posted
Twice on the radio I have heard that Pres. Bush has announced he will tap into the national oil reserves in order to alleviate a spike in gas prices due to hurricanes Katrina and Rita. This sounds fishy to me because of the following assumptions:
1. Our "national oil reserves" are most likely in the form of crude oil. 2. The problems with gas prices due to the recent hurricanes is due to disruption in the nations capacity to process crude oil into gasoline. 3. Throwing more crude into the mix isn't going to help the existing processing plants create more gasoline as they are reportedly running at full capacity already.
Therefore, it seems that this announcement is somewhat disingenuous. It seems that either Pres. Bush is just spouting nonsense to make it look like he's "doing something" about the gas prices, or else he has some other motive for wanting to tap into the national reserves other than to alleviate gas prices caused by the hurricane. Note the last phrase. It believe it's also possible that he wants to tap into the reserves to temporarily lower the overall cost of crude per barrel, which might lower the gas prices temporarily. But that seems foolish since we will eventually (presumably) have to replenish the reserves and that is more likely to cost us more in the long run, and if that is the ulterior motive, it still has nothing to do with hurricane damage/disruption.
Now, I don't pretend to know everything about this issue, so if you think I'm off base, please tell me why.
Posts: 6394 | Registered: Dec 1999
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posted
They've been tapping into the national reserves now and then for a while. I'm pretty sure this sort of event is exactly why the reserves exist.
Posts: 11017 | Registered: Apr 2003
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posted
Which nicely side-steps all of the questions in my post.
In the wake of Katrina, Bush already tapped into reserves to replace lost crude at the damaged refineries. Rita hasn't damaged any new refineries. Why is it necessary to again tap into reserves, given the assumptions in my original post? Or, which of my assumptions is wrong and how?
Posts: 6394 | Registered: Dec 1999
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posted
I don't know what you mean. I thought several more refineries were damaged. Some will take a month to fix. Also, lots of refineries were affected because the crew had to leave. Damaged or no, they can't get the oil into the country without roads or crews...
But I don't have time to figure out what sorts of oil were affected or what you mean about crude oil. Gotta go.
Posts: 1014 | Registered: Jul 2005
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posted
Yes, but the issue isn't a shortage of oil. It is a shortage of refining ability. Throwing more oil at the problem, even if it's free oil, isn't going to help the supply/demand issue. Throwing oil at the roads isn't going to fix them. It isn't going to get the refineries back online. It isn't going to magically transform itself into gasoline at the pumps.
I think I'm typing clear English. Is anyone actually reading it?
Edit to add that I'm assuming unrefined oil, (i.e. "Crude" oil, not processed oil, not gasoline, not something that can be used without going through a refinery for processing.)
Posts: 6394 | Registered: Dec 1999
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posted
Your emphasis on "gas prices caused by the hurricane" doesn't necessarily make this a a ridiculous proposal. Just because price hikes are caused by one thing doesn't mean something else can't be used to lower them. This doesn't answer the questions you raised, but if the problem is high gas prices, lowering them will help, even if the method of lowering them does not directly target the cause.
How will it help? I don't know. Neither does the President, which is why he hasn't said he will tap the reserves. Quotes from the Post:
quote:Bush said Energy Secretary Samuel Bodman, who briefed him along with Interior Secretary Gale Norton, is working with Houston officials to help get trucks into that city to help refill sold-out gas stations. He said he also instructed Bodman to consider how the Strategic Petroleum Reserve can be used to help lower gas prices, with about two-thirds of Americans responding to recent polls saying high gas prices are causing them financial hardship.
...
If oil is made available from the reserves, it likely will be in the form of a loan to specific refineries that would turn it into gas, Energy Department officials said.
After Katrina, DOE approved loans of 13 million barrels of oil to refineries in Louisiana that could not get crude because of supply disruptions. DOE spokesman Craig Stevens said there has not been a request for more reserve oil at this time.
So it appears they are not unaware of the problems you pointed out and are looking for options.
If delieveries were suspended, loaning oil could get the refineries operating more quickly once repaired. That's just one possibility.
Posts: 26071 | Registered: Oct 2003
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posted
Karl, the price of crude has also been affected by this...OPEC and others often raise their prices in these sorts of times.
Tapping into the reserve can help a little because of that, although you are correct in assuming the biggest problem long-term is a lack of refining capabilities. Using the reserves only helps if it is a short term blip in the price though...which these should be.
It also helps mitigate the gas shortage caused by the number of people who had to evacuate. As demand rose during evacuation (and during the aftermath of the storms too) prices rose, because stores were paying more to suppliers to insure delivery. That also created localized shortages, some of which can be fixed by shipping more gas (that has already been refined) to those area..which increases demand in other places, raising the prices there as well.
Since the refineries aren't as damaged this time around tapping into the reserves will help more this time around that it did with Katrina.
It wasn't JUST the refining that was the problem, although you are correct in saying that tapping into the reserves won't increase our refining capacity. It can and will help with other problems that affect the price of gas at the pump, though, so it isn't pointless.
posted
"On August 31, 2005, President George W. Bush authorized the SPR to loan oil to help refineries whose operations had been affected by Hurricane Katrina. In addition, the President announced the sale of 30 million barrels to maintain supplies and calm markets. Katrina had shut down an estimated 95% of crude production and 88% of natural gas output in the Gulf of Mexico. This amounted to a quarter of total U.S. output. About 735 oil and natural gas rigs and platforms had been evacuated due to the hurricane."
