Gustav...a running update

Wednesday 5 p.m.: With this post, we are going to bring this running update to a close. Slowly but surely, the industry is getting back on its feet. Power is being restored to refineries; damage reports continue to come in relatively light; there was even a decline in the amount of Gulf Coast oil production shut in by the storm. (It had been 100%; now MMS says it's 95.8%.) It may be, as Tom O'Malley noted (see post below), that the impact on supply will keep prices and refining margins high for several weeks. But in terms of inflicting harm on the energy infrastructure, it's clear that Gustav did not do that.

--However, it can't be ruled out that some of the infrastructure stayed intact because of improvements made to it after Katrina and Rita. The industry wil certainly claim that, and the performance supports that conclusion.

Wednesday, 1 p.m.: Refining legend Thomas O'Malley, now the CEO of European independent refiner Petroplus, told a conference today that the "market [was] completely underrating the impact" of Hurricane Gustav on US oil supplies. He estimated that 20 million-30 million barrels of inventory would be lost because of the storm. He compared Gustav to Hurricane Lili of 2002, which he said wiped out about 25 million barrels of inventory from the market. "You're going to see some exceptional cracks" in September, he said.
Betting against Tom O'Malley generally isn't a winning approach.

Wednesday, 9 a.m.: More positive news to start the day. The Louisiana Offshore Oil Port (LOOP) will be resuming operations in a few days; it had been affected by power problems. And BP said flyover of its platforms showed no obvious damage. It's safe to say at this point that since no flyovers by anybody have revealed damage, anybody reporting damage would be the exception, not the norm.

--Late Tuesday, the Department of Energy said it would grant Citgo's request for 250,000 barrels of SPR crude.

Tuesday, 5 p.m.: It will likely take two weeks before oil and natural gas production resumes at full capacity in the Gulf of Mexico following Gustav, Interior Secretary Dirk Kempthorne said Tuesday. But he said he hoped some employees could return to offshore platforms by Wednesday, and that the damage found after Katrina and Rita does not appear to be an issue this time around.

Tuesday, 4 p.m.: We're getting a better handle on the extent of the damage. For offshore platforms, there still is no reason to believe that there was significant damage. Anadarko, for example, said this afternoon that it had flown over some of its platforms, and saw no visible damage. (But that hasn't resulted in a restart of operations; the MMS reported no change in its 100% outage for crude production, and more than 96% for natural gas.) US Interior Secretary Dirk Kempthorne said oil and natural gas facilities in the Gulf of Mexico appear to have weathered Hurricane Gustav well and are in "pretty good shape."

--But Entergy is reporting, more specifically, five refineries without power. In a conference call with reporters, the company would not identify the five. But Shell Chemical said it has one plant without power, at Geismar, and its Convent refinery is without power also. Also, Placid Refining is facing electrical supply problems at its 55,000 b/d Port Allen, Louisiana, refinery in the aftermath of Hurricane Gustav, a source said Tuesday.

--A request by CITGO for 250,000 barrels of SPR crude is expected to be approved. It would be for the company's Lake Charles, La. refinery.

Tuesday, noon: The Department of Energy has added up all the refinery closures; the complete closure of 14 refineries, representing some 2.716 million b/d of the region's refining capacity. Another 10 refineries in the region reduced operating rates due to the storm. That matches up with the reports that Platts is receiving: numerous refineries reporting reduced operations for a variety of reasons: reduced crude availability, power problems, etc. But as of yet, there are no reports of a refinery that looks like it is going to be down for a long time.

--It's clear that if there is an impact, it will be because of the power grid. Entergy on Tuesday said Hurricane Gustav caused more damage to its electricity transmission system in Louisiana than initial assessments first indicated, adding that the grid sustained "massive damage."

--Even though outright prices have fallen hard, gasoline spreads relative to NYMEX have given some of that back. In the cash market, the expectation is for tight markets as a result of the refinery outages.

Tuesday, 8 a.m.: Another good sign: Anadarko said global positioning systems and other preliminary data show that its facilities and rigs in the Gulf of Mexico that were either near or in the path of Hurricane Gustav remain on location. This is what Transocean and Diamond Offshore said yesterday. That doesn't mean they might not be damaged, but it does mean they didn't drift away, as many did in Katrina.

Tuesday, 6 a.m.: No doubt about it; traders are convinced Gustav didn't leave significant damage to the oil and natural gas industries in the Gulf. Crude on NYMEX traded at less than $106, though it has bounced back, and natural gas is near its lows, at $7.28/Mcf, down about 65 cts.

--The one piece of news that Platts has reported is that Valero said late Monday that an initial inspection of the 250,000 b/d St. Charles refinery near New Orleans, Louisiana found no significant damage to its units. But a spokesman also said there is no timetable for a restart, and the state of the Entergy power grid remains a concern. Gustav has knocked many customers off line.

