Tropical Storm Gustav Threatens U.S. Energy Infrastructure

Nice picture, more than much words


Three days before the three-year anniversary of Hurricane Katrina's landfall, the Gulf of Mexico is bracing for another hurricane that could hit the energy industry particularly hard.
Tropical storm Gustav is headed straight for the heart of the Gulf's oil-producing infrastructure, according to early government forecasts, and it could become a very strong hurricane.
As seen in the map above, if the storm continues along it's currently predicted path, it will slam straight into the oil rigs that dot the Gulf of Mexico off the coast of Louisiana. If there is a major supply disruption, it could could send gas prices rocketing back up.
"That whole area is just so vulnerable to an intense storm. It's like rolling a bowling ball down an alley. If it hits, it's going to knock some pins down," said Chuck Watson, founder of KAC, a disaster risk management company which does work for world governments and private enterprises. "You really hope for a gutter ball."
Kinetic Analysis Corporation estimates that there is a one in three chance that Gustav will hit with sufficient force to shut down 10 percent or more of total U.S. oil production this year.
"In a tight market, that's a big hit," Watson said.
In 2005, hurricanes including Katrina, Rita and Wilma caused major supply disruptions, reducing American oil output by a quarter. Production has only recently returned to pre-2005 levels.
The Gulf of Mexico region supplies about a tenth of the 21 million barrels of oil that the United States consumes each day. But Watson said that losing a big chunk of Gulf oil facilities would have an impact on gas prices larger than its share of world oil production.
"When you start looking at the details, [the Gulf] has an impact out of proportion to the percentages because it's close, it's cheap and it's always there," said Watson.
That could mean substantially higher gasoline prices in the United States just as prices have finally crept below four dollars a gallon.
The possibility also exists that one or more refineries could be hit, which would create much longer-term supply problems.
"If it goes into Galveston, Texas and Beaumont, where the big refineries are, it could be catastrophic," Watson said. "There's limited capacity to absorb damage and repair it quickly."
Right now, how much trouble Gustav could cause is still unclear. The storm isn't expected to make landfall until late this weekend, and Watson said that all hurricane models are far from accurate until a few days before landfall.
"We have a 64-processor Beowulf cluster that does the modeling. We can do differential equations and look at satellite imagery," Watson said. "But these longer-range forecasts --- meh -- we're not that smart."
Nonetheless, fear of supply disruption could be enough to restart the rally in oil prices that had abated since a peak at over $140 a barrel earlier this summer. Apparently spurred by fears of Gustav, crude oil prices pushed higher today to over $118 a barrel.