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Business/Economy

Nicholas Spares Gulf Of Mexico Oil Production, But Ida Recovery Continues

Oil tankers float in the Houston Ship Channel.
David J. Phillip
/
AP
An oil tanker is docked at the Exxon Mobile Baytown complex along the Houston Ship Channel Tuesday, June 28, 2011 in Baytown, Texas.

Houston oil and gas companies caught a break from Tropical Storm Nicholas this week, but are still grappling with damage from Hurricane Ida.

In the Gulf of Mexico, nearly 30% of oil production and 40% of gas production are still offline weeks after Ida made landfall, according to the U.S. Department of the Interior.

While other hurricanes brought more lasting damage, Ida’s impact in unprecedented in the short term, according to Aaron Brady, vice president of Energy Oil Market Services at firm IHS Markit.

"If you look at the cumulative impact on outages, it's actually the biggest impact to production over this amount of time that we’ve ever seen," Brady said. "If you look at Katrina and Rita in 2005, that had a bigger impact over time because that knocked out production for months and months, whereas (with Ida), I don’t think it's going to be that long lasting."

Before Ida hit Louisiana as a Category 4 hurricane on Aug. 29, companies along the Gulf Coast shut down more than 90% of production. All workers were evacuated from offshore rigs ahead of the storm.

Nicholas – which briefly reached Category 1 hurricane status – was a different story. Nicholas made landfall on Sept. 14, mostly putting Ida recovery efforts on hold, but not adding to the damage.

Meanwhile, it could still be weeks before some facilities restart operations after suffering wind damage from Ida. The Interior Department’s Bureau of Safety and Environmental Enforcement wrote last month that inspections were underway.

“Once all standard checks have been completed, production from undamaged facilities will be brought back online immediately,” the bureau wrote. “Facilities sustaining damage (from Ida) may take longer to bring back online.”

More than 17 million barrels of oil have been lost to the market due to Hurricane Ida, and overall U.S. production could drop by as much as 30 million barrels this year, according to Reuters. When first Katrina and then Rita swept through the region in 2005, more than 160 million barrels were lost over three months.

However, some experts believe any impacts from Nicholas and recovery from Ida are unlikely to cause any big supply disturbances.

“Fortunately, in terms of the global market, it’s not that big of an issue right now,” said University of Houston Energy Fellow Ed Hirs. “Primarily, of course, due to the COVID pandemic and softer demand across the world.”

The pair of storms are unlikely to impact prices too much, Hirs said, but natural gas did get a small bump that could last through the end of the year.

"We’re seeing natural gas prices above $5 right now, and that’s primarily because we’ve temporarily lost 5% of U.S. production and we’re trying to make up storage," Hirs said. "We’re a little behind in storage as we go into winter after a hot summer, and a cold winter before that."

But hurricane season is not over, and while Ida and Nicholas largely skipped over Houston, Hirs said the real concern is a hurricane that brings a major storm surge.

A final study of a proposed coastal barrier to protect against just that kind of surge has been released by the Army Corps of Engineers, but is still more than a decade away from reality. It's likely that another hurricane will hit before then.

“A 15 to 20 foot storm surge coming up the Houston ship channel – that would damage the petrochemical plants and oil refineries for many months,” Hirs said. “That’s our tremendous risk here.”