The Impact of Tropical Cyclones on Gulf of Mexico Crude Oil and Natural Gas Production
June 7, 2006
1. Summary
The Atlantic hurricane season of 2005 was the most active season since accurate recordkeeping began in 1944.1 There were 27 named storms including 15 hurricanes, seven of which were classified as Category 3 or higher. The paths of five of these major hurricanes passed through the Gulf of Mexico significantly disrupting oil and natural gas production. In particular, hurricanes Katrina and Rita crossed through the heart of the Gulf producing region, resulting in widespread shut-in production, some of which continues to the present. As of June 1, 2006, production of crude oil has been reduced by more than 162 million barrels and production of natural gas reduced by 784 billion cubic feet since the first of the hurricanes struck 9 months ago (Minerals Management Service, Hurricane Katrina/Hurricane Rita Evacuation and Production Shut-in Statistics Report). This amounts to about 30 percent and 21 percent of a normal year’s oil and natural gas production from the Federal offshore fields, respectively.
In addition to the upstream impacts to Gulf production, hurricanes have had significant impacts on midstream and downstream infrastructure. Four hundred fifty-seven underwater pipelines were damaged, and the Louisiana Offshore Oil Port had to temporarily stop accepting shipments during both hurricanes. Finally, some onshore refineries and natural gas processing facilities suffered heavy damage. After Katrina hit Louisiana, nearly 2 million barrels per day of refinery capacity were shut down, due to either direct damage or interruption of power supplies. EIA estimates that at the height of the refinery outages (September 22-25, 2005), as much as 4.9 million barrels per day of refining capacity (nearly 29 percent of U.S. refining capacity and over 60 percent of refining capacity in the Gulf Coast region) were shut down. Some of the shutdowns were precautionary, ahead of the storms, but several refineries were damaged extensively, thus keeping them shut down for a relatively long time. For example, even as late as October 10, 2005, more than 2 million barrels per day of refining capacity were still shut down.
This report examines the historical impacts of tropical cyclones2 on Gulf of Mexico crude oil and natural gas production over the period 1960 through 2005, and refinery operations over the past 20 years. Then, using the seasonal hurricane forecast published by the National Oceanic and Atmospheric Administration (NOAA) in May 2006, together with the fitted historical relationship between tropical cyclones and production impacts, we estimate possible ranges for total shut-in production during 2006. We emphasize the uncertainty of any forecast of shut-in production because of the difficulty of predicting whether Atlantic tropical cyclones will enter the Gulf of Mexico and threaten the oil and natural gas producing region. Additional uncertainty arises from the difficulty in predicting the duration, intensity, and damage caused by tropical cyclones in the Gulf of Mexico.
Seasonal storm-related disruptions to oil and natural gas production are difficult to predict, primarily due to the uncertainty involved in predicting the location and intensity of future tropical cyclones. Most tropical storms and even hurricanes that pass through the Gulf only temporarily disrupt oil and natural gas production while employees are evacuated to the mainland. Severe storms that threaten the Gulf producing region do not happen every year, and long-lasting shut-in production resulting from storm damage is generally rare. Given the history of storms and production losses and the current NOAA forecast, the total reduction in crude oil production from the Federal OCS during 2006 as a result of disruption from tropical storms and hurricanes may be expected to range from 0 to 35 million barrels. The reduction natural gas production from the Federal OCS during 2006 may range from 0 to 206 billion cubic feet.
The shut-in production ranges estimated in this report are conditional on the May NOAA forecast. NOAA emphasizes that its May hurricane outlook is based on climatological conditions that are still evolving. An updated hurricane outlook will be issued in August when conditions favorable for hurricanes are more predictable. There is the possibility that NOAA could substantially revise its projections for seasonal hurricane activity, as in 2005, when the May outlook, projecting hurricane activity for 2005 somewhat lower than what is currently projected for 2006, was revised substantially upward in August, prior to Hurricane Katrina. If a similar situation occurs in 2006, EIA estimates of shut-in crude oil and natural gas production would be significantly higher.
Section 2 of this report reviews the incidence of tropical cyclones in the Gulf of Mexico over the last 55 years. Section 3 presents the historical relationship between tropical cyclone activity in the Gulf and the production of crude oil and natural gas from the Federal outer continental shelf (OCS). Impacts on refinery operations during the past hurricane seasons are also reviewed. Section 4 develops two statistical models of the historical relationships between tropical cyclone activity and oil and natural gas production. These models underlie the projections discussed above.