Gulf Coast oil industry steps up pace of recovery

The Gulf Coast oil industry, slowly putting itself back together after Hurricanes Katrina and Rita, racked up one of its best weeks since the storms, pointing to data that shows a significant rise in offshore production.
Offshore oil and gas production made good headway and several of the region's crippled refineries were finally beginning the lengthy restart process as electricity returned to their battered districts.

But while the picture is improving, it is far from rosy.
The latest data from the federal office of Minerals Management Services office shows the volume of oil flowing from the Gulf of Mexico rose to 338, 000 bpd, or 22.5 % of its 1.5 mm bpd pre-hurricane level, from a mere 34,000 bpd on Sept. 30. That means the volume of crude oil output shut by the storms dropped to 77.5 % from 98 %.
Natural gas production is on a similar trajectory, with offshore wells now flowing 6.4 bn cfpd, up from 2.1 bn cfpd a week before, a three-fold improvement. Gas production from the region prior to the storms was 10 bn cfpd.

When at full production, oil and gas fields in the Gulf of Mexico account for about 25 % of the nation's overall production. Much of the progress is linked to electricity coming back on at onshore receiving terminals and pipelines, even if it is just enough power to serve cleanup crews and the waterlogged sites.
Utilities serving Texas and Louisiana, including the oil and gas industry, reported 330,600 customers still without power, about half of the 658,000 outages reported a week earlier. Every bit of progress is badly needed to ease upward pressure on energy prices and concerns over the strains these high prices are putting on the economy.

Restoring refining capacity is every bit as critical to this process, perhaps more so since growing crude supplies are of little value to end-users. There was good news on this front as well, with Chevron reporting it had begun restarting its giant 325,000 bpd refinery in Pascagoula, Mississippi, and could have the facility back to normal operations by the end of the month, earlier than its previous estimates.
Twelve refineries along the Gulf -- seven along the Texas-Louisiana border, three near New Orleans, and Chevron's plant in Mississippi -- were still down, totalling 3 mm bpd or 16 % of the nation's refining capacity.

According to the Energy Information Administration refinery input nationwide averaged just 1.7 mm bpd earlier, its lowest level since March 1987 and 4.5 mm bpd less than pre-Katrina levels in late August.
While consumers and retailers have focused primarily on how refinery outages pushed gasoline prices this fall to record highs, the impact is far more critical for heating oil and diesel supplies as the nation heads into the winter months. Diesel prices have spiked to a record-high national average of $ 3.14 a gallon, up a staggering 34.6 cents from a week earlier and the highest one-week rise ever, the EIA reported.

Refinery outages have also whittled down the nation's supply of jet fuel to 37.2 mm barrels, 10.1 % less than the five-year average for this time of year. This translates into more bad news for airlines already struggling to cope with record-high fuel prices, a key factor behind the recent rash of bankruptcies among the nation's biggest carriers.
"With an unprecedented decline in crude oil inputs into refineries, and with much of this decline expected to continue through a significant portion of October, if not longer, oil product markets are clearly in uncharted waters and this year's hurricane season will certainly be one that oil market analysts will remember for years to come," the EIA wrote in its weekly summary.

The AAA Daily Fuel Gauge Report shows a gallon of unleaded gasoline now averaging $ 2.93 nationwide, down from the record $ 3.06 on September 5, a week after Hurricane Katrina hit the Gulf Coast, but a far cry from the $ 1.95 seen at pumps a year ago.
The seriousness of the situation has not escaped the attention of Washington lawmakers. The House of Representative approved legislation aimed at boosting the nation's refining capacity.