[UNITED STATES] With little damage to oil patch, prices dip

The oil and gas industry breathed a tentative sigh of relief Monday after preliminary reports suggested Hurricane Gustav did little damage to energy facilities both onshore and off, helping send oil prices sharply downward.

Early updates from Gulf of Mexico drillers and oil and natural gas producers were "very promising," with no major damage reported, said Lars Herbst, regional director for Minerals Management Service, the Interior Department office that regulates the offshore oil and gas industry.

Refiners were beginning to send crews Monday to assess facilities in Louisiana, meanwhile, and hoped to resume operations quickly. But Herbst and energy companies cautioned it could be days before a full assessment of Gustav's impact is known. Until then, offshore oil and gas installations and refineries could remain closed.

The weaker storm coupled with a stronger dollar helped send light, sweet crude for October delivery down $4.34 to $111.12 by Monday evening on the New York Mercantile Exchange. U.S. markets were closed for Labor Day, but traders had after-hours access electronically.

President Bush said Monday he would allow purchases of crude oil from the nation's Strategic Petroleum Reserve, the emergency stockpile that now holds roughly 700 million barrels of oil, if refineries needed the stock because of Gustav-related outages. It was not clear late Monday if any company had taken him up on the offer.

Gustav, which roared across western Cuba as a massive Category 5 storm, barely registered major hurricane status as it spun through the offshore Louisiana oil patch early Monday morning, with 115 mph winds near its eye. By the time it made landfall later Monday morning, it was a Category 2 storm with 110 mph maximum sustained winds.

The storm's center appeared to pass close to several major offshore installations, including Shell's Mars platform, whose drilling rig was crumpled by Katrina three years ago.

Planes to look for damage
Major producers with offshore installations, including ConocoPhillips and ExxonMobil, said they would inspect their facilities from the air as soon as it was safe.

Two major offshore drillers said the storm did not appear to do major damage to rigs in its path.

"So far, so good," said Guy Cantwell, spokesman for Houston-based Transocean, the world's largest offshore drilling contractor. The company moved eight self-propelled rigs out of the way ahead of Gustav, leaving three moored rigs in its path.

Based on satellite tracking, the three rigs appear to have remained in place, but the company was hoping to confirm assessments after doing flyovers.

"If they stay in place, that will be a big success for the industry," Cantwell said, noting improvements in hurricane preparedness by offshore oil and gas companies since devastating storms in 2005.

Les Van Dyke, spokesman for Diamond Offshore, another major Houston driller, also said its four to six rigs affected by the storm appear to have withstood Gustav's impact. Workers could be back on rigs as early as Wednesday, Van Dyke said.

The upbeat reports came after forecasters had said Gustav could move into the Gulf Coast as a much fiercer storm.

"If Gustav had been a Category 4 hurricane (minimum 131 mph winds), we would have expected losses on the nature of $25 billion plus," said Tom Larsen, senior vice president of EQECAT, an Oakland, Calif.-based firm that does risk modeling.

Instead, the firm predicts insured losses from Gustav would be in the $6 billion-to-$10 billion range, including damage to energy infrastructure.

Workers evacuated rigs
By Monday, companies had shut down 100 percent of Gulf of Mexico oil production and 95.4 percent of natural gas output, the Minerals Management Service said. That meant about 1.3 million barrels of daily oil production and 7.4 billion cubic feet a day of gas was offline.

Workers from 100 rigs and 626 production platforms evacuated.

But offshore facilities were seen as better able to withstand strong storms after making improvements since hurricanes Katrina and Rita in 2005, which brought massive damage.

In anticipation of the storm, many companies, including Valero Energy, ExxonMobil and Shell Oil, had either halted production or reduced output at several major refineries in Texas and Louisiana.

As of late Monday, those facilities remained closed. Once given the all-clear, the plants could take as long as two weeks to return to full production.

Effect on fuel prices
Because the Gulf Coast is home to 42 percent of the nation's refining capacity, even minor outages can tighten fuel supplies nationwide and send gasoline and diesel fuel prices higher. On Monday, the national average for regular gasoline held at $3.69 per gallon, while diesel fell one penny to $4.26 per gallon, according to AAA's Daily Fuel Gauge Report.

After Katrina, gasoline prices spiked 18 percent nationwide as Gulf Coast refineries struggled to resume operation. The same jump today would push U.S. pump prices to about $4.35 a gallon, said Tom Kloza, an oil analyst with the Oil Price Information Service said in a report before the storm.

But given current weakness in U.S. gasoline demand, he predicted a more modest increase of 10 cents to 30 cents per gallon at worst.

Source: Houston Chronicle | By BRETT CLANTON
(Associated Press contributed to this report.)

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