The Oil and Gas Industry

The oil and gas industry has been in the limelight in the past year for many reasons. The crude oil prices surged to new highs over the past year, triggering fears of a worldwide economic meltdown. Increasing demand from China together with higher consumption on account of global economic recovery pushed oil prices to current highs. Several hurricanes contributed to the price rise by disrupting production and refining.

Hurricanes affecting the oil and gas industry

Hurricanes have had a devastating effect on the oil and gas industry in the past and in recent times hurricanes Ivan and Katrina have had a big impact on the oil and gas industry.

Hurricane Ivan, a category 5 hurricane, caused extensive damage when it lashed oil and gas production infrastructure in the Gulf of Mexico. Hurricane Ivan made landfall near Gulf Shores, Alabama and proceeded to Florida. Overall damage, from Hurricane Ivan has been estimated at US$13 billion. According to insurance companies, Hurricane Ivan resulted in insured losses of US$7.1 billion.

The oil and gas industry has been the worst hit by Hurricane Ivan. The Gulf of Mexico and the coastal region has significant offshore oil and gas production infrastructure as well as refining and petrochemical capacity. It also serves as a major import centre, having extensive pipeline infrastructure. Federal crude oil production in the Gulf of Mexico region accounts for 29% of total US crude oil production while natural gas production in the region accounts for 19% of total US natural gas production. About 47% of the total US refining capacity is located on the Gulf coast.

A large share of petroleum products, produced on the Gulf Coast, is transported to the Eastern parts of the USA through Colonial and Plantation pipelines. Expecting the worse from Hurricane Ivan, the oil and gas industry evacuated 575 platforms and 69 rigs in the Gulf of Mexico. Hurricane Ivan also forced a shutdown of Louisiana Offshore Oil Port, a terminal for incoming tankers. In its final report in February 2005, Minerals Management Service stated that 7.42% of daily oil production and 1.19% of daily gas production was still shut in, as of February 2005.

As the oil and gas structures in the Gulf of Mexico started to recover, another destructive hurricane toward the end of the August 2005 caused even more damage. As many 615 platform and 96 rigs were evacuated fearing the worst from Hurricane Katrina. A category 5 hurricane, Hurricane Katrina destroyed 58 platforms and rigs in the Gulf of Mexico before wreaking havoc on Louisiana, Mississippi and Alabama.

While Hurricane Ivan crippled production facilities in the Gulf of Mexico, Hurricane Katrina hit refining and transmission infrastructure hard. About 15 refineries, most of them in Louisiana and Mississippi, were shut down on account of Hurricane Katrina. The Louisiana Offshore Oil Port was also closed. The transportation pipelines such as Plantation and Colonial product pipeline and Capline crude oil pipeline were also severely affected. Consequently, the prices of gasoline, heating oil and natural gas shot up.

The oil and gas industry shut down refining plants in anticipation of Hurricane Rita, but much of the refining infrastructure remained intact. However, 2005 will be a year that the oil and gas industry will not forget in a hurry.