Ivan Disrupts G O Moilflow*

[No reference to gas disruption. RSB]
October 27, 2004

PAGE ONE

Deep Trouble
Far Below Gulf's Surface, Ivan
Wreaked Havoc on Oil Industry

Mudslides Damage Pipelines,
Helping Fuel Price Increase;
A Hunt for Missing Pieces
Mr. Bea's Theory Proves Correct
By RUSSELL GOLD
Staff Reporter of THE WALL STREET JOURNAL
October 27, 2004; Page A1

A few hours after Hurricane Ivan slammed into the Alabama coast last month, Robert Bea got an urgent call. An engineer with the French oil company Total SA wanted Mr. Bea to send him everything he had ever written on underwater mudslides in the Gulf of Mexico.

Mr. Bea, an engineering professor at the University of California at Berkeley and former chief U.S. engineer for Royal Dutch/Shell Group, had studied these unusual submarine avalanches on and off for three decades. As early as 1971, Mr. Bea argued that mudslides could be far more destructive to the growing Gulf of Mexico oil and natural-gas industry than hurricane-force winds, waves or currents.

Overnight, Mr. Bea's obscure theory had been validated. Hurricane Ivan had triggered a multitude of mudslides that crippled production in a sizable chunk of the gulf, a region that satisfies about one-quarter of the U.S. thirst for oil. Now the industry faces a titanic task: finding and repairing pipelines that have been broken, buried and slung about like pick-up sticks across the sea floor. Until they are fixed, billion-dollar floating platforms will be idled and unable to get oil to land.

THE TIGHTENING OIL MARKET

Compare the recent surge1 in oil prices with gains in gasoline, heating oil and natural gas. Plus, chart oil's advance2 towards $50.

• Crude Facts: A look at oil prices over more than three decades.3 (Adobe Acrobat4 required.)

• As Refineries Slow, Heating Costs May Rise5

• Fund Buying Lifts Natural-Gas Prices6

• IEA Says Data Were Compromised7

The storm, which some oil traders and analysts have taken to calling "Ivan the Terrible," is shaping up as one of the worst disruptions ever in U.S. energy production. It has knocked a total of more than 25.1 million barrels of oil off world markets -- and continues to hold back more than 400,000 barrels a day. That is 25% of the gulf's normal daily production of 1.7 million barrels a day. It could be six months before all the production can be restored.

This sudden shortfall has helped drive crude-oil prices up, to $55 a barrel today from $43 a barrel before Ivan hit on the night of Sept. 15. The hurricane's body blow to the gulf came at one of the global oil industry's most vulnerable times in recent years. Surging demand for oil in China, supply outages in Iraq and other troubled nations, and years of underinvestment in oil production have left the world with its thinnest buffer of spare oil-pumping capacity in decades -- about one million barrels a day, or 1.2% of global oil demand. The prolonged loss of more than 400,000 barrels a day from the gulf left world energy markets perilously close to a shortage.

"Effectively, we are running with no spare crude-oil production capacity and that's why the market blew through $50," says Larry Goldstein, president of the Petroleum Industry Research Foundation, a U.S. industry group.

The price tag on such a run-up is huge. A sustained rise of $10 a barrel of crude can erase half a percentage point from the growth rate in U.S. gross domestic product, according to Dallas Federal Reserve Bank research.

Making matters worse, most of the crude-oil production that has been hobbled by Ivan is what's known as "sweet crude" -- which is lower in impurities than the heavier crude available in Saudi Arabia. Many U.S. refineries can process only sweet crude, and Ivan left them scrambling to find another source for their production of gasoline and heating oil. The situation is so acute the Bush administration on Sept. 23 decided to dip into the nation's Strategic Petroleum Reserve to loan refiners 4.2 million barrels of sweet crude, something they said they'd do only in the most extreme emergency.

