Rystad Energy report on how hurricanes have affected oil production

Hurricane Sally is making its way through the Gulf of Mexico just a week after operators redeployed most of the personnel evacuated due to hurricanes Laura and Marco. Once again, operators are shutting in production and evacuating personnel from the central Gulf of Mexico, where most of the region’s production capacity is located. The current weather system can potentially shut down as much as 1 million barrels of oil per day, mainly in the Mississippi Canyon area. As opposed to the previous evacuation, we only expect this situation to last for a couple of days before redeployment and restart begins. Our current estimate for the total outage associated with the Sally weather system is between 3 million and 6 million barrels of oil over approximately 11 days.

As tropical weather systems force offshore personnel to evacuate, operators report shut-ins to the Bureau of Safety and Environmental Enforcement (BSEE). Daily shut-in numbers are currently reported to be less than 400,000 barrels, but are is expected to rise as the system approaches the Mississippi Canyon area. Once the shut-ins are completed it will only take about a day for the hurricane to make landfall, meaning the shut-ins will be less extended in time compared to Marco as operators then had to wait with redeployment as Laura loomed. This time around we expect the peak outage to last only for a day or two, totaling about 4.5 million barrels of oil. This means that the total amount of hurricane outage in the month of September will be around 6 million barrels when including the residual outages after Hurricane Laura.

Sally will only be a category 1 hurricane, compared with Laura which was category 4. This means that Sally is less likely to cause any permanent damages to infrastructure and we would not expect any such damage.

Several weather systems in the past have had comparable shut-ins to what we expect from Sally (Figure 2). Apart from Opal in 1995, most of the shut-ins are relatively similar when compared to the production capacity in the year they occurred. This makes it reasonable to compare the outcome of these weather systems when forecasting the ongoing shut-ins.

Only 395,000 barrels were reported shut in as of 14 September 2020. We expect this to rise to 1 million barrels due to the forecasted path of the hurricane provided by the National Hurricane Center (NHC). Landfall is expected the night after Wednesday 16 September, and redeployment may follow shortly after that. Redeployment typically occurs immediately after a hurricane has made landfall, and shut-in figures drop accordingly. As Sally still hasn’t made landfall, the line in Figure 3 below is still a forecast based on our expectations of peak shut-ins and redeployment. Similar-sized shut-ins in the past have taken from 6 to 12 days to redeploy. We expect Sally to be on the high end of this estimate as the selected weather systems average around 10 days.

Looking back at hurricanes Marco and Laura, we can evaluate our forecasts as the reporting is completed and operations had returned to normal before Sally appeared. The redeployment of personnel occurred one day later than our initial forecast, but at a similar rate to what we had expected. The total lost volumes associated with Marco and Laura amounted to 14.4 million barrels, 15% higher than our estimate of 12.5 million barrels.