Wind and rain and Isaac have taken a nasty turn right into the heart of Gulf oil production. State of emergency and evacuation orders are in place along the Gulf oil and refining areas. Oil prices started to soar shortly after weather analyst Dave Tolleris of WXRISK told me that Isaac may miss Florida completely and turn into a Category 2 Hurricane and head directly into refineries and production near Alabama and Louisiana. Dave said that we are rapidly approaching that point of landfall with Isaac and the models have taken a surprising turn. He said that the European models were showing land fall between Pensacola and New Orleans but then suddenly jumped east and now shows landfall in Apalachicola, Florida. To say that I was surprised by this would be understatement, but then when I considered the time frame (within 84 hour) it just might be a hiccup. Indeed the 12z European ensemble mean position does still show a land fall between Pensacola and Mobile, Alabama. You can see Dave's latest updates searching WXRISK.
With the storm heading to the big refineries, gas prices will spike especially considering the news of a massive explosion at Venezuela’s largest refinery that killed at least 39 people. Venezuelan government officials hope it can be restarted in two days once the blaze has been extinguished and the area deemed secure. Yet the truth is that the market is fearful that this refinery will be off line for some time.
That means Hurricane Isaac could add more woes to the gasoline market driving prices to a four-month high. Tropical Storm, soon to be Hurricane, Isaac is possibly headed right into some of our country’s largest refineries. Not only do we have to worry about wind damage, but as we have learned from previous storms, we may have to worry about flood damage as well. Reuters reports that after initially calling for Tropical Storm Isaac to pass well east of the U.S. offshore production zone, forecasters are now predicting a more westward track which could bring Isaac as a powerful Category 2 hurricane over the heart of the U.S. offshore oil patch, which produces about 23% of U.S. oil output and 7% of its natural gas output. Isaac could be the biggest test to U.S. energy infrastructure since 2008, when Hurricanes Gustav and Ike disrupted offshore oil output for months as well as damaged onshore natural gas processing plants and pipelines.
London-based BP Plc, the biggest U.S. Gulf producer, on Sunday evacuated all of its Gulf of Mexico rigs, after earlier shutting down its giant Thunder Horse platform, the world's largest, which can process 250,000 barrels of oil and 200 million cubic of natural gas per day (mmcfd), and three others. BP's evacuations and shutdowns initiated Sunday included Atlantis, the world's second-largest offshore platform, which can produce up to 200,000 bpd of oil and 189 mmcf per day of gas. Other offshore operators like Chevron Corp. and Royal Dutch/Shell have evacuated some workers, though they have not yet shut down any production.
The U.S. Bureau of Safety and Environmental Enforcement says offshore oil and gas operators in the Gulf of Mexico are evacuating platforms and rigs in the path of Tropical Storm Isaac. The Bureau of Safety and Environmental Enforcement (BSEE) Hurricane Response Team is activated and monitoring the operators’ activities. The team will continue to work with offshore operators and other state and federal agencies until operations return to normal and the storm is no longer a threat to Gulf of Mexico oil and gas activities. Based on data from offshore operator reports submitted, personnel have been evacuated from a total of 39 production platforms, equivalent to 6.54% of the 596 manned platforms in the Gulf of Mexico. Production platforms are the structures located offshore from which oil and natural gas are produced. Unlike drilling rigs, which typically move from location to location, production facilities remain in the same location throughout a project’s duration.
Personnel have been evacuated from eight rigs, equivalent to 10.5% of the 76 rigs currently operating in the Gulf. Rigs can include several types of self-contained offshore drilling facilities including jackup rigs, submersibles and semi-submersibles. As part of the evacuation process, personnel activate the applicable shut-in procedure, which can frequently be accomplished from a remote location. This involves closing the sub-surface safety valves located below the surface of the ocean floor to prevent the release of oil or gas. During previous hurricane seasons, the shut-in valves functioned 100% of the time, efficiently shutting in production from wells on the Outer Continental Shelf and protecting the marine and coastal environments. Shutting-in oil and gas production is a standard procedure conducted by industry for safety and environmental reasons.
From operator reports, it is estimated that approximately 24.19% of the current daily oil production in the Gulf of Mexico has been shut-in. It is also estimated that approximately 8.24% of the current daily natural gas production in the Gulf of Mexico has been shut-in. The production percentages are calculated using information submitted by offshore operators in daily reports. Shut-in production information included in these reports is based on the amount of oil and gas the operator expected to produce that day. The shut-in production figures therefore are estimates, which BSEE compares to historical production reports to ensure the estimates follow a logical pattern.
After the hurricane has passed, facilities will be inspected. Once all standard checks have been completed, production from undamaged facilities will be brought back on line immediately. Facilities sustaining damage may take longer to bring back on line. BSEE will continue to update the evacuation and shut-in statistics at 1:00 p.m. CDT each day as appropriate. Outage figures will rise in the days ahead, according to forecasters at Weather Insight, an arm of Thomson Reuters, who predict the storm will spur short-term shutdowns of 85% of U.S. offshore oil capacity and 68 percent of its natural gas output. Isaac has a 95% chance of entering the heart of the oil and gas producing region, Weather Insight said on Sunday.
Isaac could also impact the U.S. refinery row along the Gulf Coast, which stretches from Mississippi to south Texas and accounts from more than 40% of U.S. fuel output. Chevron's 330,000 barrel per day (bpd) Pascagoula, Mississippi, refinery is near the storm's expected landfall. The Louisiana Offshore Oil Port (LOOP), which can offload about 1 million barrels per day of foreign crude for delivery to Gulf Coast refiners, remained in operation on Sunday, a spokeswoman said.
And if that wasn’t enough to worry about as Isaac bears down on the crude oil market, the Energy Information Administration arm of the Department of Energy gives oil bulls more ammunition. The EIA warns that surplus oil production stands at a “quite modest” 2.4 million compared to 2009 through 2011 levels of about 2.4 million barrels per day. This of course becomes more of an issue with Isaac getting ready to cause havoc and rising geopolitical risk with Iran and Syria. The Energy Information Administration puts global oil production at an average 88.7 million barrels a day in July and August. The report was mandated by Congress to assess the oil market in countries other than Iran.
Of course we also have to consider the weaker than expected data in China and Germany and big bad Ben Bernanke going to Jackson Hole and what he has to say could impact oil as much as Isaac.