On April 20, 2010, an explosion and fire occurred on the offshore drilling rig Deepwater Horizon, which had been drilling an exploratory well in approximately 5,000 feet of water in the Gulf of Mexico, 52 miles southeast of Venice, Louisiana. The platform subsequently sank with 11 crewmembers presumed dead, and an uncompleted well leaking oil into the Gulf of Mexico.

While both public attention and current activities are now appropriately focused on efforts to contain the leak and to mitigate the resulting environmental damage, readers of this publication might also be wondering about potential effects on energy markets. The Gulf region is a very important energy center, with the offshore Gulf of Mexico providing about 30 percent of the total crude oil and 13 percent of the total natural gas produced in the United States. Gulf Coast refiners represent about half of total U.S. refining capacity, and are reliant on tanker shipments for a majority of their crude supply, and both tanker and barge shipments for moving significant volumes of petroleum products.

However, actual energy production and shipments have not been significantly impacted by the oil leak to date. Currently, only a fraction of 1 percent of offshore production has been shut in. EIA’s most recent Short-Term Energy Outlook, released on May 11, 2010, assumes no significant disruptions to energy supply resulting from the spill. Relatively high on-shore crude oil and product stocks, as well as the availability of the Strategic Petroleum Reserve, can be expected to buffer the impact of any short-term crude oil supply disruptions, should they occur.

Some energy impacts could yet be seen. Immediate concerns largely relate to the hazards presented by the oil slick. Where the oil is most concentrated, shipping, production, or drilling operations could be curtailed due to air quality (noxious fumes from the oil) or fire hazard. Ships transiting fouled water must be inspected to avoid further spread of the oil before entering the Mississippi or other inland waterways. Should any closures of shipping lanes or ports ultimately be required, shipping could have to be rerouted. The Coast Guard is monitoring this closely. EIA will continue to follow the spill and its impacts, and will post updates to the Gulf of Mexico Fact Sheet accessed from the EIA home page.

The actual and potential impacts of the Deepwater Horizon oil spill can be contrasted to those of a hurricane making landfall, a type of disaster that has affected the Gulf region on several occasions in recent years. Unlike the present oil spill, recent Gulf of Mexico hurricanes have often had a significant short-term impact on the energy industry.

Ahead of a storm, all oil and gas rigs in the potential hurricane path are typically shut down for safety reasons, and their personnel evacuated. Refineries and pipelines are also often shut down ahead of storms, as they can sustain damage both from strong winds and high water. Orderly precautionary shutdowns are desirable, since emergency closures can be damaging to equipment. Such shutdowns and restarts entail operational downtime directly caused by the impending storm, whether or not actual damage occurs.

After a storm passes, operators send assessment crews to inspect rigs, refineries, and other facilities, repair any damage, and commence restart procedures. Resumption of normal operations may be hampered by storm impacts on supporting infrastructure, such as electric power outages and damage to port facilities. For all of these reasons, hurricanes making landfall on the Gulf Coast often result in significant temporary supply interruptions and, sometimes, longer outages while damages are repaired.

Source: U.S. Energy Information Administration