U.S. Oil and Natural Gas Market Impacts

Prices NYMEX Futures Prices (for October delivery) 9/22/2008 Pre-Gustav 8/29/2008 change Week Ago 9/15/2008 Year Ago 9/21/2007   WTI Crude Oil ($/Bbl) 120.92 115.46 5.46 95.71 81.62   Gasoline RBOB* (c/gal) 270.38 285.42 -15.04 256.14 211.45   Heating Oil (c/gal) 304.30 319.19 -14.89 279.12 225.62   Natural Gas ($/MMBtu) 7.66 7.94 -0.28 7.37 6.08 *RBOB = Reformulated Blendstock for Oxygenate Blending (RBOB), the base gasoline that needs to be blended with some type of oxygenate, now usually ethanol, to be turned into finished reformulated gasoline (RFG). Ethanol is not blended into the gasoline mixture until just before the gasoline is shipped to the retail stations. Petroleum As of 12:30 pm EDT (11:30 am CDT), September 22, the Minerals Management Service was reporting that nearly 1 million barrels per day (or about 77 percent) of the federal portion of the Gulf of Mexico’s crude oil production was shut-in.  As of 9:00 am EDT (8:00 am CDT), September 22, the Department of Energy reported that there are 9 refineries in Texas and Louisiana that are shut down due to Hurricane Ike.  These 9 refineries have a total capacity of 2.3 million barrels per day (about 13 percent of U.S. operable capacity), and represent almost 800,000 barrels per day of gasoline output (nearly 9 percent of U.S. gasoline demand in September) and about 500,000 barrels per day of distillate fuel output (just over 12 percent of U.S. demand in September), based on recent historical data.  So far, since refineries first shut down before Hurricane Gustav, over 41 million barrels of products have not been produced, including over 19 million barrels of gasoline and over 13 million barrels of distillate fuel. This does not include reduced production from refineries that have reduced runs at various times during Hurricanes Gustav or Ike.  As of September 22, 6 refineries were running at a reduced rate.  As of September 22, the Colonial and Plantation product pipelines continue to operate at reduced rates.  Both of these are major product pipelines going from the Gulf Coast to the East Coast. It takes several days for a refinery to get back to normal operation after first getting power restored, even if there is no significant damage following a hurricane.  Refined product supplies are still constrained in portions of the country because of refining capacity that is still significantly reduced from pre-hurricane levels, as noted above.  As refineries return to full production, supplies will increase into pipelines, thus providing more supplies to those that have seen constraints in the supply system.  But it could take several days or even a couple of weeks before the distribution system, from refineries to retail stations, is once again at pre-hurricane operation levels. Natural Gas As of 2:00 pm EDT (1:00 pm CDT), September 22, the Minerals Management Service reported that nearly 4.8 billion cubic feet per day (or about 65 percent) of the federal portion of the Gulf of Mexico’s natural gas production was shut-in. The Department of Energy (DOE) reported that as of 10:15 am EDT September 22, eleven of the 26 major natural gas pipelines in the Gulf Coast area continue to report complete shut-in of their systems. The remaining pipelines report that portions of their systems remain at reduced levels of gas flow as a result of Hurricane Ike. Damage assessments continue to be performed both on onshore and offshore facilities. The pipelines continue to provide updates to their customers on those points along the systems that were impacted and are now approved to flow gas. Since returning to service back on September 14, the Independence Hub platform, located about 150 miles offshore Louisiana in Mississippi Canyon has averaged over 830 million cubic feet per day of gas production. This platform is the largest producing platform representing approximately 12 percent of the offshore Gulf of Mexico natural gas production. In July 2008, production from the Hub averaged over 800 million cubic feet per day. As of 10:00 am EDT September 22, the Sabine Pipe Line reported that it is rescinding the previously declared force majeure for Texas Mainline. Currently, eleven points at the Henry Hub are available for gas flows. However, only partial compression remains available at the Henry Hub complex. As of 9:30 am EDT September 22, the Energy Information Administration (EIA) has confirmed that 8 plants remain shut down which includes those plants still impacted from Gustav, totaling an operating capacity of 5.08 billion cubic feet per day (just under 30 percent of the capacity in Hurricane Ike’s path). In addition, EIA reports 22 plants have resumed operations at reduced or normal levels with a total operating capacity of 8.73 billion cubic feet per day. Eight plants are capable to restart (totaling 3.65 billion cubic feet per day of operating capacity) once power is restored and/or upstream gas flow are sufficient. Also see: Hurricane Situation Reports from DOE's Office of Electricity Delivery & Energy Reliability STEO Hurricane Analysis (pdf)