Gulf storm could disrupt oil production

What’s currently known as “Tropical Depression 13” could cause problems for oil in the Gulf of Mexico rigs this week.

There is "risk of a storm taking shape over the next several days in the Gulf of Mexico," AccuWeather.com Expert Senior Meteorologist Ken Reeves notes. "The location and intensity will reveal the true impact on oil and gas."

However, this system is "by no stretch of imagination is a sure bet like Irene," he adds. “This system is a short-track storm, which makes the intensity hard to predict.”

Such impacts on production typically force brief shutdowns that can cause a temporary spike in oil and gas prices.

Such temporary spikes have coincided with tropical systems moving through the Gulf of Mexico in the past—such as hurricanes Alex and Karl, Tropical Storm Hermine, and Tropical Depression Five just last year. Shutdowns in 2008 caused a decline in production of 62 million barrels of oil and 408 billion cubic feet of gas.

Of course, a large price spike in price followed Hurricane Katrina in 2005, but it took out three months of production.

"How long price spike lasts is usually a byproduct of the damage that was done," Reeves says. "If there is no long-term damage, [the price] corrects itself relatively quickly. Hurricanes do have an effect, but it's mostly short-term. Economic and political influences are the overriding factors."

In other words, while tropical activity in the Gulf could cause temporary spikes, it's economics and politics that ultimately drive prices.

Between oil platforms and refineries, damage to refineries is the bigger concern, as a refinery is a large contributor to supply, processing oil from hundreds of platforms.

When a refinery is shut down, oil from the platforms must be transported elsewhere, with those transportation costs passed down to the consumer. If the costs are deemed too high, those platforms must temporarily shut down as well.

Damage to refineries not only has an impact on gasoline, but also on other oil byproducts such as propane, butane, kerosene, heating fuels and chemicals. Other industries that use oil byproducts in the manufacturing of their goods are affected as well.

However, most oil and natural gas platforms are designed to endure even strong hurricanes, with the National Ocean Industries Association (NOIA) reporting that offshore facilities built since 1988 can withstand up to Category 5 events.

NOIA reported that of the 4,000 platforms in the Gulf of Mexico, hurricanes Katrina and Rita destroyed 113, which means about 97 percent of the platforms survived these monster hurricanes. Of the 113 destroyed, 108 were built before 1988.

Source: Heather Buchman, Meteorologist for AccuWeather.com