Katrina oil shock 'severe' but damage repairable

Hurricane Katrina delivered a “severe” shock to Gulf of Mexico oil supplies, wrecking pipelines and damaging scores of platforms, but 90% of production can be back on stream within a few months, the International Energy Agency said on Friday.

Katrina was likely to curtail world oil production until the end of the year by 55-million barrels, about the same as Hurricane Ivan in 2004, the IEA estimated in a report.

“Hurricane Katrina has had a severe impact on US Gulf of Mexico supply and will likely affect production for several months to come,” it warned.

However, overall data “shows world supply two million barrels a day above August 2004. Opec crude stands 0,75-million barrels per day higher, Opec other liquids supply is up 0,5-million barrels per day and non-Opec supply is 0,75-million barrels up.”

By September 7, the hurricane had cost 57% of oil production in the Gulf of Mexico, and 40% of natural gas production, the report said, adding that 20% of manned platforms and 12% of rigs remained evacuated.

There was much pipeline damage, about 37 platforms in shallow water had been destroyed and four platforms in deep water, including the Mars platform owned by Shell, had suffered extensive damage.

The IEA said, however, that “90% of production could be back on stream in less than the three to six months which these specific facilities are likely to require for replacement/repair”.

“Many of the effects are expected to be temporary and readily repairable,” it said.

Hurricane damage was likely to cut supply of oil products by 38-million barrels in September, the IEA said, stressing that market forces were compensating quickly for bottlenecks throughout the supply chain.

Organisation for Economic Cooperation and Development (OECD) member countries were to meet on September 15 to review the post-hurricane supply situation and decide on emergency supply action, the agency said.

The IEA, created to help industrialised countries deal with energy crises, said its stockpile-release mechanisms had worked after the hurricane in giving markets extra “liquidity” to switch oil, refined products and transportation capacity in response to demand pressures.

The underlying tone of the report indicated that, excluding the immediate effects of Hurricane Katrina, some of the heat might be going out of the oil market.

This was partly because of an easing of demand pressures in China and Asia where governments were finding that energy subsidies were unsustainable, and there were signs that consumers were changing habits: in Italy, for example, commuters were switching from cars to public transportation.

In some areas of China, energy rationing had been introduced, the report said.

Noting that the hurricane had driven gasoline prices in Europe up by about one third and in Asia by more than 13%, the report said: “It is critical that a response be swift, but also flexible. The initial response is to make available to the market two million barrels per day for 30 days with the emphasis on product supply (particularly gasoline) outside the United States.

“But given that our assessment could be overly optimistic or pessimistic, member countries will meet on September 15 to assess the response.”

Markets had reacted “swiftly” to draw spare products from around the world and to switch spare shipping capacity to carry clean oil-product cargoes.
Market information had been assisted by an “immense” and rapid collection of data by the US Energy Information Administration.

It was up to the market to continue deciding where crude oil and products were most needed in view of the refining situation and “similarly, the market can also be relied upon as an efficient delivery mechanism”, said the IEA, an offshoot of the OECD.

On the underlying demand-supply equation, the IEA said that it had revised down its estimate of the growth of global demand by about 240 000 barrels per day to 1,35-million barrels owing to “a weakening demand picture in many areas”. The change was only partly attributable to Katrina.

“OECD demand was much weaker than expected in July. Chinese apparent demand has remained weak in comparison to 2004 and ‘other Asia’ continues to struggle with the impact of high prices.” Demand in Japan was “weaker than expected in July”.

The agency held its estimate that demand in 2006 would grow by 1,77-million barrels per day.

It reduced its estimate for global demand this year by 250 000 barrels per day to 83,48-million barrels and next year by 260 000 barrels per day to 85,25-million barrels.

On these figures, demand this year would grow by 1,6% from growth of 2,9% in 2004, and would increase by 1,8% in 2006. - AFP

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