Oil producers are beginning to shut down production in the Gulf of Mexico ahead of a tropical storm heading for Texas and Louisiana.
The storm, named Barry, could become a tropical storm on Thursday and may even become a hurricane before it makes landfall on Saturday.
Oil companies with platforms in the Gulf of Mexico scrambled to shut down production and evacuate personnel. "Tropical storm or hurricane watches likely to be issued across the northern Gulf," Jim Rouiller, chief meteorologist at the Energy Weather Group, said in an email to Bloomberg News. "This will spark widespread shut-ins across the entire production region."
Anadarko Petroleum said that it would remove all non-essential staff from its operations in the Eastern Gulf of Mexico. The company is idling production at four sites - the Constitution, Heidelberg, Holstein and Marco Polo platforms. Anadarko produces more than 160,000 bpd in the Gulf of Mexico.
Other companies followed suit. Chevron, Royal Dutch Shell, BP and BHP all said that they were removing staff.
On Wednesday, the Bureau of Safety and Environmental Enforcement, the offshore regulator housed inside the U.S. Department of Interior, said that as of 11:30 AM CDT, 15 platforms reported evacuations, or 2.24 percent of the 669 manned platforms in the Gulf. While small in number, they come from large sources of production. BSEE said that 31.89 percent of oil production in the Gulf of Mexico has been shut in, along with 17.85 percent of the region's natural gas output. Related: Increasingly Weak Demand Outlook Caps Oil Prices
While some platforms expect to throttle back on production, others will continue operating. "At this time, we anticipate minimal impacts to production as a result of this weather disturbance and will continue to monitor weather reports, taking further action if necessary," Shell said, according to the Houston Chronicle.
The Gulf of Mexico is no stranger to major storms, and typically oil companies have their operations back up and running pretty quickly after the storm passes. The obvious exceptions include Hurricane Katrina and Hurricane Harvey, among others, which saw widespread destruction and serious disruptions to the industry, the ripple effects of which were felt across global markets.
But the real damage from the upcoming storm could be in New Orleans, where the Mississippi River is already at historically high levels. The same floods that ravaged the farm belt in recent months have already left the Mississippi swollen as it passes through New Orleans. The storm surge from Barry could shoot water into the city, preventing the Mississippi from emptying into the Gulf.
Worryingly, New Orleans was already suffering from flooding by Wednesday, several days before the tropical storm/hurricane is set to hit. A foot of rain could drop on the city between Friday and Saturday.
The result, some fear, could be a breach of the river levees. The timing is exceptionally bad. The "dual threat of extreme late-season flooding and extreme early-season hurricanes" creates a unique and frightening threat to New Orleans, as Eric Holthaus framed it in a piece for the New Republic. Of course, with the climate crisis worsening, this surely won't be the last time the Gulf faces such a menacing situation, even if New Orleans avoids the worst-case scenario this time around, Holthaus noted.
The storm comes just as the EIA reported an enormous 9.5-million-barrel decline in crude inventories for the first week of July. The inventory news, combined with the approaching storm, provided a jolt to oil prices, helping to push benchmark prices up by roughly 4 percent on Wednesday. "Its all about this big API and now EIA storage report that have these markets bulled up this time and then you throw the storm on top of that," Bob Yawger, Mizuho director of futures in New York, told Reuters. "The storm looks like it could be the real deal and end up shutting in Gulf Coast offshore production."
Roughly 250,000 bpd of production could be immediately impacted, Anastacia Dialynas, an analyst at Bloomberg New Energy Finance told Bloomberg News. Another 700,000 bpd could be at risk, Dialynas said. Related: A Red Flag For Oil? China's Crude Consumption Is Faltering
The Gulf of Mexico produces about 2 million barrels per day (mb/d), a figure that has climbed significantly in recent months and years. Last year, the Gulf produced an average of 1.67 mb/d.
By Nick Cunningham of Oilprice.com
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Nick Cunningham is an independent journalist, covering oil and gas, energy and environmental policy, and international politics. He is based in Portland, Oregon. More