Just after Ivan hit, repair crews initially focused on the enormous offshore production platforms that populate the deep waters of the gulf. These behemoths, some costing $1 billion, are prized for their ability to tap large and previously unreachable oil reservoirs in up to 10,000 feet of water. Ivan battered them with 120 mile-an-hour winds and some of the tallest waves ever seen in the gulf, including a record-setting 53-foot brute.

Several deepwater rigs -- moveable machines used to drill wells -- were ripped from their moorings. Transocean Inc.'s Deepwater Nautilus was blown 70 miles during the storm, ending up in a region off the Florida coast that is off-limits to drilling. It was hauled back into place after just a few days. A 90-foot-tall derrick on Devils Tower, a floating production platform owned by Dominion Resources Inc., was blown over and sank 5,600 feet to the bottom, where it will stay. The helicopter pad on ChevronTexaco Corp.'s Petronius, a $500 million, 1,870-foot tower that is one of the world's tallest man-made structures, folded over and smashed into sleeping quarters. Both are still being repaired.

To the relief of energy executives, most of their pricey platforms survived the storm unscathed. Yet many still aren't pumping oil into the energy-hungry U.S. mainland, even as prices have set records. The reason: Critical pipelines were tossed about, ripped apart and in some cases simply lost, as if a marauding bulldozer had been set loose in the gulf.

Low Tech

Despite all the engineering wizardry of the platforms, oil and natural-gas production still ultimately depends on the gulf's 33,000 miles of low-tech pipelines laid along the seabed to move the oil and gas to shore. Since the beginning of the offshore industry in the 1950s, most crude oil has been pumped to a cluster of terminals and refineries located on the tip of Louisiana that extends into the gulf. The pipelines feeding that cluster cut right through the waters off the Mississippi Delta -- the very spot Mr. Bea and other experts consider the most vulnerable to underwater mudslides in North America.

So many pipelines feed into the delta "it's like spaghetti out there," says Chris Oynes, Gulf of Mexico regional director for the federal Minerals Management Service, which regulates offshore energy activities.

As the Mississippi River flows into the gulf, the current carries huge amounts of clay and silt that settle onto the seabed. This creates enormous ledges of sediment with the consistency of mayonnaise. From the shoreline, the sea bottom falls away gradually for several miles before dropping off sharply. Large waves from Hurricane Ivan acted as a suction pump, pulling and pushing the muddy ledges until they gave way and surged downhill -- possibly as fast as 50 miles an hour.

The wall of mud hit the underwater oil infrastructure, including pipelines and platform legs, with a force Mr. Bea calculates as the rough equivalent of 12 Saturn V rockets. It took only one of these rockets to launch the Apollo missions to the moon. "Nothing else on the face of the earth deals with this level of forces. Not the tallest buildings. Not the tallest bridges," says the 69-year-old engineering professor.

The resulting damage to pipelines was enormous. Though Shell and BP PLC's giant Na Kika platform suffered only a couple of minor scrapes, a crucial pipeline leading from the platform was ripped apart, preventing the companies from restarting production of 110,000 barrels of oil per day. One end of the pipeline, which measures 18 inches in diameter, was lost in the sludge for several weeks.

The Shell-operated pipeline was repaired and put back in service earlier this week. Other pipelines may take far longer to repair. Just finding the broken pipe is taking weeks.

A small armada of 100-foot to 200-foot research vessels has been deployed in the gulf to search for pipelines pushed far off their original track in pitch-black waters swirling with sediment. What the crews are finding has surprised even industry veterans of past hurricanes. A second 18-inch BP pipeline was shoved more than a half-mile to the south -- stopping only when it slammed against the legs of an offshore platform. Other pipelines were buried beneath 40 feet of mud.

The difficulty in finding the pipelines stems partly from an industry innovation that has prevented any significant oil spills. Since the early 1970s, many new pipelines have included what are known as breakaway valves. When there is too much pressure, the pipeline breaks at a predetermined point, and a valve shuts to prevent spills. This controlled rupture makes it easier to fix. But the movement of the broken pipe has been so great that the ends are hard to find.