--Inspections of platforms and pipelines will be priority one today. We should have a much better handle on the impact of Gustav by the close of business Tuesday.

Monday, 7:30 p.m.: Tuesday will bring the reviews. Companies will certainly be able to review their New Orleans-area refineries and see how they held up during Gustav. It may take longer to inspect oil and gas platforms and determine the extent of damage and when they can be brought back online. Shell said it was beginning inspection of its pipelines Monday evening.

--Although the industry was almost completely shut already, there was one Louisiana-area refinery that emained open: ExxonMobil's Baton Rouge facility. But with the loss of power there, that refinery is now closed. Its closure has lifted the NYMEX gasoline price, even as crude remains less than $112/b.

--Talk that OPEC might look to cut production in the wake of falling prices has been deflated by the United Arab Emirates. OPEC is unlikely to change its current production target when ministers meet beginning Sunday, the official UAE news agency WAM reported late Monday, quoting an OPEC source. The agency quoted the source as saying that "although markets are very well supplied, all options are open" given the possibility of damage from Gustav.

Monday, 2 p.m.: CNBC has been reporting that both Transocean and Diamond Offshore are reporting preliminary signs of their platforms still being in place. However, we spoke to Transocean, and they're far from ready to declare "all clear." But satellite information indicates that rigs haven't drifted off from their moorings; that's good.

--The Colonial Pipeline is running at reduced rates. But it's not power problems that have reduced the throughput, which is good. Major power outages caused significant shutdowns on Colonial after Katrina. But for now, Colonial isn't saying what is causing the reduction in rates, though it isn't a stretch to assume it's because many suppliers to the pipeline -- the refineries -- are shut.

Monday 11 a.m.: Gustav makes landfall near Cocodrie, Louisiana, according to the NHC, as a category 2 hurricane with winds of 110mph.

Prices continue to fall: NYMEX October crude down nearly $5 to $110.60/b, RBOB off nearly 12 cents to $2.735/gal and heating oil down nearly 13 cents to $3.0635/gal. Sur[risingly, crack spreads are a bit weaker, which is a bit of a surprise given the amount of refining capacity offline. It is too early to tell how quickly the New Orleans-area refineries will be back up and running.

Entergy reported more than 287,000 outages in its New Orleans territory as of 9 a.m. Central Time.

While it's too early to declare Gustav finished, some may turn an eye to Tropcal Storm Hanna, hovering near the Bahamas, and newly-christened Tropical Depression 9 steaming westward through the Atlantic.

Monday 8 a.m.: Prices are falling. Traders are now of the belief that because Gustav remained a category 3 storm while moving through the production area that damage to platforms and pipelines may not be extensive. Crude has dropped below $114, and natural gas is less than $8/mcf.

--The International Energy Agency's deputy executive director, Bill Ramsay, told Platts his Paris-based organization is is coordinating with the US Department of Energy on how it might respond to any oil supply disruption caused by Gustav. As it did in 2005, when Katrina hit, the IEA said it it is ready to release emergency stocks if such action proves necessary.

--Ramsay made an important point about refining capacity. He said refining capacity in the OECD nations was currently 1 million b/d higher than it was in 2005 when Katrina struck. It was not just the loss of production, but the loss of refining capacity that was so significant then.

Sunday, 8 p.m.: All quiet on the western front, so to speak. Quiet because any oil and natural gas facility even possibly in Gustav's path is shut.

--The process of closing down oil and gas production in the US Gulf of Mexico ahead of Hurricane Gustav "should be complete," a US Department of Energy official said Sunday. "This temporary disruption (of oil and gas production)is a regular and well-practiced event," Kevin Kolevar of the Office of Electricity Delivery and Energy said at a televised Federal Emergency Management Agency press conference in Washington.

--More specifically, the MMS' daily update Sunday said nearly all US Gulf of Mexico oil production was shut Sunday. The totals: 96.26% of oil output and 82.3% of gas production lost as of midday Sunday. Before the storm, estimated current oil production from the Gulf of Mexico is 1.3 million b/d. Gas production is estimated at 7.4 Bcf/d.

--ExxonMobil's refinery operations are a microcosm of what the refining industry has done. Its Chalmette refinery near New Orleans is closed. Its three others -- including the big Baton Rouge refinery, upriver from New Orleans -- remains open. Its refineries in Beaumont, Texas and Baytown, Texas also are open, though Beaumont is not all that far from New Orleans, and nearby refineries in Lake Charles, Louisiana have closed.

--The impact to production has not just been offshore. According to a report by consultancy Bentek Energy, natural gas flows along the Gulf Coast are down nearly 60% in the face of Hurricane Gustav and flow from offshore is near zero. Bentek measures nominations and flow for both onshore and offshore gas pipelines. It said the normal 11.8 Bcf/d of gas production on and off the Gulf Coast's shore had been cut by 7 Bcf to 4.8 Bcf/d.

