Pacific Views

How badly is the Gulf oil infrastructure damaged?

And how much of a hit will the US economy take as a result of that damage?

Watching CNN last night and reading various press accounts of the hurricane aftermath, we've noticed that little of the coverage has dealt with what has actually happened to the oil platforms and other oil industry infrastructure in the Gulf of Mexico. At the Oil Drum, an anonymous and 'quite reliable' oil industry insider offered this description on Wednesday night:

There are MANY production platforms missing (as in not visible from the air). This means they have been totally lost. I am talking about 10's of platforms, not single digit numbers. Each platform can have from 4 to 100+ wells on it. Most larger ones have 20-30 wells in this area, with numerous caisson wells. They are on their sides, on the bottom of the gulf - they will likely be left as reef material, provided we can get permission. MMS regulations require us to plug each of the wells that were on these platforms - HUGE cost now, as the platforms are gone... Hopefully, MMS will grant `abandon in place' status for these wiped out structures.

We also set individual wells as satellites and pipe them back to existing platforms. These stand-alone wells are called caisson wells. 90% of those in the storm path are bent over, rendering them a total loss, We would have to remove the existing bent structure and drill a new well, as bent pipe is basically unusable.

We utilize platforms as gathering hubs. We pipe the raw oil/water to them and then send it on for separation, or separate it there and send finished oil on. Damage to a hub means everything going to the hub is offline indefinitely. There are +/- 15 HUBS missing. MISSING!! As in we cannot find them from the air.

Thus even if the wells feeding the hub are ok, we have nowhere to pump the oil to...

This is not good, folks.

What will this mean for the availability and price of oil/gas in the US? And for the US economy in general? Economist James Hamilton, who specializes in the oil industry, offers a grim view here and here.

One of the questions I am almost always asked by reporters is, "will the price Americans pay at the pump go even higher?" My stock answer is, "I'm not sure." But in the present circumstances, having just seen a 55 cent per gallon rise in the price of September gasoline futures, the question is a no-brainer-- American consumers are in for a huge shock at the pump within a very short period.

And the next question I get asked is, "will that put the U.S. into a recession?" If it were just the consequences of the storm itself, my answer would have been, "probably not." The reason is that I think most people would see this as a special event, tragic but thankfully short-lived. But this event did not arrive out of the blue. Instead, it came in an environment in which there was already considerable anxiety about gas prices and sound basis for worrying about a possible recession even if Katrina had done no harm.

Could this be enough to tip the whole economic cart over? I'm not certain that it will. But it would seem foolish to deny the very real possibility that it could.

Despite Dubya's assertion that the US will be a 'stronger place' after the country deals with the aftermath of Hurricane Katrina, we suspect the next few months [at the minimum] are going to be a rough ride.

Posted by Magpie at September 1, 2005 10:40 AM | Economy | TrackBack(1) | Technorati links |