Sept. 1 (Bloomberg) -- As Hurricane Katrina slammed through the Gulf of Mexico, energy companies evacuated offshore workers and shut about 91 percent of the region's oil production, or 1.37 million barrels daily.

``There isn't the global spare capacity out there to replace this loss if it continues for a prolonged period,'' says Bart Melek, a senior economist at BMO Nesbitt Burns in Toronto. ``Already the market is tight as a drum, and if anything else happens, say instability in the Middle East, I wouldn't preclude $100 oil at all.''

Katrina ripped drilling rigs from moorings, damaged production platforms and curtailed pipeline shipments, idling 11 percent of U.S. refining capacity and leaving oil supplies vulnerable to another crisis. A shortage of aircraft and workers is hobbling efforts by energy companies such as Exxon Mobil Corp. and BP Plc to assess damage to the 819 staffed production platforms and 137 drilling rigs off Louisiana and Texas.

``This hurricane caused catastrophic devastation,'' according to a statement on the U.S. Coast Guard's Web site. Five oil rigs from the West Delta Platform are missing, one submersible rig is grounded, two mobile offshore drilling units are adrift and two semi-submersibles are listing.

The Mars platform, owned by Royal Dutch Shell Plc, is severely damaged, according to the Coast Guard. Mars has a production capacity of about 220,000 barrels of oil a day, or about 15 percent of total Gulf production.

Shortage

U.S. Energy Secretary Samuel Bodman emphasized the shortage of spare global supply, now less than 2 million barrels of crude oil a day, by saying the government would release oil from the nation's 700 million-barrel Strategic Petroleum Reserve to make up for the lost offshore production.

Crude oil fell 39 cents, or 0.6 percent, to $68.55 a barrel as of 11:44 a.m. on the New York Mercantile Exchange. Prices reached a record $70.85 on Aug. 30.

West Texas Intermediate crude oil prices in the U.S. would have to reach $96 a barrel to match the April 1980 high in inflation-adjusted terms. Prices may exceed that level in the event of another major disruption, says Peter Linder, an energy analyst and senior adviser to Calgary-based mutual fund company DeltaOne Capital Partners.

``If something goes wrong in Venezuela or Nigeria we could see prices above $100,'' Linder says. ``Otherwise, we may see prices around the low 70s again.''

At least eight oil refineries in Louisiana and Mississippi closed because of the storm. That pushed gasoline futures prices to a record $2.92 a gallon in New York yesterday and indicated that pump prices nationwide would be in excess of $3 a gallon.

Gas Prices

Natural gas prices rose to records above $12 per million British thermal units in New York because the production cutoff came as U.S. utilities were building inventories for use in the coldest months. Gas was trading at $11.66 today.

``We could have a catastrophic failure of the oil and gas infrastructure going into the winter,'' says James Glickenhaus, who helps manage $1.2 billion at Glickenhaus & Co. in New York. Natural gas last winter cost $6.786 per million British thermal units. ``Now it's almost double that.''

In a White House speech yesterday, President George W. Bush outlined some of the steps already announced by his Cabinet secretaries, including deployment of military ships and planes, waiving rules on fuel blends to ease gasoline shortages and releasing oil from the Strategic Petroleum Reserve.

``Our citizens must understand this storm has disrupted the capacity to make gasoline and distribute gasoline,'' Bush said after flying over the storm-ravaged area aboard Air Force One.

Evacuation

At Irving, Texas-based Exxon Mobil's Chalmette, Louisiana, refinery, blackouts are just one obstacle to returning to work. Employees needed to run the facility are under mandatory evacuation orders, the company says.

``We can't do much without power or people,'' says Mary Rose Brown, a spokeswoman for San Antonio-based Valero Energy Corp., whose refinery in St. Charles, Louisiana, remained closed. ``We can't do anything until folks are allowed to return to the area and we get power to the refinery.''

Drilling rigs were adrift following the storm. Diamond Offshore Drilling Inc. found its Ocean Warwick rig 66 miles off site, grounded on Alabama's Dauphin Island. Another Diamond rig drifted 9 miles from its pre-storm location. Houston-based Rowan Cos. says one of its 22 Gulf rigs may have sunk.

As rigs drift through oil and gas fields, they risk colliding with other structures or dragging anchors across sub- sea pipelines, accidents that could cause spills and threaten the environment.

``There's the potential for some environmental impact,'' U.S. Coast Guard spokesman Lt. Rob Wyman says from St. Louis. ``We are trying to keep tabs on them.''

Hurricane Ivan

Hurricane Ivan last year caused a leak of about 200,000 barrels of oil from an underwater pipeline.

Companies are trying to cope with a shortage of equipment, aircraft and workers. Replacing lost rigs won't be easy because of demand, says Les Van Dyke, a spokesman for Houston-based Diamond.

``The availability of rigs prior to the storm was very limited,'' he says. ``So operators and drilling contractors aren't going to be able to shuffle these units at will.''

Aircraft

Oil companies were lining up aircraft to fly over their rigs to do inspections, as restrictions on flight time limited available pilots. Lafayette, Louisiana-based Offshore Logistics Inc. was ``flat out'' of helicopters after leaving 15 aircraft at a Venice, Louisiana, base that was flooded, Chief Executive William Chiles says.

