By Don G. Briggs, President – LOGA (Louisiana Oil & Gas Association)

Monday, September 1st, Hurricane Gustav cut a path through the heart of the Gulf of Mexico’s oil and gas fields in route to North Louisiana, causing the greatest power outage in the state’s history. Seventy percent of Louisiana’s electric consumers were left without power after landfall. Gustav, and past hurricanes serve as a reminder to the US just how vital Louisiana’s petroleum industry is to our country.

As early as Wednesday, August 27th, four days before landfall, companies operating in the Gulf of Mexico began shutting in production and evacuating their offshore operations. The US Mineral Management reported Gustav shut in 100% of the 1.3 million b/d of the Gulf’s oil production and 95% of the Gulf’s natural gas production, 7 bcfd. Natural gas pipelines and 31 large natural gas processing plants, representing over 16 billion cubic feet per day, shut down operations as well.

Also, in the path of Gustav is Louisiana’s Offshore Oil Port (LOOP). LOOP is of major importance to the US oil supply handling about 1.2 mbd in oil imports and supplying over a third of the nation’s refineries. Prior to Gustav’s landfall, fourteen of Louisiana’s Gulf Coast refineries shut down their operations which is approximately 2.7 million b/d of refined fuel, 15% of the US refining capacity. Ten other Gulf Coast refineries trimmed their production.

Louisiana’s main offshore port providing operations for the central Gulf of Mexico is located in Port Fourchon, and was dead center in Gustav’s path. Based on an economic report completed in April – “A direct hit from Gustav could have caused a significant work stoppage resulting in billions of dollars in economic losses…” – The Daily Comet. Port Fourchon is the main service port for LOOP and the offshore industry, and is vital to the US oil supply. As of this past Thursday Port Fourchon was up and running, but not near full capacity. “This isn’t our first rodeo,” Port Fourchon Police Chief Jon Callais said. “We’ve been through Andrew, Katrina and now Gustav. This is what we do.”

One of the biggest challenges Gustav brought to Louisiana’s petroleum industry is power outages. Gustav caused the most severe power outage the state has ever seen, even knocking out power for the State Capital, Louisiana’s most secure building. Returning Louisiana’s Gulf of Mexico oil production, natural gas processing plants, pipelines, LOOP, Port Fourchon and refining capacity back to normal conditions is not done by a flick of a switch, but they do require electric power.

Without electric power, refineries cannot start up. Assume the refinery has electric power, if LOOP has no power it cannot transport imported crude to the refinery, and the reverse is true, LOOP can have power and the refinery no power, the refinery cannot receive product. The same applies to Gulf of Mexico oil and natural gas production. All the parts of the complex petroleum puzzle must be in place to provide a finished product to a thirsty country.

Gustav was not a Katrina or Rita in relation to damage inflected to the industries’ infrastructure. Both Katrina and Rita were much stronger hurricanes during their time in the Gulf of Mexico. As well, new industry standards and preparation for the rebuilt infrastructure is a testimony to damaged caused by Mr. Gustav. All eyes on IKE.

By Don G. Briggs, President – LOGA (Louisiana Oil & Gas Association)

On the home page of our Web site, which introduces readers to the goals of the Louisiana Independent Oil and Gas Association (LIOGA), we have a quote by J. Paul Getty that communicates our approach. Getty once said, “If business is your profession, then you should make politics your business.” While we have always understood this idea to be at the core of our organization, it seems even more relevant in the wake of Hurricane Katrina. As the local and federal governments, the oil and gas industry and the communities that live in the Gulf strive to pick up the pieces in the hurricane’s aftermath, it has become abundantly clear that politics and business are inherently tied together – and both are bound to the people, the societies they serve.

On Aug. 28, Hurricane Katrina developed into a Category 5 storm that would prove to be our nation’s greatest national disaster. In Louisiana, we watched as Katrina, which meteorologists have referred to as The Perfect Storm, moved slowly toward our state’s southeast coast. For years, forecasters have warned that one single storm could have a catastrophic impact on a city such as New Orleans and could have a paralyzing effect on Louisiana’s petroleum and gas industry. Many Louisianans said they had a funny feeling about Katrina and wondered if this storm would be The One. It turns out they had a good reason; Katrina has proven to be what we were warned about for years. The hurricane has wiped out an area larger than many countries and has immobilized an industry central to the nation’s economy.

