NEW ORLEANS -- For months, as consumers have asked for explanations for rising gasoline prices, economists, consultants and politicians have noted that even a small glitch in the gas pipeline could cause at least temporary price jumps at the pump. Thus, as Hurricane Katrina battered the shores of Louisiana and Mississippi yesterday, those same pundits were hoping for the best while preparing for the worst as the Category 4 storm barreled toward the heart of U.S. oil production and refining operations in the Gulf of Mexico.
If the storm is somehow [image-nocss] able to move through here and the refiners don't have to deal with flooding issues or long restart times, that should likely hold gas [prices] below $2.70 [per gallon], Brian Milne, editor of DTN MarketWire, told CSP Daily News. But if we start seeing any long-term disruptions, it could easily go up to $2.75 [on average]. It all depends on how much damage Katrina does cause.
Consumers began seeing prices increase over the weekend as refiners prepared for what was anticipated to be major destruction left in Katrina's wake. Refineries capable of processing about 1.6 million barrels a day were shut down, according to the Associated Press. Such necessary precautions briefly sent crude-oil futures above $70 a barrel for the first time ever.
As the storm came ashore early Monday, it was packing winds of 145 miles an hour and carried the threat of an extremely dangerous storm surge. What we're going to need to find out in the coming days is if this storm caused any long-term destruction, said Milne. If it did that, then we're going to really see prices stay up for quite a long time.
Early reports from oil companies showed concern that Katrina caused damage to offshore oil platforms and undersea pipelines in the Gulf of Mexico, according to a report from Reuters. The oil companies said this could delay a return to normal production after the storm brought operations to a standstill over the weekend.
There will be a mad rush to get out there (to assess the damage), said Tony Lentini, spokesperson for Apache Corp., one of several companies which cut much of its oil and gas production over the weekend. Our goal is to get back up as soon as possible, but do it safely. It took almost a year to get back up to full production after Hurricane Ivan, he said, referring to a storm last year that cut 45 million barrels of U.S. oil output over six months and damaged offshore rigs and platforms and pipes.
In Washington, the Bush administration said yesterday that it would consider loaning crude oil from the government's emergency stockpile if requested by U.S. refiners facing delayed shipments due to Hurricane Katrina. "Certainly that option is on the table and it is a possibility based on what we have done in the past with other hurricanes," a Department of Energy spokesperson told USA Today.
The Energy Department, however, had not received a formal request for loans from the Strategic Petroleum Reserve (SPR), a crucial administrative step that starts the decision-making process, the spokesperson said. "There hasn't been a request yet, and we aren't going to make a decision before there is a request."
If Katrina makes a direct hit on any of the refineries, the entire nation will feel the brunt of the powerful storm, according to a Knight Ridder report. Roughly 30% of the oil and gas consumed in the United States comes from off the Gulf Coast, and millions of barrels more are brought from overseas through area ports.
A major hit would disrupt fuel shipments and send prices up right before the Labor Day holiday, when more than 34 million Americans are projected to hit the road. Gas prices already are up an average 83 cents a gallon this year.
Jim Smith, president of the Florida Petroleum Marketers & Convenience Store Association, said crude-oil supplies don't worry him too muchwith access to the SPR an optionbut rather that a string of damaged refineries would leave the nation short on processing capacity. There's a huge amount of refineries that are going to have to go down, he said.
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