Katrina Will Likely Impact the Oil and Gas Industry for Years

• We now project that restoration of pre-Katrina production volumes could take as long as six months, and perhaps longer, depending on the specifics of the damage to the off-take infrastructure as well as to key facilities such as Shell's deep-water assets. We believe it increasingly likely that 2.0 bcfd of gas and several hundred thousand barrels of oil per day will still be shut-in 30 days after Hurricane Katrina roared through the Gulf of Mexico.
• One of the broader implications of this relatively slow return of production is that it will reduce to close to zero the growth of non-OPEC oil production this year, removing whatever spare production capacity existed in the global oil industry as we go into the peak demand period.
• This leaves the global oil markets vulnerable to other unexpected natural or manmade events. There are many scenarios by which another shock could be introduced and relatively few where unexpected large additional volumes of oil could enter the market to offset the Gulf of Mexico shortfall.

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