Even before the storm hit, the phone was ringing at Fugro GeoServices Inc., an underwater surveyor owned by Dutch conglomerate Fugro NV. The company runs six ships out of Patterson, La. They have been slowly trolling through the gulf, dragging torpedo-shaped sensors called "tow fish" that use sonar and magnetometers to map the seabed and look for the steel- and concrete-cloaked pipes.

The ships come in every few days to refuel, take on groceries and report the data they've collected. The data, stored on removable devices, are driven from the docks an hour north to Fugro GeoServices's headquarters in Lafayette, La., where a team of analysts assemble the information and try to figure out which pipelines ended up where. To speed the process, many companies have put employees on the ships with satellite phones to call in preliminary findings.

On a recent evening, in a windowless room, W. Kerry Behrens, a senior manager with Fugro, leaned over a large map of a 1,074-acre block known as Main Pass 69. By patching together several dozen strips of data, a picture emerges of the muddy seabed, with deep furrows cut by the storm and the currents in a fan-shaped pattern. Trenches that once held two pipelines running in a fairly straight east-west line are visible. But now the trenches are empty, and the pipelines loop in a southerly direction. Despite weeks of poring over the data, it's still not clear what is where. The map has a notation that reads: "unknown pipeline segments (debris?)."

Mr. Behrens, a geologist by training, points to a map of another part of the gulf traversed by ChevronTexaco and El Paso Corp. pipelines that were missing. "We're trying to help them locate their pipelines," he says, adding with a shrug that success is elusive. He's never seen a storm that could move pipelines laid as deep as 200 feet under the sea: "That's an impressive storm."

Assessing Damage

Once a surveyor such as Fugro GeoServices pinpoints a pipeline, the next step is to send in a team of divers to assess the damage. Dive teams, working in waters up to about 300 feet deep, have been slowed by choppy waters that have curtailed operations and an abundance of stirred up mud that has made it impossible to see anything.

"Think about walking around blindfolded in an area where you sink up to your knees in mud and trying to find something," says Mike Phenix, a diver for Epic Divers Inc., a closely held company in New Orleans. His approach is low tech: He usually taps a six-foot steel rod into the mud to feel around for the pipeline. Mr. Phenix has been working nearly nonstop since Ivan and has been told his planned vacation in December might have to be cut short.

Once pipelines are located and inspected, the next step is usually to lift up sections a quarter-mile long or more with the aid of enormous airbags that are inserted underneath the pipelines and inflated. That's what BP workers plan to do for the company's 18-inch oil pipeline that was pushed more than a half-mile to the south. First they plan to move it 50 feet, away from the legs of a ChevronTexaco platform.

That's a stopgap measure so they can test it to see if the pipeline has any leaks that need repair. "We believe and hope that when we pressure-test it, it's robust," says Kenny Lang, BP's vice president of deepwater Gulf of Mexico production. If so, they can restart oil production at Marlin, a floating citadel tethered to the seafloor nearly a mile down that produces 40,000 barrels of oil a day. Other BP deepwater platforms, including Horn Mountain, are also waiting for pipeline repairs before resuming -- a total loss to BP of 170,000 barrels a day. Mr. Lang says he hopes to be back to full production by the beginning of December.

Since Marlin's natural-gas pipelines weren't damaged, the platform has restarted its gas wells. But the wells also produce a liquid called condensate that is converted into propane and other fuels. The condensate is usually sent into the oil pipeline, now out of service. BP got an emergency permit from the federal government to reinject the condensate into an idle oil well until it gets the pipeline up and running again. BP also is exploring pumping oil into tankers that could then shuttle the fuel to shore.

Write to Russell Gold at russell.gold@wsj.com8


(Original Len: 13714 Condensed Len: 14013)


Created by Eintime:CondenseHtmlFile on 060514 @ 17:24:01 CMD=RAGSALL
(Len=14182)