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Gulf storm shuts US oil and gas production

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Gulf storm shuts US oil and gas production

By Sheila McNulty in Houston

Published: August 29 2008 03:00 | Last updated: August 29 2008 03:00

The US oil and gas industry began to shut down production in the Gulf of Mexico yesterday after forecasters predicted that tropical storm Gustav would be a hurricane when it hit the region.

Royal Dutch Shell and ConocoPhillips led the majors in evacuating personnel and ceasing production.

The Gulf produces 20 per cent of US oil and gas supplies. Prices in New York topped $120 a barrel but fell after the International Energy Agency said strategic stocks would be released if disruptions were serious.

Jeffrey Rubin, chief economist at CIBC World Markets, said production had not returned to the 2005 levels before Katrina and Rita struck. The Gulf produces 1.3m barrels per day of oil, down from 1.6m then.

“It underscores the vulnerability of the only area in the US where energy production is growing,” Mr Rubin said.

He noted production in the Gulf has been undermined since 2005 by maturing fields and limited personnel and equipment to commit to new projects. Many resources were initially focused on rebuilding infrastructure damaged by the storms and then moved to more promising parts of the world.

Kevin Witt, forecaster at the AccuWeather Hurricane Center, said Gustav would pummel Jamaica yesterday, but mountains would probably weaken it.

After passing the Cayman Islands, the storm is likely to ramp up into a Category 3 hurricane and make landfall along the Gulf coast late on Monday or early Tuesday.

“Gustav looks like it could be heading into the heart of the Gulf’s oil-producing area,” Mr Witt said. He added that precautions should be taken from the Louisiana-Texas border to the Alabama-Florida border. New Orleans, devastated by the 2005 hurricanes, was in the “red zone”.

The entire Gulf coast should be on guard, he said, because the storm could shift direction, stall or build into a Category 5 hurricane, the most damaging. Even if the storm hit 600 miles away, he added, it could hammer Gulf platforms with strong waves and winds.

In Texas emergency managers are preparing the entire coast and officials contemplate an influx of refugees from Louisiana, if the storm lands there, as happened in 2005. Ahead of Rita, evacuation routes from Houston were impassable and fuel shortages hampered those trying to flee.

In New Orleans 3,000 national guardsmen are standing by as officials contemplate forced evacuations. After Katrina killed 1,600 people in Louisiana and Mississippi in massive flooding, state and national officials were accused of not adequately protecting residents.

Ray Nagin, mayor of New Orleans, left the Democratic National Convention to return to his city. Bobby Jindal, governor of Louisiana, declared a state of emergency to speed federal assistance if the hurricane hits.

Kenneth Medlock, energy expert at Rice University, said the potential for long-term damage to the industry was less than in 2005 because older facilities had been replaced. But a direct hit could significantly reduce production.

“Anything that shuts in production has the potential to raise crude oil and natural gas prices quickly, especially in the tight global situation we are in now,” Mr Medlock said.

Additional reporting from wire services

Markets, Pages 24-26

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