EIA Predicts Lower Risk From Hurricane Season

U.S. oil and natural-gas production is likely to see fewer interruptions this year as a result of a less severe hurricane season, government forecasters said on Tuesday.

Hurricanes could disrupt the production of 11.6 million barrels of oil and 29.7 billion cubic feet of natural gas, the U.S. Energy Information Administration said in its June short-term energy outlook. With domestic production surging to record levels, those disruptions equal just 1.4 days of the estimated U.S. oil production and less than half a day of the estimated U.S. gas production for 2014.

The EIA used National Oceanic and Atmospheric Administration forecasts, which predict three to six hurricanes, compared with six that are common in a typical year.

In addition to fewer storms, production has largely left the Gulf of Mexico for inland shale drilling, further limiting the damage hurricanes can do, the agency said.

"The declining share of total production from offshore areas has reduced the vulnerability of overall U.S. oil and natural gas supply to hurricanes," the agency said.

The hurricane season started June 1, with several analysts noting how its influence has changed in the era of unconventional drilling. Hurricanes are now just as likely to cause gas prices to drop by limiting the demand for gas-fueled electricity, when in past years they were much more likely to cause price spikes by knocking wells offline. Gulf production made up 26% of the national natural-gas supply in 1997, compared with just 5% last year, EIA said.

The 2013 hurricane season shut in just 3.1 million barrels of oil and 6.7 billion cubic feet of natural gas. That was a light year for hurricanes, and the EIA said 2014 has a 69% chance of causing a greater disruption than last year. While NOAA predicts a storm season near- or below-normal this year, it does predict three to six hurricanes compared with just two that hit in 2013.

The EIA also warned that its predictions are highly variable because NOAA doesn't predict where hurricanes might go. A hurricane that went up through the Gulf of Mexico and onshore could flood inland wells or shut down processing plants, greatly curtailing production, while a storm that hit only the East Coast is more likely to affect only power consumption.

The agency also increased its estimate for U.S. natural-gas production. It is likely to average a record of 73 bcf a day in 2014, a 1% increase from what the EIA expected just a month ago.

Several new pipelines are opening, especially to support Marcellus Shale gas production, and that has allowed more wells to bring on new production. The frigid winter has also given way to a mild spring, allowing more drilling, the agency said.

It left its natural gas price forecast unchanged at an average $4.74 a million British thermal units for 2014.