U.S. energy sector braces for the worst from Gustav
08.28.08, 5:34 PM ET

United States
By Erwin Seba

HOUSTON (Reuters) - Energy companies began shutting down Gulf of Mexico production Thursday ahead of Tropical Storm Gustav, which could deliver the worst blow to the heart of U.S. offshore oil and natural gas production since 2005.

U.S. crude oil climbed early on storm fears, then tumbled when the U.S. government and the International Energy Agency said emergency supplies would be provided if needed. Crude settled down $2.56 Thursday at $115.59 a barrel.

The Gulf region provides a quarter of U.S. oil production and 15 percent of U.S. natural gas output. Still, an analyst said fears of a repeat of the 2005's devastating hurricanes Katrina and Rita, which shut 25 percent of offshore oil production, may be overblown, an analyst said.

"We will have some damage from this - I don't think it will be long lasting," said Planalytics analyst Paul Corby.

Katrina and Rita destroyed more than 100 platforms and damaged others, boosting crude oil prices. Corby noted that the most vulnerable platforms are now gone and the remaining facilities have been strengthened.

The U.S. Department of Energy said the government was ready to release crude oil from the Strategic Petroleum Reserve if Gustav seriously disrupted supplies. The International Energy Agency said member nations were ready to release strategic oil stocks.

Oil companies were preparing platforms for the storm, expected to enter the Gulf as a major hurricane on Sunday and possibly reach catastrophic strength.

Shell Oil Co, the U.S. Gulf's largest producer, said it began turning off production on Thursday at a few of its wells while continuing evacuations of 1,300 workers from the Gulf of Mexico.

Anadarko Petroleum Corp said it expects to shut all its production, including the Independence Hub, the largest offshore natural gas processing facility, by Sunday as it evacuates all offshore staff.

The nation's only deepwater oil port, the Louisiana Offshore Oil Port, which offloads about 1 million barrels per day in foreign crude, expects to stop offloading over the weekend, perhaps as early as Saturday.

Driller Transocean was evacuating workers and preparing to pull more employees off rigs in the Gulf, the company said in a statement.

Apache Corp, BP, Chevron Corp ConocoPhillips and Murphy Oil said they were pulling nonessential workers from production platforms. Conoco shut the Magnolia platform for an overhaul on Monday and was stopping drilling operations at its South Louisiana Inland Water site.

All other companies with Gulf of Mexico operations said they were carefully monitoring the storm and preparing for evacuations or to shut production. (Reporting by Erwin Seba, Chris Baltimore, Robert Gibbons, Rebekah Kebede, Eileen Moustakis and Richard Valdmanis; Editing by David Gregorio)


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