews off rigs well before a storm moves into the Gulf. Therefore, most disruptions to production are caused by suspension of operations as a safety precaution in the event that an approaching hurricane does threaten offshore production. As a result, average hurricane disruptions are short-lived with full production re-established within a month.”
When Hurricanes Katrina and Rita struck the U.S. Gulf Coast in 2005, they combined to impart record damage to offshore Gulf of Mexico oil and gas production and facilities, which helped push oil and gas prices to record levels by January 2006 and increased fears about oil and gas supply shortages. Following the two storms in 2005, The U.S. Minerals Management Service (MMS) reported that 3,050 or 75 percent of the platforms, 22,000 miles or 67 percent of the pipelines, and about two-thirds of the region’s refineries were in the path of the storms.
By mid-December 2005, IHS data showed that cumulative shut-in oil was 101.7 million barrels, 18.5 percent of yearly Gulf oil production, and shut-in natural gas production was 526.2 billion cubic feet, 14.4 percent of yearly Gulf natural gas production.
Trammel added that the last decade recorded six major hurricanes (including Katrina and Rita) that caused significant production curtailments in the Gulf of Mexico. Most of the production from hurricanes Opal (1995), Georges (1998) and Lili (2002) was restored within a month, he said, although Hurricane Ivan (2004), disrupted 471 million barrels of oil production and 140 billion cubic feet of gas production.
According to a May 22, 2008 press release issued by the U.S. National Oceanic and Atmospheric Administration’s Climate Prediction Center, the outlook for the 2008 hurricane center calls for considerable hurricane activity in the Atlantic Basin, with a “90 percent chance of an above-normal season in the Atlantic Basin this year.” The Center’s outlook calls for a potential of 60-70 percent chance of 12-16 named storms, including six to nine hurricanes and two to five major hurricanes (category 3, 4 or 5 on the Saffir-Simpson Scale). The Center defines an average season as yielding 11 named storms, including six hurricanes and two major storms.
Hurricane Katrina, a Category 5 storm, achieved 175 mph winds before it dropped to Category 3 and struck Louisiana on August 29, 2005, making it the most destructive storm to ever strike the U.S. in terms of economic impact. Hurricane Rita struck the Texas coast on September 24, 2005 as a Category 3 storm having achieved sustained winds of 180 mph.
In response to the increase in major hurricanes striking the Gulf of Mexico in recent years, Trammel said the petroleum industry has improved evacuation plans, and shut-in and restart procedures to ensure safety and to mitigate leaks and production loss.
“Within economic limits,” he said, “offshore structures are being engineered to withstand Category 5 hurricanes. In addition, the MMS has mandated new design specs for offshore facilities and has issued a series of Notices to Lessees and Operators, called NTLs, for rig fitness requirements, platform tie-downs and ocean current monitoring, which are all tied to hurricane season.”
Even though historic average hurricane damage and production curtailment have been relatively modest, MMS and operator actions to mitigate impacts from future hurricanes are warranted. Current GOM production and infrastructure are more widespread than in the past and, therefore, there is greater risk that hurricanes entering the Gulf of Mexico will damage and curtail the critical exploration and production activities.
The U.S. Gulf of Mexico continues to be a prime contributor to domestic U.S. oil and gas supplies. IHS production data indicate the U.S. Gulf of Mexico produced 476 million barrels of oil, approximately 25 percent of the U.S. total, and 2.8 trillion cubic feet of gas, representing 12 percent of the U.S. total during 2007. Moreover, the deepwater Gulf of Mexico continues to yield world-class oil and gas discoveries. IHS data indicate that Gulf of Mexico discoveries yielded 8.5 billion barrels of oil equivalent from 2000 through 2007. As a result, the U.S. Gulf of Mexico was the seventh-leading source/country in the world for discoveries during this period. Currently, there are 3,639 producing oil wells in the U.S. Gulf of Mexico, and 3,788 gas wells according to IHS data.
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About IHS (www.ihs.com)
IHS Inc. (NYSE: IHS) is a leading global source of critical information and insight for customers in a broad range of industries. Our customer product and service solutions span four major areas of information: energy, product lifecycle management, environmental and security. By focusing on our customers first, we deliver data and expertise that enable innovative and successful decision-making. Customers range from governments and multinational companies to smaller companies and technical professionals in more than 180 countries. IHS has been in business since 1959 and employs more than 3,000 people in 35 locations around the world.
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