As Katrina devastated the state, it left Louisiana in a position where all it can do is rebuild. In a manner of speaking, the storm brought about an unplanned purification or baptism. The question that remains is whether the rebuilding process will involve reestablishing the status quo or will lead to real change. The degree of destruction produced by Katrina has proven many elements of the system in place were weak. It is now up to the industry and government to take this opportunity to identify errors, fix them and rebuild from the ground up – with a stronger infrastructure. In order to facilitate rebuilding, LIOGA, like many individual companies, is focusing on helping the people who work within the industry on a daily basis. In order to initiate redevelopment, the industry has to take the lead and protect its own interests.

Before Landfall

Residents of the Gulf of Mexico are not unfamiliar with hurricanes and tropical storms. Each year, the region braces itself for the possibility of storm onslaught. For most oil and gas operators in the Gulf, the evacuation for Katrina was the fourth of the season; personnel had already been cleared as Cindy, Dennis and Emily approached. However, as Katrina headed toward the region, it was clear the hurricane was not going to be one more false alarm. As the storm grew in strength, Louisiana’s offshore oil and gas industry started making preparations to evacuate personnel from the region’s 819 manned production platforms and 134 drilling rigs. Onshore, mandatory evacuations were ordered from Venice to New Orleans. Roughly 10,000 oil and natural gas wells stood in Katrina’s path, both offshore and onshore.

Before Katrina slammed onshore on Aug. 29, the hurricane had already tracked through the heart of Louisiana’s offshore oil and gas region. By that time, 95 percent of offshore oil production had been shut in and 88 percent of the state’s offshore natural gas production had been halted. The Gulf of Mexico produces an average of 1.5 million barrels of oil per day, which is 28.5 percent of the United States’ total daily production. The region produces an average of 10 billion cubic feet of natural gas per day, which is 19 percent of the country’s daily production. As the country depends on the region for such a large degree of oil and gas, when production in the Gulf came to a grinding halt – for even a short period of time – it unleashed a series of effects that were widespread.

Offshore Rigs and Platforms. Katrina’s effect on both Louisiana’s offshore and onshore oil and gas assets can only be measured in the hurricane’s aftermath. Weather equipment measured winds of 200 miles per hour and 100-foot waves as the storm swept across the region, which clarifies what caused the heavy damage sustained by several deepwater rigs. Companies reported missing wellheads, platforms and production equipment. There have also been reports of rigs adrift. The Minerals Management Service (MMS) reported that in the Gulf of Mexico’s outer continental shelf infrastructure, 46 producing structures were destroyed, 20 producing structures were extensively damaged, 4 drilling rigs were destroyed, 9 drilling rigs were extensively damaged and 6 rigs were set adrift. Of the rigs that were adrift, all have been located and remanned, and power has been reestablished. The MMS reports indicate the majority of platforms that were destroyed or heavily damaged were 30-year-old shelf platforms in the West Delta, Grand Isle and South Pass areas; such platforms produced at minimal levels. Most companies in the region reported heavy to medium damage; few were lucky enough to report little damage.

Pipelines. In 2004, Hurricane Ivan entered the Gulf of Mexico and proceeded to wreak havoc on offshore pipelines. The hurricane had been downgraded to a Category 3 storm by that time, but it still led to severe mud slides, which buried pipelines under 30 feet of silt and moved pipelines hundreds of feet. While Katrina was a much stronger storm, the MMS reports that pipelines were not greatly damaged. The organization stated: “Solid data on pipeline damage is being continually supplied by the industry and verified, but pipelines are the hardest element to check and these checks rely on some of the scarcest resources, such as boats, divers and power. Preliminary reports suggest that Katrina did not cause the same extensive mudslide damage to pipelines as Ivan, but this is still preliminary and subject to information which is changing continually.”

Katrina Makes Landfall

Upstream Effects. Louisiana’s offshore oil and gas industry is supported by an immense onshore infrastructure system, which is divided into three regions: western, central and eastern. The western region is supported by a port located in the city of Cameron; the central region relies on Port Fourchon; the eastern region relies on a port situated in Venice, which is at the very tip of Plaquemines Parish, a peninsula surrounded by the Gulf of Mexico that is also the state’s the largest oil- and gas-producing region. There are 7,028 oil and natural gas wells in Plaquemines Parish alone.

