Outside the Beltway

Katrina: Oil Supply Problems Not as Severe as Feared

James Joyner · Tuesday, September 6, 2005 · 3 comments

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.

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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.

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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.