Hurricanes Point to Rethinking of Energy Infrastructure

By Published On: September 30, 2005

Energy companies tallying the damage from the major hurricanes in the Gulf Coast over the past month remain mum about the impact. Early indications, however, point to massive damage that will affect natural gas supplies and prices for a year or more and require rethinking of design standards for energy infrastructure. California as a major consumer of natural gas will continue to feel the damage?s impacts. Utility ratepayers have already been warned about higher winter gas bills. Some state energy companies have taken direct hits, too. Hurricane Rita forced Sempra Energy to temporarily cease construction on its Cameron Parish, Louisiana, liquefied natural gas terminal. Likewise, it forced the Federal Energy Regulatory Commission to indefinitely cancel a hearing on the permit for its proposed LNG terminal in Port Arthur, Texas. Chevron saw Rita rip loose and heavily damage its Typhoon offshore platform. FERC has scheduled an October 12 conference in Washington to review the state of the nation?s natural gas infrastructure and plans to examine the need for upgrades following the hurricanes. Meanwhile, industry safety committees are reviewing whether new standards are needed to protect onshore energy facilities against wind damage, said Marc Levitan, Louisiana State University associate professor of civil and environmental engineering. Concerned about the impact of rising prices on the ability of low-income residents to heat their homes this winter, the California Public Utilities Commission will hold a special hearing on natural gas prices in Los Angeles on October 26. The energy administration reported that the price of gas before Rita struck averaged $11.18 per MMBtu in California. On September 29, the price of gas in California stood at $10.34/MMBtu. The CPUC said it will explore with utilities the ?full range of actions? for reducing the impact of higher heating and electric bills this winter. The loss of production comes amidst the California Energy Commission?s warnings in its draft 2005 Integrated Energy Policy Report that domestic gas supplies are dwindling. Nationally, gas prices have spiked to more than $14/MMBtu on supply concerns. As of Tuesday this week, the Minerals Management Service reported that 7.8 Bcfd of natural gas production remained off line because of the hurricanes. Cumulative production loss since Katrina struck totaled 172.5 Bcf, the equivalent of 4.7 percent of the expected annual production of gas from the Gulf of Mexico region. While energy companies acknowledge damage from the storms, they publicly insist that their facilities in the Gulf area are strong enough to withstand major hurricanes. For instance, Southern Union?s Lake Charles, Louisiana, LNG terminal sustained only ?minor damage? during Rita, said John Burnett, company spokesperson. At this point, he added, the company is not planning any steps to buttress the terminal, which is designed to withstand a category three hurricane, after the storm. Both Rita and Katrina were rated as category three hurricanes when they came ashore with winds of up to 130 miles per hour. Likewise, Cheniere Energy does not plan to reassess the design of the LNG terminals it is building in Freeport and Sabine, Louisiana, reckoning that the only loss it sustained from the storms was ?some days of work time,? said David Castaneda, company vice-president of investor relations. The facilities are being built to withstand winds of 150 miles per hour and to be impervious to water, he said. Independent analysts and government regulators are more circumspect about the lessons from this season?s hurricanes. Offshore, the Coast Guard reported that Rita unmoored eight oil and gas platforms. In the wake of both storms, 745 of 819 ?manned? oil and gas facilities remained closed at the beginning of this week. Most of the waterways in Louisiana and East Texas, including Lake Charles, the location of Southern Union?s LNG terminal, remained closed or restricted because of debris. ?It could still be some time before we know the full extent of the damage,? said Roy Blount, National Gas Supply Association chair. Meanwhile, he predicted no better than flat gas production and continuing upward pressure on prices this winter. He urged people to conserve natural gas.

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