With nine major refineries closed and many oil rigs or platforms reported missing in the Gulf of Mexico in the wake of Hurrice Katrina, the US government has decided to release oil from the Strategic Petroleum Reserves to help offset production cuts. Oil prices fell back following the White House's announcement, to $68.94 from a high of $70.85 a barrel.
US Energy Department Secretary Samuel Bodman said the decision to open up the Strategic Petroleum Reserve was made last night. "In a word, it is going to be done," he said. "We will be tapping the supply." The Strategic Reserves total almost 700 million barrels of crude oil, stored in five underground salt caverns in Texas and Louisiana.
The White House also said it would waive certain air pollution regulations for gasoline and diesel in all 50 states until Sept. 15, allowing gasoline with higher evaporation rates and diesel with higher sulphur content to be sold.
The US Minerals Management Service [1] said 95% of the Gulf of Mexico's oil output is now out of service, as is over 83% of natural gas production. The Gulf region accounts for about a quarter of US crude supplies. "We have confirmed reports of at least 20 oil rigs or platforms missing, either sunk or adrift, and one confirmed fire where a rig used to be," said one US Coast Guard official.
Shell Oil was one of many firms to see damage to its Gulf of Mexico facilities. Aerial photos have shown significant damage to the top of its giant Mars platform, which normally produces 220,000 barrels of crude and 220 million cubic feet of natural gas per day. BP said seven of its oil platforms had toppled over but reported no major damage to its massive deepwater facilities. A ruptured gas pipeline is also reported to be on fire in the Gulf.
In Aug. 31 trading, natural gas futures fell by 35.9 cents to $11.30 per 1,000 cubic feet, but this was almost double the price from a year ago. Oil prices remain the most immediate concern, with peak summer demand continuing, and fears that US stockpiles are too low.
OPEC is considering again raising its production ceiling at a meeting next month, although analysts have said this would be a mainly symbolic gesture. "The scary thing is that the hurricane season is not over yet... so I don't see prices coming down," said Tony Nunan, manager for energy risk management with Mitsubishi Corp's international petroleum business in Tokyo. (BBC [2], Aug. 31)
As we noted [3] at the time, Bush ordered the Strategic Reserves filled to the maximum in December 2001, when global prices were depressed, as if in anticipation of the current oil shock. As we also noted [4], in the prelude to the Iraq war, Bush pumped oil into the Strategic Reserves at an unprecedented rate.
See our last posts on Katrina's aftermath [5] and the global oil shock [6].
