UPDATE 3-Gustav shutting oil, gas output across Gulf

(Recasts, updates storm status to hurricane, adds details, background)

By Erwin Seba

HOUSTON, Aug 29 (Reuters) - Oil and natural gas companies shut production across the Gulf of Mexico on Friday, moving workers out of the path of Hurricane Gustav ahead of what could be the worst storm in the U.S. offshore oil patch since 2005.

Gustav was expected to strengthen to a powerful Category 3 hurricane over the weekend before tearing into offshore production areas early next week.

With about a quarter of U.S. oil output and 15 percent of natural gas production in Gustav's path, U.S. crude oil shot up early Friday on fears of supply disruption. But oil prices fell back to settle down 13 cents at $115.46 a barrel on a stronger dollar and expiring products contracts.

Forecasters were unsure where Gustav would make landfall, but analysts said energy prices were sure to rise.

"With both oil and gasoline inventories much lower than when Katrina and Rita hit, the price consequences could be even worse this time," Rubin wrote.

Losses from Hurricanes Katrina and Rita in 2005, along with delays in big projects like BP Plc's (BP.L: Quote, Profile, Research, Stock Buzz) Thunder Horse, have produced "a multi-year, and now likely irreversible decline in oil production from the region," CIBC World Markets Chief Economist Jeff Rubin wrote in a report.

As of Friday, 6.62 percent of Gulf oil production and 1.84 percent of natural gas production were shut in due to Gustav, the U.S. Minerals Management Service said. [ID:nN29452397]

The U.S. Environmental Protection Agency waived requirements for summer-blend gasoline in 16 coastal parishes in Louisiana to boost the supply of gasoline.

Energy companies were shutting down offshore platforms. Shell Oil Co (RDSa.L: Quote, Profile, Research, Stock Buzz), the U.S. Gulf's largest producer, began shutting production at some platforms on Thursday. Offshore operators such as BP Plc (BP.L: Quote, Profile, Research, Stock Buzz), Apache Corp (APA.N: Quote, Profile, Research, Stock Buzz) and Chevron Corp (CVX.N: Quote, Profile, Research, Stock Buzz) followed suit on Friday.

The Louisiana Offshore Oil Port - the only U.S. deepwater oil port - said it would stop offloading tankers on Saturday ahead of massive storm swells expected from Gustav.

Ship pilots along the Mississippi River between the Gulf of Mexico and New Orleans were preparing to halt ship movements as early as Sunday.

Sabine Pipeline LLC, operator of the Henry Hub, the benchmark NYMEX natural gas trading point, said it could begin shutting down pipeline operations as early as Sunday morning. [ID:nN29512095]

After Katrina and Rita hig in 2005, crude oil and gasoline prices shot to then-record highs. Those storms wrecked more than 120 offshore platforms, destroyed underwater pipelines and shut 25 percent of U.S. oil and fuel production for months.

Energy traders also are watching Tropical Storm Hanna as it churns in the Atlantic. The storm now is on track to hit Florida but could veer into oil- and gas-producing areas.  Continued...