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BP Spill Threatens Gulf of Mexico Oil, Gas Operations

An oil spill response vessel
An oil spill response vessel travels down the Mississippi River toward the Gulf of Mexico in Boothville, Louisiana, earlier this week. Photographer: Derick E. Hingle/Bloomberg

May 3 (Bloomberg) -- The growing oil slick fed by an underwater leak in a BP Plc well in the Gulf of Mexico may threaten production, shipping and refining of oil and natural gas in Mississippi, Alabama, and Louisiana.

Those three states account for 19 percent of U.S. refining capacity as of 2009, according to data from the U.S. Energy Department’s Energy Information Administration.

“Traders are nervous about how fast the slick could grow,” and whether it could have a significant effect on oil and natural-gas production, said Andy Lipow, president of Lipow Oil Associates LLC in Houston.

The oil spill followed an April 20 explosion on a drilling rig leased by BP Plc that killed 11 workers. The rig, owned by Transocean Ltd., sank two days later.

President Barack Obama called the leak a “massive and potentially unprecedented” disaster that could affect the economy of the Gulf states and the jobs of those who depend on the Gulf for their livelihood.

The spill could drift west toward New Orleans, hindering ships entering and leaving the Mississippi River or deliveries of cargoes to the Louisiana Offshore Oil Port, Lipow said in a telephone interview yesterday.

Fire Danger

Oil in the water could ignite another fire and the slick could emit dangerous fumes, putting offshore workers at risk, said Steve Rinehart, a spokesman for BP and the multiagency Joint Information Center coordinating the federal response.

Ships face the same potential hazards, and have the additional risk of interfering with clean-up efforts or tracking oil on their hulls into the Mississippi River, he said. So far, the Coast Guard hasn’t restricted commercial traffic, Rinehart said in a telephone interview today.

Three natural gas platforms have been affected by the explosion. One has been evacuated and production shut, another has been shut-in without being evacuated and the third was evacuated without being shut-in, he said. Rinehart wouldn’t identify the companies involved.

Approximately 6.2 million cubic feet of gas, or less than one-tenth of one percent of daily gas production, has been shut in, Rinehart said.

Operations Evacuated

Air Logistics, which has 93 helicopters operating in the Gulf of Mexico, evacuated one drilling rig and two gas platforms since the blowout, said Danny Holder, manager of the company’s North American business. He declined to say which companies the platforms belonged to.

Neither Holder nor Rinehart could clarify if they were talking about the same evacuated platforms. Rinehart said overall platform impact throughout the Gulf is being tracked by the U.S. Minerals Management Service and the Joint Information Center.

The Coast Guard has set up two clean-up stations near the entrance of the Mississippi River, the biggest waterway for U.S. commodity shipments, for vessels that move through the spill. BP will be held accountable for the cleaning cost, according to Ted Knight, executive assistant at Port of New Orleans. No commercial vessels have used them, he said.

The Southwest Pass, the main channel to the river, isn’t affected by the spill, said Chris Bonura, spokesman for the Port of New Orleans. The river has 5,000 to 6,000 ship calls a year, he said.

Ship Traffic Normal

“Everything is clear and the forecast is clear through Tuesday,” Bonura said. “We haven’t had any ships canceled or delayed.”

All operations were normal at the LOOP, a deepwater port off of Louisiana that provides tanker offloading and receives oil from underwater pipelines, said Barb Hestermann, a spokeswoman, in a telephone interview.

The LOOP handles about 10 percent of the nation’s imports and 10 percent of domestic production via pipelines in the Gulf of Mexico operated by Shell and BP, she said.

“We don’t anticipate being impacted,” Hestermann said. “We’re quite a bit west of the oil spill.”

If the slick moves east, crude deliveries could be interrupted to Chevron Corp’s 330,000-barrel-a-day Pascagoula refinery in Mississippi and to a Shell Chemicals refinery near Mobile, Alabama, Lipow said.

“We continue to supply products to our customers,” said Lloyd Avram, a Chevron spokesman.

Pascagoula Traffic Normal

Ship traffic isn’t restricted at the Port of Pascagoula, which serves Chevron’s refinery, BettyAnn White, a spokeswoman for the port, said in a telephone interview.

Royal Dutch Shell Plc operates refining joint ventures with partners at four Gulf Coast refineries. The company also has Gulf of Mexico drilling operations, and recently started production at the deepest offshore Gulf platform, Perdido.

Shell is monitoring the situation, including the “trajectory and quantity of oil released to determine any potential impact on our operations,” Ted Rolfvondenbaumen, a company spokesman, said in an e-mailed response to questions.

So far, refiners have not indicated to the Strategic Petroleum Reserve that there is any shortage of crude, Stephanie Mueller, a spokeswoman for the U.S. Energy Department, said in an e-mail today.

No Crude Shortages

“We continue to be in touch with refiners and to date they indicate there are no shortage issues,” Mueller said. “We will consider all requests for loans, which are initiated at the request of the company.”

Valero Energy Corp., the largest U.S. independent refiner, operates five refineries on the Gulf Coast.

“At this time, we’re not expecting any disruptions to supply,” Bill Day, a Valero spokesman, said in a telephone interview. “We have prepared equipment and expertise in case we’re asked to assist with cleanup along the Gulf Coast since we have oil-spill response equipment.”

There has been no effect on Marathon Oil Corp.’s platform in the Gulf of Mexico, and no disruption to its Garyville, Louisiana, refinery on the Mississippi River, said Lee Warren, a company spokeswoman.

There is no effect on production at Exxon Mobil Corp. facilities in the Gulf of Mexico, said David Eglinton, a company spokesman.

Koch Industries doesn’t comment on potential supply disruptions, said Katie Stavinoha, a spokeswoman. Flint Hills, a unit of Koch Resources LLC, operates a refinery in Corpus Christi, Texas.

Seeking Solutions

BP is seeking ways to plug the leaks 5,000 feet under the water’s surface. The company plans to drill a second well to take pressure off of the current gusher. The U.S. Coast Guard said it has been unable to get an accurate estimate of how much oil is leaking and is preparing for a worst-case scenario.

More than 2,000 people have been deployed to protect the shoreline and coastal wildlife, according to a statement from the Joint Information Center. The U.S. Coast Guard said today that the spill is five to 10 miles off the shore of Louisiana.

Surface estimates of the size of the slick and skimming efforts were hindered as the Coast Guard ordered boats and aircraft back to port because of stormy weather. The National Oceanic and Atmospheric Administration previously estimated the well is spewing 5,000 barrels of oil a day. At that rate, the volume of the spill would exceed Alaska’s 1989 Exxon Valdez accident by the third week of June.

Investor Caution

Paul Sankey, an analyst at Deutsche Bank, said uncertainty over the size and severity of the spill should give investors caution about adding to holdings in large oil companies.

“We need some kind of limit to this spill before stepping up exposure to oil,” Sankey said today in a note to clients.

The oil spill will affect the political debate on expanding offshore drilling, Goldman Sachs said an April 30 report.

“Depending on how bad the spill proves and how serious the public reaction is, we believe the most likely potential implications are” slower progress approving new leases and a smaller chance of lifting the moratorium on drilling in the eastern Gulf of Mexico, Goldman Sachs said.

To contact the reporters on this story: Asjylyn Loder in New York at; Jessica Resnick-Ault in New York at

To contact the editor responsible for this story: Dan Stets at

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