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U.S. Gulf oil output at a trickle ahead of Gustav

HOUSTON (Reuters) - U.S. energy companies shut nearly all offshore oil production and were racing to bring down flood-prone Louisiana refineries on Sunday ahead of Hurricane Gustav’s landfall, which could rival the wrath of 2005’s Hurricane Katrina.

Gustav is expected to be a dangerous Category 4 hurricane with wind speeds up to 155 mph when it hits the Louisiana coast on Monday in the first major test of the U.S. energy industry’s preparedness since the devastating 2005 hurricane season.

Just over 96 percent of U.S. Gulf oil production was turned off and 82 percent of natural gas output had been closed as of Sunday afternoon, said the U.S. Minerals Management Service.

Hurricanes Katrina and Rita wrecked more than 100 oil platforms in 2005 and shut down a quarter of U.S. oil production. Gustav could deal a harsher blow, experts warn.

“It remains likely that Gustav will prove to be a worst case scenario for the producing region and places the heart of the oil production region under a high risk of sustaining significant or major damage,” said Planalytics analyst Jim Roullier.

Others took an optimistic view of the widespread shutdowns Sunday.

“This is Katrina’s legacy,” said Phil Flynn of Alaron Trading in Chicago. “The industry is much more prepared and taking things much more seriously. That’s why so much has been shut down so quickly.

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“There will be a rally when the market opens (on Sunday) but hopefully things won’t be too bad and we can sell off tomorrow (Monday).”

PRODUCTION CUTS

Two key pieces of the U.S. energy delivery infrastructure closed on Sunday, with electronic trading of U.S. energy futures set to start at 2:30 p.m. EDT for an abbreviated pre-holiday session.

The Louisiana Offshore Oil Port, the only U.S. deepwater port capable of offloading giant oil tankers, halted all operations on Sunday.

“It’s coming right at us,” said LOOP spokeswoman Barb Hestermann of the Gustav’s forecast path. “It looks like we’re Ground Zero.”

Gustav was forecast to slam into the Louisiana coast just west of the LOOP’s onshore operations center at Galliano, Louisiana.

Hurricane Gustav in a satellite image taken August 31, 2008. REUTERS/NOAA/Handout

The Sabine Pipeline, which includes the delivery point for the benchmark U.S. Henry Hub natural gas contract, was to close at noon CST (1:00 p.m. EDT) with no restart time.

Nine refineries with a combined capacity of 2.2 million bpd, or 12.5 percent of U.S. refining capacity, were being shut along the south Louisiana coast ahead of Gustav’s projected arrival west of New Orleans on Monday.

Other regional refiners were reducing processing rates and further shutdowns were possible.

Mississippi River traffic south of New Orleans closed Saturday night. Ship channels into Lake Charles in west Louisiana as well as Houston, Beaumont and Port Arthur in Texas planned to shut by Sunday night, cutting off crude oil shipments to refineries.

The region’s largest offshore producer, Shell Oil Co, said all of its Gulf production would be shut by Sunday night. All 1,300 of the company’s workers were onshore. One platform was being remotely operated, but would be shut Sunday.

Rival energy giants BP, Chevron had shut almost all production. ConocoPhillips, and Exxon were also shutting off production as they evacuate workers.

Valero Energy Corp, shut one refinery in Louisiana on Saturday and was weighing closing down its Port Arthur, Texas refinery on Sunday, a spokesman said. Valero has cut production on at two other Gulf Coast refineries.

Reporting by Erwin Seba, Bruce Nichols, Robert Campbell and Haitham Haddadin; editing by Gunna Dickson

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