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 Category 3 hurricane with wind
speeds
up 127 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.

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

The Gulf normally pumps 1.3 million barrels per day (bpd)
of oil, a quarter of all U.S. production, and 7.4 billion cubic
feet of natural gas, about 15 percent of domestic output.

At least 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 refineries were reducing processing rates and further
shutdowns were possible.

Hurricanes Katrina and Rita wrecked more than 100 oil
platforms
in 2005, shutting down a quarter of U.S. oil
production and closing several large refineries for months.
Analysts have warned Gustav could deal a harsher blow and
potentially send oil prices up $10 a barrel or more.

The New York Mercantile Exchange opened its electronic
trading platform
earlier than normal on Sunday to allow traders
to adjust positions ahead of the arrival of the hurricane.

U.S. crude oil futures were up $1.70 at $117.16 a barrel as
of 4:35 p.m. EDT after rising as much as $3.14.

"This could be potentially the most dangerous storm for the
energy sector we've ever seen, said Chris Jarvis, senior
analyst at Caprock Risk Management in Hampton Falls, New
Hampshire
. "It is going right across the most important areas."

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.

INFRASTRUCTURE CLOSURES

In addition to closing oil and gas fields and refineries,
energy companies were also shutting down important fuel
transportation systems.

The Louisiana Offshore Oil Port, the only U.S. port capable
of offloading the biggest oil tankers and a major conduit for
U.S. crude imports, 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 coast just west of the
LOOP's onshore operations center at Galliano, Louisiana.

The Sabine Pipeline, which includes the delivery point for
U.S. natural gas futures, shut at 1:00 p.m. EDT. The move led
the NYMEX to declare force majeure on its August and September
natural gas futures contracts, meaning sellers were not
contractually bound to make physical delivery.

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
(RDSa.L), said all of its Gulf production would be shut by
Sunday night. All 1,300 of the company's workers were onshore.

Rival energy giants BP (BP.L), Chevron (CVX.N) had shut
almost all production. ConocoPhillips (COP.N), and Exxon
(XOM.N) were also shutting off production as they evacuate
workers.

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

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