There is a rather odd side to human nature. Take a problem, present
it to the audience in its maximum horror and suggest it is about to
happen, then ameliorate it a little, and tell everyone how the world is
not nearly as bad as it is painted. And everyone agrees that things
are looking up. But you are still facing a very bad situation - only
the way the news has been presented makes it seem that there is no
longer a problem.
Consider that, just yesterday, Texas was facing the third worst storm
in known history and things looked very dire. The storm has now got
just a bit less intense and folk are already talking about Houston
having "missed the bullet." All of a sudden a Category 4 hurricane
becomes news enough to ease oil prices.
We have seen this over the past year with oil prices themselves. Prices
rise from $30 to $40 to $50 and then they fall back $3 and we discuss
the "collapse of the price of oil." It rises to $60 and then $70 and
then slips $4 and suddenly "the crisis is over."
The worst case scenario for U.S. oil and gas infrastructure after
Hurricane Rita reaches land could have gasoline supplies strained
further than they already are and prices reaching record levels, some
analysts said on Thursday. Other analysts say prices have the
"Rita effect" built in and that once the storm clears land, refineries
will come back, imports will start to arrive and prices will decline.
until Hurricane Rita reaches land, the impact it has on U.S. Gulf Coast
energy infrastructure and on the price of gasoline and heating oil
remains a wildcard. Hurricane Rita, now downgraded to a Category
4 storm, has veered toward the east and now is expected to make
landfall early Saturday just north of Houston, Texas, shifting the
focus away from refineries in Corpus Christi and toward the Louisiana
blew a big hole in the product market. If Rita doubles that, we are in
for some serious problems," said Jamal Qureshi, an oil analyst at
Washington-based PFC Energy. Already tight U.S. refining capacity
was strained further after four refineries in Louisiana and Mississippi
closed after flood damage from Katrina, sending the average price of a
gallon to a record $3.06 a gallon.
"This could be almost worse
than Katrina because there are 4 million barrels of refining in Texas
areas, much more than there was in New Orleans," said Tim Evans,
analyst at IFR Energy Services in New York. "(Texas) is the other major
refining heart," he said, adding that Rita will be a stress test for
Gulf Coast refineries.
Lack of power has kept the Louisiana
refineries closed for more than three weeks, so any sustained closure
of Texas area refineries will hit supplies of gasoline and heating oil
needed for winter fuel. But some analysts think that Rita won't have that much of a sustained effect. "The
market has already bid up the price of gasoline. It's been buy the
rumor and sell the fact," said Sarah Emerson, director of petroleum at
Boston-based ESAI Inc.
the storm neared, Texas refiners intensified efforts to prepare for the
hurricane by shutting down operations, taking down about 29 percent of
U.S. total refining capacity. According to Qureshi, the best case
scenario would be 2 million bpd of refining capacity out for four or
five days. The worst case, he said, is if a big chunk of refining
capacity is out for weeks or months, much like Katrina knocked out four
refineries in Louisiana, which are still not back in operation after
more than three weeks.
"The market is certainly tightened by this
event," said IFR's Evans, who said he wouldn't be surprised to see
gasoline stocks fall substantially but with demand limited by a
slowdown of gasoline demand which has fallen to 6.5 pct below August
levels over the past two weeks.
But some industry observers think
that there will be a big difference between Rita and Katrina, which
wreaked havoc on Louisiana and Mississippi. "After Katrina, there
were a bunch of refineries which didn't sustain structural damage but
couldn't turn the power back on," ESAI's Emerson said. While Houston
isn't below sea level like New Orleans, it still can see some damage
from flooding. "Houston
isn't as vulnerable, but there could still be dangerous storm surges,"
said Aaron Brady, analyst at Cambridge Energy Research Associates.
It has been fairly easy for FEMA to meet the needs they have to hand
out water, and to hire (purportedly at $24/hr with 16 hours days
allowed and a credit card for all expenses) a sufficient work force for
that purpose. Unfortunately for the real work in getting the oil and
natural gas supplies on hand for the winter they will likely be less
lucky. Unfortunately for the real work in getting the oil and natural gas
supplies on hand for the winter they will likely be less lucky. The
nation and the universities which carry the responsibility to train the
technical support that must underpin our economy, has fallen into the
management trap of purely meeting the immediate need. Petroleum
Engineering Departments are high cost, and have not been strongly
supported by an industry that has been more remiss than many in funding
the research and development that it now has need of. Thus Departments
have closed, and support infrastructure has declined.
And no one expects folks in Boston to go without heat this winter.
However, we might expect fewer to heat their offices or homes to the
borderline-sweltering temperatures that are not uncommon. And maybe the
the usually-sweltering winter temperatures on busses and trains could
be cranked down to something reflecting the way people actually dress
in wintertime. And maybe a few people might close off some rooms in
their palatial houses (compared to any other part of the world). And no one needs to travel a
hundred miles to a fifth-grade hockey game, maybe others would
other adjustments. None of this would all be bad, though, of course,
adjustments are not indefinitely scalable. Still we have the
impacts of global warming and country debt load to
add to the mix of energy shortages. Both will probably make the
rebuilding of the coast
and energy infrastructure problematic.