--Prices actually have come off their highs. NYMEX Crude is up about $1.70, to roughly $117.15, after topping out earlier at $118.60. Gasoline is down more than 3 cts from its earlier high, but is still up more than 7 cts from Friday's settlement.

2:30 p.m. Sunday: Gustav is weakening a bit more, but still Category 3.

Shell has shut its Norco, Louisiana refinery, and put its Convent, Louisiana plant on standby. Retail outages are sporadic, but demand way up as people evacuate. It's still wait-and-see for the Port Arthur refineries.

NYMEX crude jumped more than $3.00/b to nearly $119/b, and RBOB 10 cents to nearly $2.96/gal. It doesn't look like there is a wave of panic buying, but seeing as the storm hasn't hit yet and there are no damage reports, it could be too early to write off a big rally.

Of course, it seems ridiculous to NOT consider a $3.00 move a big rally.

10:30 a.m Sunday: Hurricane Gustav is ONLY Category 3.

The ports of Beaumont, Port Arthur, Lake Charles and Houston will be closing at various times Sunday, halting all shipping traffic. LOOP shut its onshore caverns -- it remains to be seen what effect that could have on pipeline shipments up to the Midwest.

Valero shut late Saturday it's St. Charles, Louisiana refinery. So far the Port Arthur plants run by various refiners are still up, but at reduced rates.

11 p.m. Saturday: The shutdown list grows and grows. Conoco Phillips shutting two Louisiana refineries and all its Gulf Coast production. The Henry Hub, the key delivery point for the US natural gas market, will shut Sunday. Spot gasoline shortages are cropping up in the New Orleans areas, as consumption soars to evacuate people; hoarding can't be ruled out either.

Will the MMS on Sunday report 100% of output offline?

It should be noted that no Houston-area refineries are reported as closed or cut back. Clearly, the industry sees this as a New Orleans-Louisiana event. (But Citgo is reporting normal operations at its Lake Charles, La., plant, while ConocoPhillips has closed its refinery in the same city).

2:30 p.m. Saturday: What's interesting about this storm's evacuations is that they are so all-sweeping, so early. In the past, it seemed that evacuations were far more targeted: eastern Gulf, central Gulf, and so on. But the recently-released numbers by the Minerals Management Service show how cautious the entire offshore Gulf Coast industry is approaching this storm.
In its update for Saturday, the MMS said almost 77% of the US Gulf of Mexico's oil production and about 37% of its natural gas output has been shut ahead of the storm. The totals: 998,021 b/d of crude output was curtailed, or 76.77% of the Gulf's normal production of 1.3 million b/d. Some 2.75 Bcf/d of gas production was down, or 37.16% of typical production of 7.4 Bcf/d.

--The list of outages being reported by Platts continues to grow, too long to lay out individually. Besides offshore production, gas pipelines are ceasing some operations, mostly as a side effect of the evacuations of coastal parishes in Louisiana.
By Monday, when the storm is on its final approach to wherever it lands, the only news coming out will probably be facilities coming back on line as the storm hones in on a final destination, and areas spared its wrath are safe to resume operations.

11:30 a.m. Saturday: Mandatory evacuations in some Louisiana parishes are taking gas processing plants offline. Of course, it doesn't really matter, because some of these plants were losing gas supply anyway due to the shutdowns of platforms in the Gulf.
--Valero and Conoco have both reduced some refinery operations in Louisiana.
--Railroads, which carry petrochemicals among other products, are shutting New Orleans operations and diverting traffic north.

9:30 a.m. Saturday update: Brendan Loy is a weather blogger, and he has an interesting observation about the track of the storm here. If this holds, it would spare New Orleans.
--The LOOP is shutting this morning....it was supposed to be this afternoon. (But it can continue to pump oil out of its inventory in salt caverns).
--Now Valero is indicating that a parish evacuation doesn't necessarily mean a refinery shutdown.

8:30 a.m Saturday update: Our hope is that this will dissipate into a big rain and damage nothing. But in the last three hours, from the 5 a.m. advisory to the 8 a.m. advisory by the National Hurricane Center, the winds have strengthened by 10 mph, to 120. So little chance of that happening.

Platts reported many platform evacuations and production shut-ins following the Minerals Management Service Friday afternoon update on production. According to the MMS Friday announcement, operators had shut in approximately 6.62% of all US Gulf oil production of 1.3 million b/d. Look for that figure to be a lot higher when the Saturday release comes out.

Among other highlights: the Louisiana Offshore Oil Platform, one of the major facilities for bringing crude imports into the US, is expected to shut Saturday afternoon.

Parishes in Louisiana are beginning to be evacuated. The impact of this is that the facilities in those parishes, be they refineries or gas processing plants, can not operate without personnel. So we will look to stay on top of shutdowns there as well. There probably will be some happening today.