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Gulf of Mexico oil output still at only half capacity after hurricanes

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By Sheila McNulty in Houston

Published: October 7 2008 03:00 | Last updated: October 7 2008 03:00

Nearly half the production from the biggest US oil and natural gas region remains shut down in the wake of hurricanes Gustav and Ike, which swept through the Gulf of Mexico last month.

However, the Department of Energy said high petrol prices caused by the disruption should subside in the next few weeks as the refineries and market conditions returned to normal.Many companies used the shutdowns for maintenance work, which also affected supplies and raised prices.

The damage was not

confined to production platforms in the gulf, which produces 20 per cent of US oil and natural gas, as several pipelines and processing facilities onshore were damaged. If hurricane Katrina, the previous major storm to hit the gulf, is any guide, some of that production may never be restored. The gulf produces 1.3m barrels of oil per day, down from 1.6m b/d before Katrina hit in 2005.

Regulators estimate that 48.2 per cent of oil production in the gulf and 44.6 per cent of natural gas production remains shut.

The hurricanes destroyed 52 offshore platforms and four drilling rigs, while 29 platforms and one rig suffered extensive damage and 33 platforms moderate damage. Six gas transmission pipelines were damaged. The closure of 15 refineries, responsible for about 20 per cent of US refined product, also hit supplies, as it can take two weeks to check all machinery and restart.

Valero, the biggest US refiner, said it would carry out maintenance at five refineries this month, with some continuing into next month, the timing running anywhere from 15 to 40 days.

Royal Dutch Shell said it used the hurricane to complete planned works. “We took the business decision to remain shut-in at some of our east area locations and use the time to complete essential maintenance work that had been previously scheduled for October,” Shell said. Offshore, the company said, it was working to restore and reroute pipelines around a damaged platform. Onshore, its repairs continued to a pump station that was flooded.

ExxonMobil said it had largely restored its gulf production but restoring full capacity was “uncertain” given export capabilities.

Ken Medlock, an energy expert at Rice University, said some of the delays in restarting production were caused by personnel needing to attend to their home repairs after the hurricanes.

In addition, he said, the industry’s regulators had to inspect everything before it was returned to service: “The last thing you want to do is start up oil and gas and have leaking.”

Jeff Rubin, chief economist at CIBC World Markets, said hurricane Ike had debunked theories that damaging hurricanes in the gulf in 2005 were an anomaly.

“This is part and parcel of operating conditions in the gulf, which underscores how problematic the resource is,” he said. That growing realisation could slow down expansion in the Gulf of Mexico.

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