Energy Production Shut-in Due to Storms

08/25/2020 6:20 am EST


Phil Flynn

Senior Energy Analyst, The PRICE Futures Group

Phil Flynn updates energy production shutdowns due to imminent tropical storms targeting Gulf of Mexico production areas.

Crude oil prices are on the rise because of shut ins. No, I am not talking about Covid-19 shut ins but production shut ins due to Tropical Storms Marco and Laura. The two storms have shut down 58% of U.S. Gulf of Mexico oil output and is driving oil prices higher. Not as high as these storms used to because of more onshore production but still it is creating problems for production and problems with storm surges and potential power outages along refinery row.

The Bureau of Safety and Environmental Enforcement (BSEE) reports that data from offshore operator reports submitted as of 11:30 CDT Sunday, show that personnel have been evacuated from a total of 114 production platforms, 17.73% of the 643 manned platforms in the Gulf of Mexico.

Production platforms are the structures located offshore from which oil and natural gas are extracted. Unlike drilling rigs, which typically move from location to location, production facilities remain in the same location throughout a project’s duration. Personnel have been evacuated from five rigs (non-dynamically positioned), equivalent to 50% of the 10 rigs of this type currently operating in the Gulf. Rigs can include several types of offshore drilling facilities including jackup rigs, platform rigs, all submersibles and moored semi-submersibles.

A total of eight dynamically positioned rigs have moved off location out of the storms’ projected paths as a precaution. This number represents 50% of the 16 DP rigs currently operating in the Gulf. Dynamically positioned rigs maintain their location while conducting well operations by using thrusters and propellers. These rigs are not moored to the seafloor; therefore, they can move off location in a relatively short time frame. Personnel remain on-board and return to the location once the storms have passed.

As part of the evacuation process, personnel activate the applicable shut-in procedure, which can frequently be accomplished from a remote location. This involves closing the sub-surface safety valves located below the surface of the ocean floor to prevent the release of oil or gas, effectively shutting in production from wells in the Gulf and protecting the marine and coastal environments. Shutting-in oil and gas production is a standard procedure conducted by industry for safety and environmental reasons.

The Weather Channel reports it’s likely that Marco and Laura will make rare back-to-back landfalls in the mainland United States over the next few days. Marco is the first part of the one-two punch for the Gulf Coast. The tropical storm will track near or just off the coast of Louisiana into Tuesday, bringing rainfall, gusty winds and storm surge to parts of the northern Gulf Coast.

Laura could still end up as a cat three hurricane but it is too early to say for sure. The Weather Channel says that Laura is forecast to reach the Gulf of Mexico early this week, where intensification into a hurricane is expected. The area with the highest chance of seeing a hurricane strike from Laura by midweek is along parts of the Texas and Louisiana coasts, but this forecast is still uncertain.

This comes as U.S. shale producers try to get up off the mat after going like 19 rounds with Covid-19. U.S. producers increase the U.S. rig count by 11 to 183 this week, according to Baker Hughes Co. data released Friday.

In the meantime, U.S. inventories are set to fall again. Imports from Saudi Arabia are at decades lows. Still the storms will mess with both supply and demand.

Trade strategy may be key to ride out the crazy moves that will come with the headlines so keep in touch with our daily analysis. Makes sure you are getting my Daily Trade Levels! Read Phil’s energy report at Price Futures Group. Twitter: @energyphilflynn | Facebook: Phil Flynn.

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