EIA expecting losses in Gulf Of Mexico in hurricane season
The agency expects around 19.3 million barrels of oil will be lost to storms in the season which began on 1 June and runs to 30 November
An active summer hurricane season is likely to increase weather-related shut-ins in the Gulf of Mexico (GOM), the US Energy Information Administration (EIA) said in its latest Short Term Energy Outlook.
The EIA expects a median estimate of 19.3 million barrels of oil and 46.4 billion cubic feet (cf) of natural gas will be lost to storms in what is expected to be an active hurricane season, which began on 1 June and runs to 30 November.
In 2012, which was also an above-average year, GOM producers shut in a cumulative 14.3m barrels of oil and 32bn cf of gas. The EIA pegged a 58% probability of even higher levels of disruption in 2013, and gave a 50/50 chance that lost volumes will be higher or lower than its estimates.
In a worst-case scenario - taking into account the small but significant chance of a major hit on oil installations - the mean number rises to 25.7m barrels of oil and 64bn cf of gas. In a normal year, the EIA would expect losses of 7.4m barrels and 14.4bn cf of gas.
By comparison, hurricanes Katrina and Rita in 2005 resulted in the loss of more than 100m barrels of crude and 517bn cf of gas, and damaged 113 offshore oil platforms. A 2008 study by the University of North Texas pegged direct and indirect damage, mainly from lost production and refining, at more than $250bn.
Much has changed since then. With the rise of unconventional onshore drilling, the US is far less reliant on GOM production. In 1997, 26% of US natural gas was produced in the GOM's federal waters. By 2012, that had dropped to 6%.
The GOM's proportion of crude production also has declined, from 26% in 2007, to 19% in 2012. "The growing share of total production from inland areas has reduced the vulnerability of overall U.S. oil and natural gas supply to hurricanes," EIA said. The forecasts amount to about 36 hours of oil consumption and less than a day of gas demand.
The EIA said its numbers are based on the National Oceanic and Atmospheric Administration's (NOAA) revised 2013 hurricane forecast, released on 23 May, which estimated a 70% probability that 13-20 named storms will form in the Atlantic over the next six months. It believes seven to 10 of these will be hurricanes. Of those, three to six will be intense, with a rating of category 3 or higher.
The ranges are well above the seasonal average of 12 named storms, six hurricanes and three major hurricanes with winds of 111 mile per hourh or greater. "This year, oceanic and atmospheric conditions in the Atlantic basin are expected to produce more and stronger hurricanes," said Gerry Bell, lead seasonal hurricane forecaster with the NOAA's climate prediction centre.
However, the NOAA does not predict how many storms hit land or where a storm will strike. Further, there is no correlation between storm severity and the amount of damage it can cause. The EIA noted a tropical depression can be as destructive as a category 5 storm, depending on the path it takes.
The EIA also stressed the "high degree of uncertainty" surrounding its numbers due to the difficulty of making long-range forecasts of hurricane activity. Nonetheless, the risks are significant enough to warrant a statistical analysis of averages from previous years, it said. If the present season proves to be even more active than projected , the EIA said its estimates would need to be revised upward.
The EIA also said it expects Brent spot prices to average $102 per barrel over the second half of 2013, and $100/b in 2014. After hitting $119/b in early February 2013, Brent fell to a low of $97 per barrel in mid-April and then recovered to an average of $103/b in May.
The agency has forecast an average price of $3.53 per gallon for regular gasoline during the April-September summer driving season. The average annual retail price is expected to decline from $3.63/g in 2012 to $3.49/g this year, and to drop to $3.37/g in 2014.