``We're transporting personnel over onto facilities in the central Gulf and expect only light damage,'' Brian Engel, a spokesman at Oklahoma City-based Devon Energy Corp. says. ``Aerial inspections are being undertaken on the eastern Gulf, which is expected to be the hardest hit.''

Even after companies can find available employees, getting them to work sites is a challenge.

``The real struggle here and the tragedy isn't the equipment, but the people who work on these rigs who were on shore and had their homes impacted and their families,'' says Van Dyke of Diamond.

Louisiana Ports

Some ports were reopening. Port Fourchon, Louisiana, base for three-quarters of support services to the Gulf's deepwater oil and gas facilities, resumed some operations Aug. 30, Port Director Ted Falgout says. The port is using generators for electricity until local power lines are repaired. Large vessels blocked roads in the port after flooding caused by the storm.

The Louisiana Offshore Oil Port, which normally handles about 11 percent of U.S. oil imports, is trying to unload its first tanker since Aug., 27 today at its platform about 20 miles off the Louisiana coast.

``We wanted to offload a tanker yesterday afternoon but we ran out of daylight,'' says Dale Rollins, vice president of business development at New Orleans-based Loop LLC, the port operator. The port's onshore storage depot has resumed shipping oil to an Exxon Mobil refinery in Baton Rouge, Louisiana, according to port spokesman Mark Bugg.

Katrina's damage extended to pipelines needed to get oil and gas from the Gulf to customers across the U.S. Shell-operated pipelines from Gulf of Mexico offshore platforms remain shut and are being assessed for damage.

Pipelines

Shell said its Capline crude oil pipeline resumed operations at a reduced rate after being shut because of power failures caused by the hurricane. The pipeline transports as much as 1.2 million barrels a day of crude oil produced in the Gulf of Mexico or imported from overseas to Patoka, Illinois, more than 650 miles away from its base at St. James, Louisiana.

Four Shell pipelines carrying refined oil products between New Orleans and Baton Rouge, Louisiana, are still shut. The system isn't operating because of power outages and a lack of supply from refineries closed by the hurricane, the company said on its Web site.

Four El Paso Corp. compressor stations south of New Orleans need repairs, spokesman Joe Hollier says.

``We definitely have some damaged facilities,'' Hollier says. Observations from aircraft revealed ``some debris and flooding'' at the Toca, Olga, Leeville and Point Sulfur stations in Louisiana, which gather and pump gas at intervals along the Southern Natural Gas and Tennessee Gas pipelines.

Alabama Plant

The damage reduced gas shipments on El Paso's 8,000-mile Southern system stretching from Texas to South Carolina by 19 percent, and by 15 percent on its Tennessee Gas Pipeline.

Williams Cos., the largest U.S. natural-gas pipeline owner, has yet to assess its underwater pipelines. The company lost power at its Mobile Bay, Alabama, natural gas processing plant. Otherwise, inspections haven't shown significant damage at facilities, the Tulsa, Oklahoma-based company says.

Colonial Pipeline Co., which runs the world's biggest network of petroleum-product pipelines, shut two fuel pipelines after Hurricane Katrina cut power in Mississippi and Louisiana. The lines haul fuel from Houston to North Carolina. Alpharetta, Georgia-based Colonial said it plans to restore the pipelines this weekend using diesel generators.

Refiners and wholesalers are restricting the amount of fuel that retailers east of the Rocky Mountains can buy, a form of rationing known in the trade as allocation, says Dan Gilligan, president of the Arlington, Virginia-based Petroleum Marketers Association of America.

Worse Than Ivan

``This reflects significant concern on the part of suppliers about how bad the damage was from the hurricane,'' says James Smith, president of the Florida Petroleum Marketers and Convenience Store Operators Association. ``We're all walking on egg shells.''

After Hurricane Ivan struck the Alabama coast last September, energy companies labored five months to restore most of the production, and pipeline operator El Paso still was repairing damage in recent months, Hollier says.

``This will be much more protracted for the industry than Ivan,'' says Doug Hohertz, who helps manage $395 million at the Mitchell Group in Houston and also says another disruption would push oil to $80 a barrel. ``All the people who lived there and worked in the oil industry have been completely displaced. Their industry is going to have to figure out how to bring them back.''

Natural-gas production in the Gulf is vital because the North American market has little ability to tap government reserves or overseas supplies, options available to oil companies.

Power Outages

``Typically this time of year, we seek to build inventories,'' says Jason Schenker, an economist at Wachovia Corp. in Charlotte. ``This is going to put us behind the eight ball going into the winter.''

Power outages will hamper the energy market by shutting down refineries and pipeline compressors. New Orleans-based Entergy Corp., which had 80 percent of its Louisiana customers lose power, says it may take weeks to restore supplies within the state.

Producers, refiners, pipeline companies and utilities are still at risk. September typically is the most active month in the June-through-November Atlantic Basin hurricane season. That means energy prices may have another round of increases, says Stephen Pope, head of equities at Cantor Fitzgerald in London.

``I'm sure we have some more upside before we can breathe easier,'' Pope says.

To contact the reporters on this story: Jim Kennett in Houston at jkennett@bloomberg.net; Hector Forster in Tokyo at hforster@bloomberg.net.

Last Updated: September 1, 2005 11:58 EDT