Catastrophe modeling improves risk management
Offshore-tailored design yields best protection
Richard L. Clinton, EQECAT Inc.
Gulf of Mexico operators and insurers need better tools to understand hurricane risk in order to avoid losses from storms such as those in 2004 and 2005, or worse. A clear understanding of risk leads to viable decisions for platform design, operations, and maintenance. With decades of experience in risk assessment of offshore platforms, ABS Consulting engineers have designed a product to enable the industry to protect its assets, while maximizing the rate of return on the investments. The product is called EQECAT Gulf of Mexico US Offshore Energy Model, developed specifically for the offshore oil and gas industry.
Hurricane damage
Hurricanes Katrina and Rita devastated the Gulf’s oil and gas infrastructure. Katrina blasted through the GoM with sustained winds at 160 mph, destroying 47 platforms and severely damaging 20 others. Less than 30 days later, Rita made landfall near the Texas-Louisiana border, destroying 66 platforms in its path. These storms also damaged over 650 pipelines, which contributed to delayed production recovery. API estimated the damage to offshore production facilities and pipelines at $18-$31 billion. Others have estimated the damage at $15 billion, with about two-third physical damage and one-third business interruption (BI) and operator extra expenses (OEE). BI losses were mainly due to shut-in production from damaged pipelines; OEE losses were primarily driven by well control and debris removal.
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About 75% of the Gulf of Mexico’s platforms were in the path of hurricanes Katrina and Rita. Sources: MMS, US Department of the Interior, and EQECAT Inc.
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These losses could have been significantly worse. ABS Consulting’s EQECAT Gulf of Mexico US Offshore Energy Model, part of EQECAT’s WORLDCAT enterprise catastrophe management software suite, includes a worst case scenario – a Camille-intensity hurricane that tracks through the heart of the Gulf’s production facilities causing more than $65 billion in damage. Losses include platform damage, debris removal, extra expenses, well plugging and abandonment, and lost production from damaged platforms, pipelines, and onshore terminals (shut-in BI-Contingent Business Interruption [CBI] loss). An event of this magnitude impacts oil and gas supplies, which could cause a spike in commodity prices and reduce production for a number of months. The financial implications of an event like this are significant. Adequately planning for such an occurrence is critical.
Loss assessment
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Page 1 of 3
Volume 68 Issue 1
January 2008
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