The Mississippi River divides Plaquemines Parish and empties into the Gulf; the region is protected by levees on the peninsula’s east and west. Katrina made landfall just west of Venice. When the hurricane caused a tidal surge to sweep over the region, there was no outlet for the floodwaters. Plaquemines Parish was converted into a tub or basin that continues to hold overflow. On top of the floodwaters, the hurricane also brought Category 4 winds; the combination of the storm surges and winds caused severe damage to Venice and its port. The city is heavily relied upon to provide services to the deepwater assets, and it is also home to gas-gathering facilities and refineries. It could be months before the eastern region of Louisiana’s oil and gas hub is functional again.

Making matters worse is the extent of the region still without electric power. When Hurricane Katrina made landfall, she shut down all electric power in her path. On Sept. 3, five days after the hurricane hit land, 678,000 individual customers in Louisiana were without power. On Sept. 16, there remained 272,000 individual customers without power, many of them in Plaquemines Parish. Until electricity is reestablished in the region, it will be difficult, if not impossible, to assess the full extent of damage and start rebuilding; it will also be an uphill battle to jump-start the region’s petroleum and gas industry.

Port Fourchon, on the other hand, fared much better. The city sustained damage, but it was nothing in comparison to what continues to be seen in Venice and the rest of Plaquemine Parish. Ted Falgout, the port’s director, wasted no time in resuming operations as soon as it was clear it could be done. Port Fourchon will therefore play a major role in the months to come, as it will be relied upon even more heavily than before. Rather than being the hub for just the Gulf’s central region, it will also have to provide support services to eastern and deepwater operations.

Downstream Effects. Refineries in the region have been dealt paralyzing blows. Prior to Katrina making landfall, eight refineries in the hurricane’s path were evacuated and shut down. Those eight refineries usually process an average of 2 million barrels per day. The Gulf’s refinery capacity accounts for 47 percent of the United States’ total capacity. The 2 million barrels shut in by the frozen refineries represents 12 percent of the county’s total refinery capacity.

When functional, the Louisiana Offshore Oil Port (LOOP) receives 900,000 barrels of crude oil each day, which represents 8.5 percent of the crude oil processed in the United States. The LOOP was shut in prior to Katrina’s landfall, and while the system did not sustain any major damage, it is unclear when it will be up and running again. Power has to be restored in the region before LOOP can be considered fully operational. As a result of LOOP not being functional, more than 2 million barrels of crude oil and 4 billion cubic feet of natural gas were prevented from reaching the market.

Although the storm has passed, its effects on refineries continue. On Sept. 1, the Office of Electricity Delivery and Energy Reliability issued Situation Report No. 15, which indicated that flooding, wind damage, power outages, decreased accessibility and a lack of crude oil all have contributed to 10 refineries remaining shut down.

The Aftermath

The destruction caused by Katrina is pulling on the heartstrings of our country. Many Americans are, for the first time, realizing the full potential of a natural disaster. Internationally, people are also realizing the importance of Louisiana’s oil and gas industry. The United States’ economy was immediately affected when the 2 million barrels of oil and 4 billion cubic feet of natural gas our country relies on the region to produce on a daily basis were suddenly not available. In reaction, President George W. Bush ordered 30 million barrels from the Strategic Petroleum Reserve (SPR) to be made available to oil companies.

The decrease in oil supplies is not the sole factor contributing to less oil reaching the consumer market. Many U.S. companies have a sufficient number of barrels in their individual holdings. If the oil and gas industry is understood to be a chain, with each link providing a particular service that leads to product reaching consumers, then for production to take place at its optimal level, each link must be functional – even moderately functional. At this moment, while a lack of supply is an issue, the industry’s downstream system has taken the brunt of the damage and is producing a bottleneck. Refineries in the region remain disabled. With the oil put into circulation by the SPR, the Gulf’s refineries have more crude oil than they are able to process. This fact has made it all the more clear to industry insiders that, in hindsight, not enough was done to create a sound infrastructure that would prevent one or two links in the chain from having such a degree of effect on the industry in general and on our country’s economy.

In order for more gas and petroleum products to be processed, refineries have to be fully operational. For that to take place, many problems have to be solved quickly and professionally. First and foremost, the areas surrounding many refineries are still flooded, so power outages are still rampant. The level of destruction suffered will not be fully gauged until floodwaters have been cleared and power is returned.

