Hurricane Ike: Far Reaching Winds

Hurricane Ike made official landfall at 2:10 am CDT on September 13, 2008 in Galveston, Texas. Ike struck the upper Texas coast as a Category 2 hurricane with winds of 110 m.p.h. The hurricane continued inland, causing damage to much of Southeast Texas, including Houston, home to many of the United States’ largest energy companies. In anticipation of Ike, many of the Gulf Coast offshore operations and onshore refineries shut down days in advance of the storm, some of which still remain closed as damage is assessed and power is restored.

Although electricity has been restored to many areas impacted by the storm, the impact on refining was felt in the first two weeks following Ike. Even those refineries where electricity has been restored are still assessing the effects, if any, of the shutdown and storm. While preliminary reports indicate there was not any significant damage to the refineries themselves, with approximately 20% of the U.S.'s refineries in the area impacted by the storm, a spike in gas prices at the pump was no surprise. However, the spike has not been as significant as initially believed, in part because the price of oil has itself been very unstable in recent weeks as a result of the troubles on Wall Street.¹ Hurricane Ike and Wall Street woes led to the largest price drop in four years, culminating in the largest single-day decline in the broader equity markets since September 11, 2001. The price has been in flux as the impact of Ike is assessed and lawmakers struggle over a massive bailout of the financial markets.

Initial information from the Minerals Management Service (MMS) indicates that 52 of the 3,800 offshore oil and gas production platforms in the Gulf of Mexico were destroyed by Hurricane Ike (compared to 44 destroyed during Hurricane Katrina and 64 by Hurricane Rita). An additional 29 platforms experienced extensive damage, which will take three to six months to repair, and another 33 platforms experienced moderate damage, which will take one to three months to repair. Additional damage reports include three jack-up drilling rigs and one platform drilling rig destroyed. MMS has also received reports of damage to six gas transmission pipeline systems. The full extent of the damage is not available as operators are currently testing the systems.

Initial estimates of the supply impact are that the destroyed production platforms produced a total of 13,300 barrels of oil per day and 90 million cubic feet of gas per day. The damage has been reported through over flights by MMS, the oil and gas industry, and the U.S. Coast Guard. Still, with many of the platform workers impacted by the storm, it is unclear how long it will take to get all personnel back out to the platforms and rigs, and operating at full capacity. Thus, the overall and long term consequences of Hurricane Ike may not be known for some time, but it is clear that there was and will continue to be some short term problems with production and refining in parts of the area impacted by Hurricane Ike.