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Oil Industry's Recovery Will Last Until Next Year, Agency Says

Posted on: Tuesday, 8 November 2005, 21:00 CST

By Thomas Content, Milwaukee Journal Sentinel

Nov. 9--The oil industry's recovery from back-to-back hurricanes will last until early next year, longer than expected a month ago, the federal Energy Information Administration said Tuesday.

"Hurricanes Katrina and Rita damaged, set adrift, or sunk 192 oil and natural gas drilling rigs and producing platforms, the most significant blow to the U.S. petroleum and natural gas industries in recent memory," the agency said in its monthly outlook on energy supply and prices.

The agency said it continues to forecast record heating costs this winter as a result of the dramatic jump in both the price of crude oil and natural gas, both before the hurricanes and particularly since Katrina and Rita.

"Prices for crude oil, petroleum products, and natural gas are projected to remain high during the remainder of 2005 and through 2006 because of tight international supplies and hurricane-induced supply losses," the agency said.

The agency is forecasting a 49.5 percent jump in winter heating costs in the Midwest for households that rely on natural gas for heat, compared with a 41 percent jump projected nationwide.

Actual heating costs will depend on a number of factors, including how cold the winter is and how much consumers respond to reports of high energy costs by turning down the thermostat, adding insulation or upgrading to more efficient furnaces, the agency said.

The agency's forecast is less stark than a month ago, but is in line with projections of several Wisconsin utilities, including Milwaukee-based We Energies. We Energies is projecting heating costs to increase by 40 percent to 50 percent between November and May, meaning an additional $300 to $375 during that six-month winter heating season, utility spokeswoman Beth Martin said.

The agency said its forecast for recovery from the hurricanes is based on "more detailed information on damage to production wells, pipelines, and natural gas processing plants from the hurricanes. The Minerals Management Service (MMS) reports that more than 150 offshore platforms have been heavily damaged or destroyed and are not expected to be fully operational for several months."

The agency's report came on the eve of a high profile hearing in the U.S Senate focusing on recent spikes in energy prices and recent profits posted by major oil companies. Executives from five major oil companies are scheduled to testify and answer questions during a joint committee of the Senate's energy and commerce committees.

In its report, the EIA said it is projecting a 36 percent increase in heating costs this winter for households that use heating oil for heat, and a 26 percent increase for households that use propane.

"Hurricanes Katrina and Rita damaged, set adrift, or sunk 192 oil and natural gas drilling rigs and producing platforms, the most significant blow to the U.S. petroleum and natural gas industries in recent memory."

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Source: The Milwaukee Journal Sentinel

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