Gulf oil braces for Gustav

Experts say that oil infrastructure is much better prepared to withstand a big hurricane than it was in 2005 when Rita and Katrina wreaked havoc in the Gulf.

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By Steve Hargreaves, CNNMoney.com staff writer

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Experts say that Gulf oil infrastructure is much better prepared to withstand a big hurricane now than it was three years ago, when Katrina decimated production there.
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NEW YORK (CNNMoney.com) -- With Tropical Storm Gustav setting its sights on the Gulf of Mexico, oil facilities in the region are facing their first major threat since 2005, when Hurricanes Rita and Katrina knocked out nearly every barrel of oil production and sent prices soaring to then-record levels.

But this time around, if Gustav intensifies and heads into the Gulf as expected, experts say reinforcements have made production far less vulnerable than it was three years ago.

Drilling rigs and production platforms moored to sea floor in the Gulf had been attached with eight lines, and are now required to be moored with 12 to 16 lines.

New rigs were built higher above the water, and old rigs were strengthened, according to Andy Radford, a policy advisor at the American Petroleum Institute.

And pipelines, which carry most of the oil and gas from the production platforms to the shore, now have to be buried deeper beneath the sea floor, said Barbara Shook, a Houston-based analyst with the Energy Intelligence Group.

"The industry is probably in the best shape it's ever been in because of what they've learned over the last few years," said Shook.

Anyone who buys gasoline better hope so.

At 1.3 million barrels a day, the Gulf is home to over a quarter of the oil produced in the United States, according to the Energy Information Administration. Plus, it accounts for over 10% of the country's natural gas production.

When Hurricane Katrina roared through as a Category 5 storm in late August 2005, it ripped up pipelines and battered production platforms through out most of the Gulf.

But more than offshore oil platforms are at risk.

Upon making landfall, even as a Category 3, Katrina caused considerable damage to the many refineries in the region. It also disrupted crude imports - the Gulf of Mexico houses the country's only deep water port for imported oil.

As a result of all the disruptions, gasoline prices surged.

Gas went from a national average of $2.62 a gallon at the end of August to over $3.08 a gallon week later, a nearly 18% jump.

A similar surge now would send gas prices to nearly $4.40 a gallon, well past the previous record of $4.11 a gallon set in July and erasing all the declines seen over the last few weeks as traders talked of falling demand and a slowing economy.

Fortunately for motorists, traders don't think that will happen this time around.

"There's been a a lot of work on the rigs, and the outlook is that it won't be that bad, even if it is a terrible storm," Ray Carbone, a broker and trader at Paramount Options, told CNNMoney.com from the New York Mercantile Exchange.

As of midday Thursday, with Gustav still well south of the Gulf off the coast of Jamaica, oil prices were down sharply, trading around $115 a barrel. The storm isn't expected to make landfall in the United States until early next week.

Even if it is a worst-case scenario storm, Carbone said he thinks oil would have a hard time passing its previous record of $147.27 a barrel.

But as Shook points out, there's only so much companies can do to prepare for a Category 5 storm, and at some point all production is vulnerable no matter how many reinforcements have been made.

"It's a bit like preparing for a tornado," she said.

CNNMoney.com staff writer David Goldman contributed to this report. To top of page

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