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The aftermath of Hurricane Katrina will be felt by those in the Gulf Coast for years. While our Texas cities are opening their doors, and Texans are opening their hearts, there is no way to fully prepare for the long-term devastation of Katrina. Yet, in the near term, people across the country are feeling the brunt of this storm in different ways, especially at the gas station.
Before we ever heard the name Katrina, our gas prices were on the rise. The strong economic growth we have experienced over the past two years, coupled with growth in other countries such as China and India, has driven high demand for oil.
The destruction of Katrina dramatically complicated the issue by affecting supplies of gasoline. The first day Katrina brutally slammed the Gulf Coast, a total of 615 manned platforms in the Gulf of Mexico and 90 drilling rigs were evacuated. These evacuations by week’s end were equivalent to 52 percent of the 819 manned platforms in the Gulf of Mexico and 48 percent of the 137 drilling rigs which operate in the Gulf of Mexico.
Five refineries along the coast were forced to reduce operations. In all, 90 percent of the oil production and 80 percent of the gas production in the Gulf Coast was temporarily impacted. In addition, the widespread damage of Katrina impacted major pipelines, with three either totally or partially out of service. There is progress being made to bring these major pipelines back on line. The Colonial Pipeline – which carries 100 million gallons of gasoline and diesel to the south and eastern U.S. – was brought back to full capacity this weekend. This will help significantly with the oil and gas demand.
All said, Katrina brought with her a dramatic increase in gasoline prices around the country. The average price of regular grade in Texas rose to $2.63 last Friday, with many consumers paying more than $3 per gallon.
A supply shock such as this is potentially much more harmful to the economy and consumers than the previous demand-driven spikes and must be addressed aggressively. The Bush Administration took several steps recently to relieve supply pressures while efforts are being made to bring the oil rigs, refineries and pipelines back into full service.
Within hours of the hurricane passing, the Environmental Protection Agency issued a nationwide waiver on certain standards to allow for the use of “winter blend” reformulated gasoline in place of “summer blend” that is otherwise required to be used through September 15. This action makes available considerable stocks of reformulated gasoline that are in storage to fulfill consumer demand and immediately ease supply problems.
President Bush also ordered oil from the Strategic Petroleum Reserve (SPR) to be released. The initial amount will add 30 million barrels to the market. Within 48 hours of receiving requests from oil companies, oil was on its way from the SPR to refineries. The SPR contains 700 million barrels, so we have plenty to work with during this crisis. At the same time, other countries of the International Energy Agency announced they will release an additional 30 million barrels of petroleum, and 20 tankers are making their way to the U.S. to deliver this energy.
The U.S. Department of Homeland Security has also waived Jones Act restrictions which limit the use of ships under foreign flags in order to allow additional tankers and barges to transport oil and gasoline into ports around the country. These specific ports may have seen supply disruptions as a result of pipelines running below capacity.
These bold moves immediately relieved pressures in the market. The price of a barrel of oil dropped to $65 just over a week after Katrina first touched ground. While some of the supply problems will be resolved relatively soon, it may take some time to get all refining and drilling facilities online again. In the meantime, I will continue to work with President Bush to seek both short-term and long-term solutions to ensure consumers have sufficient supplies of gasoline.
Energy costs are a part of Katrina’s aftermath that affects jobs and budgets of all Americans.
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