Katrina, Rita Cost to Oil Industry Rises to Record $17b

Tuesday, August 22, 2006
Transocean Inc.'s Deepwater Nautilus rig should have spent the last two months drilling for oil and natural gas in 8,000 feet of water in the Gulf of Mexico, earning $220,000 a day. Instead, the vessel sat idle in a Texas shipyard. Workers last week finished the latest round of repairs on the Nautilus after Hurricane Katrina tore the 50,277-ton rig from its moorings and Hurricane Rita grounded it. They also added mooring points to lessen the chance of a repeat. The 2005 storms have cost Houston-based Transocean, the largest offshore driller, about $135 million for repairs, downtime and equipment upgrades.

At least Transocean is done counting. A year after Katrina, the biggest natural disaster ever in the energy business, companies are still tallying the damage done by the hurricanes. The price tag so far, according to two of the world's biggest insurance brokers and a power-industry group, is $17 billion.

The billions of dollars spent on rebuilding is money that might have gone to drilling wells and tapping new oil and gas deposits. More supply is needed worldwide to keep pace with demand and control prices. Oil futures touched a record $78.40 a barrel on July 14 in New York and have been higher in the past half year than in the six months after the storms struck. Katrina in late August and Rita in September tore through the Gulf of Mexico's offshore oil and gas fields with winds of 170 miles per hour (274 kph), toppling production platforms, setting rigs adrift and rupturing pipelines. As of the last government report, on June 19, about 10 percent of oil and gas output was still off line. As the storms moved ashore, high winds and flooding also damaged gas-processing plants. Seven refineries representing more than 10 percent of U.S. fuel-making capacity sustained damage that kept them shut down for weeks or months. More than 170,000 miles of power lines were downed, knocking out service to about 5 million utility customers.

Still Assessing Damage estimates will probably rise as new reports trickle in with each field that is restarted, pipeline reactivated or platform that is scrapped, Fagot and insurers said. Demolition work, the final stage of hurricane recovery, will continue until at least 2010, said Jack Jurkoshek, a spokesman at Oceaneering International Inc., a Houston company that supplies divers and unmanned submarines to the offshore oil industry. Aon Corp., the world's second-largest insurance broker, and Willis Group Holdings, the third-largest, separately estimated damage from Katrina and Rita to oil and gas producers, drillers, pipeline operators and refiners at $15 billion. The Edison Electric Institute, an association of electric companies, estimated damage to power networks at $1.43 billion from Katrina and $500 million from Rita.

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