www.poten.com July 2, 2010
Harbinger Wind?
After threatening to follow a path that some projections showed would send it through the heart of the U.S. Gulf of Mexico, Hurricane Alex weakened into a topical depression which broke up over central Mexico this week. Alex peaked on Wednesday as a Category 2 storm which forced the temporary closure of more than 20 percent of domestic crude oil output and delayed ongoing efforts to clean and contain oil spewing from the nearby Macando well. While the storm seems to have spared the Gulf of Mexico the worst of what was feared for it, Hurricane Alex serves as a warning that the region will likely confront significant weather‐related challenges before the hurricane season reaches its height in September.
Hurricane Alex was the earliest Atlantic hurricane since 1995 and meteorologists are already warning that they expect this year’s hurricane season to be a particularly active one. The National Oceanographic and Atmospheric Association (NOAA) forecasts that there is an 85% chance that this year’s storm season will be worse than normal. This year’s prediction of between 8 and 19 hurricanes is almost double the number of storms predicted in 2007, as shown in the chart below. If their predictions prove accurate, storm conditions may come to play a heightened role in determining both tanker freight rates and the pace of progress in the Deepwater Horizon recovery effort.
Maximum Number of Hurricanes Predicted
20 18 16 14 12 10
Hurricanes 8 6 4 2 0 2007 2008 2009 2010
Source: The National Oceanographic and Atmospheric Association (NOAA)
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Closures & Outages
While Hurricane Alex did not come into direct contact with the main oil spill region, the storm did force closures of important oil loading ports and production sites this week. The Louisiana Offshore Oil Port was forced to halt offloading operations on June 29 and two of Mexico’s main oil ports on the Gulf Coast were also forced to briefly close. Lightering operations at Southwest Pass, the main deepwater entrance to the Mississippi River, were forced to cease along with the closures of the Houston Ship Channel and other ports along the coast of Texas. Operations at most affected ports resumed Thursday.
The U.S. Gulf is home to a significant portion of domestic crude oil production and hurricanes in the region have played a role in sharp decreases in production seen in recent years, as shown in the chart below. Hurricane Alex led to the suspension of about 350 kb/d of domestic crude oil production and the evacuation of six rigs and 69 production platforms in the Gulf of Mexico, according to the US Department of Ocean Energy Management, Regulation and Enforcement. In its short‐term outlook for June, the Energy Information Administration (EIA) said it expects disruptions of up to 26 million barrels of production as a result of this year’s hurricane season.
Offshore Gulf Coast Monthly Production
1,200 Hurricane Katrina Hurricanes Ike and Gustav 1,000 Day
per 800
600 Barrels
400
Thousand 200
0
5 6 6 6 6 7 9 9 0 04 04 04 04 05 05 0 05 0 0 0 0 07 07 0 07 08 08 08 08 0 09 0 09 1 ‐ ‐ l‐ ‐ ‐ ‐ l‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ l‐ ‐ ‐ ‐ l‐ ‐ ‐ r n r t n pr n r t n r n Jan Ap Ju Oct Ja Ap Ju Oc Ja Apr Jul Oct Jan A Jul Oct Ja Ap Ju Oc Ja Ap Ju Oct Ja
Offshore Field Production Source: Energy Information Administration (EIA) This storm also offered a preview of the challenges future storms might pose to clean‐up and recovery efforts in the U.S. Gulf of Mexico. Hurricane Alex’s fierce winds brought oil‐filled waves to area beaches and raised fears that more oil would be brought into local wetlands. The winds from Hurricane Alex were also strong enough to sideline cleanup vessels and require a pause in the spraying of dispersants. Efforts to collect and burn oil in the area continued throughout the week and efforts to drill the relief well also continued. The possibility of slowing the drilling of the relief well, which is expected to be completed by August at the soonest, is perhaps the most
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important part of the overall effort which is potentially threatened by the active hurricane season expected by experts.
Any storm can cause delays and extend voyages lengths, sometimes altering the supply of vessels enough to boost tanker freight rates. Because it contains many of the country’s busiest ports as well as important domestic oil production sites, storms in the Gulf of Mexico can have a particularly significant impact on freight rates. Past hurricanes have helped support spot market earnings on the Caribbean – US Gulf voyage and Hurricane Alex serves as an indication that by closing in some offshore supply, this season’s hurricanes could provide similar support.
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