Oil companies on US Gulf coast survey Ida’s damage to refineries

Natural disasters updates

Hurricane Ida slammed into the heart of the US energy industry, but the response in fuel markets was muted on Monday as companies began to survey the extent of the storm’s damage.

Widespread wind and flooding followed Ida’s landfall on Sunday on the Louisiana coast, with water surging as high as 9ft in some areas. The Gulf of Mexico region contains a dense web of oil wells, refineries, petrochemical facilities, pipelines and natural gas processing plants.

Energy companies only started assessing damage to their facilities as day broke on Monday. More than 1m customers across Louisiana remained without power, according to PowerOutage.US.

In a conference call with president Joe Biden, John Bel Edwards, Louisiana governor, said that restoring power quickly was “critical” for the recovery effort.

Entergy, one of Louisiana’s main electric utilities, said that it could be weeks before normal service resumes. That could disrupt the return of other energy infrastructure and water and sewage services to residents affected by the storm.

The company said New Orleans had suffered “catastrophic transmission damage” when all eight of its transmission lines were toppled, wiping out power for the entire city.

Biden said the federal government was facilitating drone flights for electric utilities to assess damage to power infrastructure in a way that does not “disrupt aerial search and rescue”.

Offshore oil and gas producers, including Shell and BP, largely evacuated their platforms in the Gulf of Mexico ahead of the storm, shutting down 1.74m barrels a day of oil production, about 15 per cent of US output, as of Sunday afternoon. Nearly 94 per cent of the Gulf of Mexico’s natural gas output was down.

At least nine oil refineries in Louisiana had reduced or shut fuel production ahead of the storm, accounting for as much as 13 per cent of total US capacity, according to the Department of Energy.

Analysts said it was likely oil production would come back more quickly than refineries, potentially sending fuel prices higher in the coming days.

“Offshore oil production recovery from hurricanes tends to be measured in days, while refinery restarts can be measured in weeks or even months,” said analysts at Cowen, an investment bank. The pattern suggested a period of higher profit margins for the US refining industry, the bank added.

The extent and duration of power outages would be key to how fast energy infrastructure is able to recover, analysts said.

US oil prices were up 0.6 per cent at midday in New York to $69.12 a barrel, higher than in recent weeks. Wholesale gasoline futures for September delivery traded in New York were up 2 per cent to $2.32 a gallon. GasBuddy, a retail fuel price tracking service, said that motorists could expect prices at the pump to rise between 5 cents and 15 cents a gallon in the coming weeks.

The price of October-delivered natural gas at Louisiana’s Henry hub dropped 2.8 per cent to $4.267 a million British thermal units.

The storm was also likely to deliver another blow to global supplies of plastics after many of the region’s petrochemical facilities, including plants operated by ExxonMobil and Dow Chemical, were forced to shut down. Louisiana is a big hub for US petrochemical production.

Prices for the plastics used in products from takeout food containers to PVC pipes could rise from already record highs, analysts said. Supplies are already tight due to disruptions from a deep freeze in Texas last winter and demand that has surged during the coronavirus pandemic.

Louisiana governor Edwards said his state was still in “life-saving mode doing search and rescue” and warned that “we’re in this for the long haul”.

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