"Gulf of Mexico oil production - supply likely never to reach pre-Katrina levels.
NEW YORK, Aug 29, 2008 -

With Tropical Storm Gustav bearing down on the Gulf of Mexico and most weather agencies calling for an active hurricane season, American motorists should brace for gasoline to spike to $5 per gallon as storms threaten to shut down oil production in the region, predicts a new report from CIBC World Markets.

The report notes that oil production in the rig-dotted Gulf, which has been seen as America's best hope for greater energy self-sufficiency, will be increasingly threatened by severe storms that continue to grow in frequency and strength in the region.

"Only three years after hurricanes Katrina and Rita devastated Gulf of Mexico oil and gas production, an emerging hurricane storm is tracking another potentially lethal swath through America's energy heartland," says Jeff Rubin, Chief Economist at CIBC World Markets. "And with both oil and gasoline inventories much lower than when Katrina and Rita hit, the price consequences could be even worse this time. Any replays of the 2005 storm season could see gasoline prices soar to $5 per gallon."

While Mr. Rubin acknowledges that the supply disruptions, and attendant price hikes, will be temporary, he sees lasting impacts from hurricane damage on future supply growth. "Protracted multi-year delays to marquee projects like BP's Thunder Horse have meant that new production has grown at a fraction of earlier projections for the region and has lagged well behind rapid double-digit depletion rates that are characteristic of offshore fields.

"The net result has been a multi-year, and now likely irreversible, decline in oil production from the region. Already down some 300,000 barrels per day from its pre-Katrina peak, Gulf of Mexico production is likely to lose another 200,000 barrels over the next five years. Instead of ramping up production to over 2 million barrels per day as once dreamed by the Departments of the Interior and Energy, Gulf of Mexico production is likely to fall to a low of a million barrels per day by 2013 - almost a third lower than the region's production prior to the 2005 storm season."