Hurricane Ida’s disruption to the U.S. offshore energy production in the Gulf of Mexico is the worst in 16 years. It has already stressed domestic and global supply chains, further testing the Federal Reserve’s “transitory” inflation narrative.
Gulf Coast hurricanes usually cause minor disruptions in offshore oil and gas production, but this time around, output from the region has been significantly reduced due to Ida’s 150 mph winds that damaged platforms and onshore support facilities.
What this will mean is a long recovery for offshore energy production to return. Reuters notes 79% of the region’s offshore oil production remains offline.
Since the first oil platforms were evacuated ahead of Ida, there’s been a loss of 17.5 million barrels of oil. Some energy analysts are expecting U.S. production could drop by 30 million barrels this year due to the sluggish return.
“After Katrina, which made landfall 16 years ago on the same day as Ida did this year, it was well into the following year before oil production resumed its normal level,” Commerzbank analyst Carsten Fritsch told clients. “That said, Katrina was followed shortly after by another devastating hurricane, namely Rita.”
There is currently a disturbance in the Gulf of Mexico that has a 50% chance of developing over the next two days.
The outage has left a noticeable imprint on NYMEX West Texas Intermediate futures hovering around the $70 handle, up more than 11% since weather models first forecasted Ida would make landfall around the Louisiana region.
There’s no clear timeline when full production will return. “There could be volumes that are offline for a considerable amount of time,” said Facts Global Energy (FGE) consultant Krista Kuhl. “It’s just too early to tell.”
The Gulf of Mexico commands about 16% of total U.S. crude production, with 1.8 million barrels of oil per day. The numbers for total US crude production are expected to drop sharply in future energy reports.
Restoring output will take time as offshore oil and gas rigs and transfer facilities need critical repair after the storm damage.
On land, the petrochemical sector has experienced disruptions due to plant shutdowns. We noted Tuesday, a top nitrogen fertilizer plant in Louisiana declared “force majeure.” Also, the import/export of critical raw materials has been affected, if that is by rail, trucking, or by sea.
Ida is tightening the global supply of some commodities and has created a logistical nightmare for major ports in the Gulf that could pressure some commodity prices higher and hurt consumers even more.
Meanwhile, the Federal Reserve continues to reassure everyone that inflation is “transitory.”