Katrina: Oil Supply Problems Not as Severe as Feared

While gasoline prices have soared since Hurricane Katrina put much of the country’s refining capacity under water, the massive shortages many predicted seemingly will be averted.

U.S. Appears to Have Avoided Massive Oil Supply Problems (NYT)

As Americans began heading home from the Labor Day weekend, gasoline stations today continued to report spot shortages, but the country appeared, at least as of this afternoon, to have avoided the massive supply problems that some had feared. Throughout the weekend, station attendants and analysts said they saw unrelenting demand from drivers who were worried they would find themselves stranded, were panicked by rumors about service stations closing early, or both.

Officials said they continued to make progress in resuming the production and distribution of gasoline and other fuels, which was severely disrupted by Hurricane Katrina last week. But they noted that most refineries and oil production in and along the Gulf of Mexico remained shut down for the seventh day in a row.

[…]

Gasoline supplies will likely remain tight through much of the coming week if not longer, industry officials and analysts said, as refiners slowly resume operations in the gulf region. It can take several days to restart those facilities, because of the danger of explosions and other accidents. Of the 10 refineries that were shut down by the storm initially, eight have not resumed operations, two are restarting and hope to be operational in the coming days, and three still do not have electricity, the Energy Department said on Sunday. At least four refiners that produce about 5 percent of the nation’s gasoline and other oil-based fuels have sustained significant damage and could be out of commission for a month or more for repairs, officials and analysts said. Among them are ConocoPhillips’ Belle Chase, La. facility; Exxon Mobil’s Chalmette, La. plant; and ChevronTexaco’s large refinery in Pascagoula, Miss.

[…]

Of the two major pipelines that bring gasoline, diesel fuel and jet fuel to the eastern half of the United States from Texas and the gulf, the smaller one, the Plantation pipeline, said it was operating at 100 percent. The other, the Colonial pipeline, was at 73 percent as of Saturday and hoped to be at full capacity by the end of the holiday weekend.

Also, the federal government and members of the International Energy Agency, a 26-nation organization created after the 1970’s oil crisis, have started releasing crude oil and some gasoline to energy companies in an effort to ease supply constraints. Those moves helped push down crude oil prices 2.1 percent in London tradingtoday. The New York Mercantile Exchange was closed for the Labor Day holiday. The United States Department of Energy has already agreed to loan 12.6 million barrels of oil to refiners so they can keep producing gasoline and other fuels as production facilities in the gulf recover. This weekend, the government went even further and said it would sell 30 million barrels or more of oil in addition to the loans, which companies have to replace when conditions improve.

But with so much refining capacity out of service, analysts said gasoline prices would remain high in spite of the crude oil that the federal government and its allies are unleashing. “Some of these refineries will not be back to full operation perhaps well into next year,” said Paul Horsnell, an analyst at Barclays Capital in London.

While the damage to our refineries will be inconvenient and expensive to weather, it looks like major disruptions will be avoided. Very good news indeed.

FILED UNDER: Economics and Business,
James Joyner
About James Joyner
James Joyner is Professor and Department Head of Security Studies at Marine Corps University's Command and Staff College and a nonresident senior fellow at the Scowcroft Center for Strategy and Security at the Atlantic Council. He's a former Army officer and Desert Storm vet. Views expressed here are his own. Follow James on Twitter @DrJJoyner.

Comments

  1. McGehee says:

    Now if we can just get people to realize that people in Atlanta are not paying $6 a gallon for gas

  2. Herb says:

    Now that the Labor Day holidays are past and demand for gasoline will decrease, I guess the oil companies will revert to pricing gasoline by the price of crude. I see that as of 11:20 EST the price of crude and gasoline are down per Bloomburg. And the good news is that the EU is supplying a few million barrels of crude and gasoline to the US. I wonder what effect that will have on the price? We still need to disregard the environmental wackos and make only one grade of gasoline, which should decrease the price even further. The Saudis are increasing the production of crude to make up for the problems with production in the gulf. I am very convinced that we are in desperate need to put some regulations on the river boat gamblers that so far have run up the price of crude and provided the oil companies with excuses for increasing gasoline prices. I am not an economist, but I do know when I am getting it put to me, and the oil companies are doing it. In the meantime, there are many service station owners and Americans suffering financially from the effects of high prices. I am also convinced that left unchallenged, the oil companies are going to put this country into a horrible recession. I have always paid my way and do not think anyone owes me a living, but it really puts my hair on end to see these high gasoline prices while the oil companies are making record profits. Now we need to set a standard, Either price gasoline by the actual price of crude at the time it arrives at the refiners or price it by supply strictly controlled. (not by the oil companies) What we don’t need is more excuses to maintain or increase prices.

  3. Herb says:

    UPDATE: 10:30 EST 9/6/05

    O’Reilly (Fox News) reported that the major oil companies reported record profits of 33 Billion Dollars during the last quarter.

    He said they are profiteering. I agree’ along with most people in the Midwest.

    A survey in my area indicated that 74% of the people felt the oil companies were price gouging.