At that time, the region’s most enduring form of destruction has to be evaluated: Hundreds have lost their lives, millions have lost their homes and been displaced. Never before in the history of the United States has such a large number of people been evacuated from a region. In order to get refineries up and running again, immediate steps have to be taken to clear water and return power. Only then can people return to the region. Refineries are also supported by a large service industry; many small to large businesses have been wiped out due to long-term flooding. For this support system to be reestablished, communities have to be rebuilt as soon as possible.

The individuals who work the refineries, rigs, platforms and various services at the core of the industry cannot return to the region until those who have the ability to do so – companies at the heart of the industry, along with government – make the Louisiana’s Gulf livable again. Until the employees who man the facilities can return to the region, the region’s oil and gas sector will remain at minimal capacity or paralyzed. At the current time, many companies are still unable to locate their employees as such multitudes of people were displaced to other regions. To get in touch with employees and attempt to establish timelines indicating when they will be able to repopulate facilities, corporations have created Web sites and telephone hotlines for workers to call in and identify where they have been evacuated to. However, with entire communities destroyed, still under floodwaters and without electricity, thousands of people do not have homes to return to and so cannot return to their jobs.

LIOGA recognizes there are two levels of rebuilding that need to take place for the Gulf’s oil and gas industry to truly heal. One must occur in the short term, while the other will take much longer. Hurricane Katrina clearly demonstrated how fragile and vulnerable the region’s core industry is. And when Hurricane Rita bore down on the region as Katrina’s damage was still being assessed, we were reminded that natural disasters will not cease. As difficult as it might be, the industry itself must take the initiative to rebuild a more sustainable infrastructure. To do that, the bond between business and politics must be recognized. For real progress to occur, the industry and government, on both a state and federal level, will have to work together to make lasting changes that will prevent another natural disaster from having such a deep-seated impact.

While Katrina did not affect structures such as pipelines as much as other storms in the past have, we need to do what we can now to make sure the structures are sound so future storms do not pose undetermined risks. Deepwater rigs and platforms, particularly outdated structures, need to be inspected and made sound enough to survive storms with minimal damage. The energy system, with a focus on the electric grid, needs to audit its infrastructure so that, when the next Katrina comes, electricity is can be returned as quickly as possible. All of these items must be tackled for the region’s oil and gas employees to be able to return to their positions as quickly as possible in the aftermath of storms.

The people who live in the communities of the Gulf keep the industry running. Those who have been most affected are the people who drive the industry, and that fact cannot be lost in the red tape that often goes hand in hand with business and politics working together. The industry has to protect its own interests, and its employees are at the heart of that.

To facilitate the return of people to the region, an interim answer has been to create onshore trailer cities and offshore barge cities to temporarily house workers and rescue personnel. Housing is, of course, key to having people return. But while temporary housing must be provided for those who will rebuild the region, this is not a long-term, sustainable solution.

LIOGA has established two funds to provide assistance for both immediate need and sustained rebuilding and growth down the road. The first fund, which will remain at $100,000, is to provide for what the people need now. Beds, generators, food, clothing, immediate shelter: the essentials to keep people going on a day-to-day basis that many have had stripped away. The second fund, the LIOGA Katrina Relief Fund, will go toward building long-term solutions. Days after Katrina plowed through the region, LIOGA began researching how our relief fund could be used to construct entire towns and communities.

We recognize this is a time to do what we can to provide sustainable and safe communities of well-constructed homes and schools that are built to withstand storms. Towns must be situated in a manner that will not leave them open to floodwaters again. While we will take this initiative of our own accord, we recognize the need to work with government and communities to act in a way that is in the best interest of the people who fuel the industry. We also hope our actions propel others to do the same. Our funds have overseeing boards that will ensure the donations we receive go toward relieving the needs of the Gulf’s communities immediately. The more quickly we begin to clear devastated areas and start construction on new homes, the faster people will be able to return livelihoods. While these initiatives must be taken quickly, they must also be as well planned as possible so communities can be sustained through storms, not be completely displaced by them.

Once the immediate needs of the communities are met, floodwaters cleared, the power restored and the production venues once again up and running at near capacity, Louisiana’s oil and gas industry will have to engage in planning a stronger infrastructure for itself and those it employs. LIOGA was established under the pretense that independent companies cannot rely upon outside forces to protect their interests; companies must do it for themselves. The same is true of Louisiana’s oil and gas industry now.