The Atlantic Hurricane Season began on Sunday (1 June) and lasts till November with the most active stage tending to be between 20th August and October. Hurricane’s have the potential to seriously disrupt oil and natural gas production and refineries in the US Gulf region often causing sharp spikes in energy prices.
This year all forecasts point towards a quiet hurricane season, while the declining importance of the US Gulf in US oil and gas output and better preparedness by companies operating in the region suggests the risk of disruption is very low. However with US gas stocks low after the cold winter, gas prices rather than oil prices are at risk of spiking higher if supply is disrupted
During the 2005 season hurricanes Katrina and Rita knocked out 113 drilling platforms, damaged more than 450 pipelines, decreased natural gas production from 1.6 trillion cubic feet per month to 1.4 cubic trillion feet per month and sent natural gas prices spiking from $6/mcf to $14.33/mcf in a month. The energy infrastructure and supply disruptions caused by the 2008 hurricanes were similar but not as severe as those caused by the 2005 hurricanes.
Although worst-day outages between both hurricane seasons were comparable, Hurricanes Katrina and Rita were more powerful and caused more lasting damage to energy infrastructure than Hurricanes Gustav and Ike. As a result, energy production and supply recovered more quickly in 2008 than in 2005.
Following 2008 there has thankfully been very little in the way of disruption to either oil or gas supplies in the region. The only significant hurricane outages in 2013 (not on the chart below) came from Hurricane Karen in October which curtailed output by an average of 100,000 b/d through the month.
This year all of the major seasonal hurricane forecasts are calling for a below-average to near-average season, with 9 – 12 named storms, 3 – 6 hurricanes, and 1 – 2 major hurricanes. Since 1995 there has been an average of 15 named storms, 8 hurricanes, and 4 major hurricanes. Predicting the weather accurately is an inherently difficult task, however and it only takes one big storm to seriously disrupt production.
NOAA’s predictions have been wrong for seven of the past fourteen years while Colorado State University’s forecasts have been wrong in each of the past two years. Indeed the prospect of an El Niño weather formation (thought to dampen the formation of hurricanes) may be receding suggesting that the season could be more active than originally thought.
The development in the shale gas revolution has meant that Gulf of Mexico natural gas and oil production is much less meaningful than previously. According to the EIA, federal Gulf of Mexico natural gas production amounted to only 6% of total domestic production in 2012 compared to 26% in 1997. Similarly, Gulf of Mexico crude oil production amounted to 19% of the total domestic production in 2012 as compared to 26% in 2007.
Meanwhile, oil and gas companies appear to have learnt from the experience of Katrina and Rita as well as the recent appearance of fast developing storms to ensure that production facilities are closely monitored and personnel are able to be evacuated and able to return quickly.
However with natural gas stockpiles still about 40% off their typical average for this time of year after the Arctic winter drained supplies any disruption to gas supplies in the US Gulf could have a much larger effect on prices than normal. In contrast with US crude stocks near record levels the threat to crude prices appears to be much less.
You can keep track of the latest hurricane and the potential impact it could have on oil and gas facilities by watching the EIA’s real time interactive map.