Energy companies and governments brace for Gustav's worst

By Erwin Seba

HOUSTON (Reuters) - Energy companies began shutting down Gulf of Mexico production on Thursday ahead of Tropical Storm Gustav, which could deliver the worst blow to the heart of U.S. offshore oil and natural gas production since 2005.

Shell Oil Co, the U.S. Gulf's largest producer, said it began turning off production on Thursday at a few of its wells while continuing evacuations of 1,300 workers from the Gulf of Mexico.

Anadarko Petroleum Corp said it expects to shut all its production, including the Independence Hub, the largest offshore natural gas processing facility, by Sunday as it evacuates all offshore staff.

The nation's only deepwater oil port, the Louisiana Offshore Oil Port, which offloads about 1 million barrels per day in foreign crude expects to stop offloading over the weekend, perhaps as early as Saturday.

The U.S. Energy Department said it was prepared to open the nation's emergency oil supply if Gustav causes a severe disruption.

The International Energy Agency's chief of emergency planning said the IEA's 27 member nations, which include the U.S., were prepared to release strategic oil stocks if Gustav deals a blow similar to 2005's devastating hurricanes Katrina and Rita.

U.S. crude oil prices climbed more than $2 per barrel early in the day, trading above $120 per barrel on storm fears, but then fell more than $4 on the assurances of emergency supplies.

U.S. forecasters project Gustav will become a major hurricane, packing winds exceeding 111 mph (178 kph) when it enters the Gulf over the weekend.