--From Wikipedia
I suppose it has to do with the drilling operations off the gulf coast being stopped. That creates a drop of crude oil going to the refineries, which creates a supply drop in gasoline, which raises prices. So I think by releasing crude oil from the reserves, the refineries can continue to go at full pace, which decreases the risk of price spikes. (no expert here, your questions made me ask, so thanks.)
Could be wrong though, so other folks might find something better.
Parsimony, that makes sense. I had no idea we were still drilling so much from the gulf as there has been so much emphasis on foreign oil imports.
This is precisely why I hate "sound bite" reporting. Sure they don't always have time to report all the details, but "Pres. Bush says he will tap into National Reserves to help alleviate a spike in gas prices" is the kind of sound bite that confuses the issue more than it tell me anything.
Posts: 6394 | Registered: Dec 1999
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posted
There are a number of smaller refineries in the northern U.S. that aren't being supplied fully now because they typically get their crude from the Gulf Coast (which is a major shipping and receiving area as well as a major refining area). Alberta has ramped up its crude oil production to help supply them with crude.
Posts: 10886 | Registered: Feb 2000
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posted
Karl, I'm not sure what form the reserves are in but I think it's crude. So if it helps keep the existing open refineries running it will help, but not as significantly as people might think. The barrels aren't just straight gasoline.
There is another interesting shortage going on - high grade asphalt tar. Because it is made using some refined gasoline being mixed back down into a lower distillation cut. Steve's had entire construction jobs on hold indefinitely, and they may not get finished before winter, because the asphalt plants can't get any of the right product from the refineries because they aren't putting any gasoline in feedback loops to make this tar because it would cause them to lose massive amounts of profit, with the gasoline prices through the roof.
posted
I used to live near down there, and the landscape was dotted with oil derricks. It doesn't match the sheer volume coming out of the middle east, but pumping oil from the ground is a major part of the economy.
<-- grew up in oil towns
Posts: 16551 | Registered: Feb 2003
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posted
It is interesting to note that one reason for pre-Katrina gas price increases was in fact due to the federal gov stocking up the national oil reserves (greater demand on a limited supply drives prices up and all that).
It is my opinion that the federal government needs to take the lead on articulating a rational energy policy which begins to ease us off of oil altogether over the next decade or two.
There is currently a very promising athanol development program which is being implemented which may make ethanol a cheap, renewable alternative to petroleum. A rational first step to reaping the benefits of this technology might be to require all gasoline to incorporate 10% ethanol- much as western states do during the winter with MTBE (oxyfuel) in order to reduce emissions.
Posts: 4548 | Registered: May 2001
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posted
It could also be that Mr. Bush's friends in the US petroleum industry needed a bit of a break on what they pay for a barrel of oil. While they've been raking in the money, the hurricanes have upped their expenses temporarily.
Now they can get some of their supply from the strategic reserve at below market price. This will offset the costs of restarting the refineries and drilling operations in the gulf.
But I'm still betting we'll never see gas prices at less than $2 a gallon ever again. The move is more for the oil companies than the average American. We're still the sheep awaiting shearing.
Posts: 2848 | Registered: Feb 2003
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posted
KarlEd, you are correct that the problem in the supply chain doesn't have much to do with a lack of crude oil (despite production in the Gulf still being shut down after Hurricane Rita), but with lack of refining capacity. This was a problem even before the hurricanes hit, as US refineries had been running pretty much at capacity when not shut down for scheduled or unscheduled maintainence.
Analysts are almost unanimous that there is no shortage, globally speaking, in crude oil. The information that I've been reading since about the middle of the summer is that it is gasoline prices that are pushing crude prices higher, not crude oil prices that are making gasoline prices go up.
The reported this morning that there have been no takers for an offer by OPEC of 2 million barrels per day extra oil they offered to pump beginning October 1. In fact, OPEC might actually step back its production in October because there is no capacity to refine it.
As far as refinery damage from Rita goes, FT reports, in the same article, that 7 of the 15 refineries closed down ahead of Rita, 7 have announced plans to come back online, 5 have serious damage, and 2 of those are expected to be out of commission for several weeks.
Bottom line is, there is crude oil available to be refined if someone can find refinery capacity to process it. In addition, with the summer driving season over and the mess made by the evacuation ahead of Rita notwithstanding, the focus is moving away from gasoline prices and onto the price of heating oil for this winter.
Edit to remove faulty link. Sorry.
Posts: 2454 | Registered: Jan 2003
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quote: I used to live near down there, and the landscape was dotted with oil derricks. It doesn't match the sheer volume coming out of the middle east, but pumping oil from the ground is a major part of the economy.
<-- grew up in oil towns
I grew up in an agricultural area, but there's still some gas and oil production in western Kansas. Lots of the wells are rusting though, with the cost of electricity outrunning any profit possible from running the wells.
Posts: 1813 | Registered: Apr 2001
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