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AFX Europe (Focus): U.S. oil sector braces for another big hurricane season – UPDATE 2

U.S. oil sector braces for another big hurricane season – UPDATE 2
AFX Europe (Focus); May 06, 2006

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HOUSTON (AFX) — Even as coastal residents from Louisiana to Alabama were rebuilding lives and homes shattered by the deadliest U.S. hurricane season on record, one of the nation's top forecasters warned Friday that 2006 is shaping up to be another brisk year of storms.

This time around, residents of the Gulf of Mexico coast and the Atlantic seaboard — especially the Carolinas and Long Island — appear the most susceptible to nature's fury.

Speaking to a room packed with energy executives in Houston, AccuWeather's Joe Bastardi predicted that one tropical storm and five hurricanes — at least three at Category 3 or worse — will slam into the nation's shores between now and late November, the unofficial end of the season.

Bastardi, the weather service's chief hurricane tracker, accurately predicted last August that New Orleans would bear the brunt of Hurricane Katrina as it grew to a top-level Category 5 storm. Katrina, and later Hurricane Rita, spared most of the refineries along the low-lying Texas coastline. Texas is home to 26 refineries that account for a fourth of the nation's refining capacity.

But that could change this year, with warmer water temperatures and atmospheric conditions resembling those found during previous major storms in the region raising the likelihood of a direct strike.

New York's Long Island and the Carolina coastline also face very high probabilities of being hit by a major storm because of unusually warm waters in the northwest Atlantic, Bastardi said.

If his predictions prove accurate and Texas' refinery row gets clobbered, drivers everywhere could again feel a sharp pinch in their wallets at the gas pump.

Last summer, gasoline prices nationwide shot above $3 a gallon after the combined force of Hurricanes Katrina and Rita shuttered nearly all of the oil and gas production in the Gulf of Mexico.

This year, gasoline prices would be launched from an even higher level, with the average gallon of regular unleaded already retailing for $2.92 and well past $3 in many states, according to the American Automobile Association. Last year at this time, gasoline was fetching a mere $2.21 a gallon.

Richard Pasch, meteorologist at the U.S. National Hurricane Center, said that waters are warm this year but nowhere near the levels that produced last year's mammoth weather systems. Nonetheless, Pasch warned that the “news will not be good” when his organization releases its forecasts within the next few weeks.

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Last year was the busiest hurricane season ever recorded, with 28 named storms and seven total landfalls — four of which were considered major, or above Category 3. The storms killed nearly 1,400 people along the Gulf of Mexico, making it the deadliest hurricane season ever and caused more than $104 billion worth of damage, also making it the costliest.

The oil industry has yet to fully recover and the Gulf of Mexico, which annually supplies about 25% of the nation's oil and gas demand, is still missing almost 22% of its typical oil production, according to the Minerals Management Service.

Among the oil heavyweights, Chevron Corp. executives said last week that at its peak, the company's Gulf of Mexico oil-equivalent production capacity stood at 320,000 barrels per day, but had plummeted to 60,000 by Oct. 1 after Katrina and Rita blew through the region.

Chevron's Gulf oil-equivalent production rose in the first quarter to 200,000 barrels a day, but the company doesn't expect to regain prestorm production levels, because what's restored will largely be offset by normal field declines.

Additionally, the company has determined that it's uneconomical to bring back about 20,000 barrels in daily production lost after the storms.

Royal Dutch Shell's largest producing platform in the Gulf is still down and not expected to resume production until the end of May. Pre-Katrina production levels likely won't be attained until the end of June, the company said in a release in April.

According to federal data released Wednesday, wells that were flowing 324,000 barrels of oil a day before last summer's storm are still shut, representing 22% of the Gulf's daily oil output. The volume of natural gas shuttered by the storms still stands at 1.3 billion cubic feet a day, equivalent to 13% of the region's production. This story was supplied by MarketWatch. For further information see www.marketwatch.com.

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