Impact of Katrina on US Oil and Gas Industry

A special report titled "Impact of Hurricane Katrina on US Oil and Gas Industry Will be Lasting" by Russ Novak and Larry O'Brien has been published by the ARC Advisory Group

A special report titled "Impact of Hurricane Katrina on US Oil and Gas Industry Will be Lasting" by Russ Novak and Larry O'Brien has been published by the ARC Advisory Group.

As we have already seen from the significant price increases at the pump, Hurricane Katrina is going to have a huge and lasting impact on the US oil and gas industry.

The Gulf Coast area is the hub of American refining and petrochemicals.

Currently in the Gulf Area there are nine refineries shut down, with a total capacity of about 1.8 million barrels per day (BPD) of crude.

This represents about 11 percent of total US refining capacity.

Aside from refineries, midstream facilities (primarily pipelines) are also affected for both crude and finished products.

Other refineries are reducing crude runs because of pipeline outages on both the crude or finished product side.

These additional refineries include 4 or 5 fair-sized Midwest refineries.

It will be difficult for US refiners to make up lost production, because they have been running at close to absolute maximum capacity rates for some time.

Year-to-date capacity utilisation rates for refineries has been over 93 percent, and the higher demand and summer production rates have resulted in refineries running more in the area of 97 to 98 percent capacity.

The US imports considerable finished products, such as gasoline, as well as crude oil.

Should US refining capacity face a prolonged reduction, increasing these imports of finished products is an option, but even this will be subject to possible limitations from the pipeline outages.

Releasing the Strategic Reserve, which has already been put into motion, will aid refineries that would have to reduce throughput because of a crude shortage, but would not help those refineries that face product pipeline outages.

So far, three refiners have requested access to the strategic reserve.

It should also be noted that EU member nations have offered to release oil from the strategic reserves to help ease the crisis.

Crude Production Impact.

About 28 percent of the US crude production comes from the Gulf of Mexico basin (GOM), and almost 95 percent of that production was shutdown because of the hurricane.

These facilities are being ramped up slowly, and many companies are still surveying the damage that has been done, but many of the early reports from offshore production platforms are better than expected.

Some exploration rigs were damaged or broke free from their moorings during the storm, but no production rigs have been reported missing or repositioned.

It will probably be at least a week before the real damage is assessed.

Even without the impact of Katrina, the US petroleum market is engaged in a trend that is seeing gasoline demand increasing about 5 percent over last year but a decreasing supply of crude from domestic sources.

We face a similar net shortage in the natural gas market as well.

Katrina has placed a large exclamation point on an already burgeoning energy crunch.

The Impact on Automation.

ARC believes there will be a direct impact on the automation marketplace as a result of the hurricane.

Rebuilding efforts will require a considerable investment in replacement products and related services.

The total cost of rebuilding after the hurricane increases with each passing day, as damage continues to be assessed.

With oil hovering at US $70 per barrel even before the hurricane, automation suppliers are already refocusing their efforts on the oil and gas and refining industries.

The impact on automation goes beyond hydrocarbons, however.

All of the manufacturing businesses in the Gulf Coast region have been affected in some way by Katrina, and considerable effort will be required to rebuild infrastructure for these manufacturers in both the process and discrete industries.

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