Katrina and the Gas Pump - New York Times
Katrina and the Gas Pump - New York Times
September 6, 2005
Katrina and the Gas Pump
In Katrina's wake, gasoline prices are rising faster than oil prices - an odd, but explicable, phenomenon. Enough crude oil is being produced to meet global demand, but the ability of the Gulf Coast's many refineries to turn the oil into gasoline has been devastated, as has the ability to transport the gasoline that does become available. Those supply bottlenecks are chiefly responsible for this past week's higher prices at the pump.
President Bush's immediate response is to lend oil from the government's Strategic Petroleum Reserve to refineries and to streamline the refining process by temporarily relaxing environmental standards - sound stopgap measures to help ensure a steady supply of gasoline. The International Energy Agency, whose members are 26 rich nations, has also made a big contribution, pledging on Friday to supply world markets with an additional 60 million barrels of oil and gasoline over the next 30 days, half of which would come from the United States' emergency stockpiles.
But it would be wrong to think - and act - as if this crisis is fundamentally a supply shock. Rather, it is a supply shock on top of blatantly excessive demand. The near-term responses from Mr. Bush and the international agency, welcome as they are, will not solve the larger problems laid bare by Katrina. Worse, Mr. Bush's record on energy issues does not suggest that he is up to that task.
Gasoline prices seem destined to stay elevated until at least next spring. Even if the damage in the Gulf Coast is repaired soon - a big if - oil producers and refiners will require a premium to compensate for the risk that another killer storm could further disrupt operations in this hurricane season. Moreover, Katrina is causing refineries to draw down oil stockpiles that would have been used to produce home heating fuel for use this winter. That makes for a very thin supply cushion in the months ahead - not to mention high home-heating bills on top of high gasoline prices.
But even before the hurricane hit, oil producers were pumping all-out to meet demand. Driven mainly by gasoline consumption in the United States and industrialization in China and India, the world's consumption of oil is 85 million barrels a day. That is just short of the maximum that can be pumped, and leaves only about 1 million barrels a day in spare capacity, the lowest level in three decades. As with gasoline, the thinner the cushion, the higher the price.
Mr. Bush, who has a wildly overconfident view of how much oil could be pumped if American drillers were given a freer rein, refuses to see the overarching problem as one of excessive demand. Americans' gas-guzzling ways keep prices up, threatening the nation's economic well-being and creating windfall profits for foreign oil producers, some of which are used to finance terrorism.
So it is up to Congress to grapple with the big picture - now, before another disaster strikes. The Senate energy committee is scheduled to meet today, and much of the attention will naturally be devoted to the current problems in the refining process. Those issues must obviously be addressed, including ways to help municipalities overcome the "not in my backyard" obstacles to building state-of-the-art refineries.
But the focus must be - finally - on reducing oil consumption. The lawmakers should call for a rapid, mandatory increase in automobile mileage standards. And they must resist measures that would encourage only more consumption, like temporarily suspending gasoline taxes.
This is the moment to gather the political will to do what should have already been done. If the lawmakers don't act, they are courting problems that may be even harder to solve later on.
September 6, 2005
Katrina and the Gas Pump
In Katrina's wake, gasoline prices are rising faster than oil prices - an odd, but explicable, phenomenon. Enough crude oil is being produced to meet global demand, but the ability of the Gulf Coast's many refineries to turn the oil into gasoline has been devastated, as has the ability to transport the gasoline that does become available. Those supply bottlenecks are chiefly responsible for this past week's higher prices at the pump.
President Bush's immediate response is to lend oil from the government's Strategic Petroleum Reserve to refineries and to streamline the refining process by temporarily relaxing environmental standards - sound stopgap measures to help ensure a steady supply of gasoline. The International Energy Agency, whose members are 26 rich nations, has also made a big contribution, pledging on Friday to supply world markets with an additional 60 million barrels of oil and gasoline over the next 30 days, half of which would come from the United States' emergency stockpiles.
But it would be wrong to think - and act - as if this crisis is fundamentally a supply shock. Rather, it is a supply shock on top of blatantly excessive demand. The near-term responses from Mr. Bush and the international agency, welcome as they are, will not solve the larger problems laid bare by Katrina. Worse, Mr. Bush's record on energy issues does not suggest that he is up to that task.
Gasoline prices seem destined to stay elevated until at least next spring. Even if the damage in the Gulf Coast is repaired soon - a big if - oil producers and refiners will require a premium to compensate for the risk that another killer storm could further disrupt operations in this hurricane season. Moreover, Katrina is causing refineries to draw down oil stockpiles that would have been used to produce home heating fuel for use this winter. That makes for a very thin supply cushion in the months ahead - not to mention high home-heating bills on top of high gasoline prices.
But even before the hurricane hit, oil producers were pumping all-out to meet demand. Driven mainly by gasoline consumption in the United States and industrialization in China and India, the world's consumption of oil is 85 million barrels a day. That is just short of the maximum that can be pumped, and leaves only about 1 million barrels a day in spare capacity, the lowest level in three decades. As with gasoline, the thinner the cushion, the higher the price.
Mr. Bush, who has a wildly overconfident view of how much oil could be pumped if American drillers were given a freer rein, refuses to see the overarching problem as one of excessive demand. Americans' gas-guzzling ways keep prices up, threatening the nation's economic well-being and creating windfall profits for foreign oil producers, some of which are used to finance terrorism.
So it is up to Congress to grapple with the big picture - now, before another disaster strikes. The Senate energy committee is scheduled to meet today, and much of the attention will naturally be devoted to the current problems in the refining process. Those issues must obviously be addressed, including ways to help municipalities overcome the "not in my backyard" obstacles to building state-of-the-art refineries.
But the focus must be - finally - on reducing oil consumption. The lawmakers should call for a rapid, mandatory increase in automobile mileage standards. And they must resist measures that would encourage only more consumption, like temporarily suspending gasoline taxes.
This is the moment to gather the political will to do what should have already been done. If the lawmakers don't act, they are courting problems that may be even harder to solve later on.
posted by Marcel at 3:31 PM
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