Katrina touches all

Feature Story

Devastating hurricane leaves its mark on Americans from coast to coast

By Chris Traczek

While the physical devastation ‘ which is expected to cost over $100 billion ‘ and loss of life ‘ which could reach into the tens of thousands ‘ wrought by Hurricane Katrina was limited to the Gulf Coast states of Louisiana, Mississippi and Alabama, the toll taken by the strongest storm to hit the United States in nearly 40 years will leave no American untouched.

The scenes of massive flooding in New Orleans, houses turned into matchsticks in Biloxi and Gulfport, Miss., oil platforms washed ashore in Alabama and thousands of evacuees boarding buses for Houston and points beyond have given pause to those fortunate enough not to have been caught in the eye of the storm.

As Americans always do in times of crisis, we have banded together to offer support, both monetary and spiritual, in historic doses since the storm made landfall on Aug. 29.

But time moves on, and while rescue, recovery and rebuilding on the Gulf Coast will go on for months, if not years, most of us will go back to our regular routine. And what will we find? That Hurricane Katrina has taken a bite out of all of us.

In a summer in which oil and gasoline prices seemed to create new records on a seemingly weekly basis, in large part due to increased demand worldwide, the storm was just another ingredient thrown into a volatile mix. Two days after Katrina hit, crude oil prices briefly soared over $70 per barrel, a new record. Gasoline prices, meanwhile, leapt by as much as 50 cents a gallon in some areas, with many major metropolitan areas posting prices above $3 a gallon. In addition, some industry analysts predicted that before the supply issues shook out, gasoline would breach the $4-a-gallon barrier.

Tight supplies had been blamed for the rise in gasoline prices this summer and Hurricane Katrina tightened the belt on those supplies another couple notches. The storm forced the evacuation of hundreds of drilling platforms in the Gulf of Mexico and damaged underwater pipelines, while many refineries in Louisiana and Mississippi were shut down as Katrina roared through. Almost half of the country’s oil refinery capacity is concentrated on the Gulf Coast and in the wake of the storm, the U.S. Minerals Management Service reported that 95 percent of the Gulf of Mexico’s oil output was out of service with nearly 5 million barrels a day of production lost.

While most of the attention was directed toward the high-profile rise in gasoline prices, the approximately 7.7 million households in the country that use heating oil to heat their homes in the winter, 70 percent ‘ or 5.4 million ‘ of which are located in the Northeast, were also wringing their hands.

“With refineries down and production shut-in it looks as if oil prices will remain high going into winter as the market will be focused on the potential for natural gas and heating-oil shortages if we have a cold winter,” said Credit Suisse First Boston analysts.

Katrina’s arrival turned into a one-two punch as the heating-oil industry was already grappling with high prices before the last week of August. According to the Independent Connecticut Petroleum Association, the 56-percent increase in heating oil prices since August 2004 meant that the average homeowner could expect to pay $1,965 in 2005 for the 700 gallons needed to get through the winter, up from $1,260 in 2004.

“Heating oil prices are already very, very high. They are at record levels for this time of the year,’ said John Felmy, chief economist with the American Petroleum Institute.

However, the heating-oil industry could be helped by the fact that the U.S. has built up a healthy supply of distillate fuels over the past several months, with the Energy Information Administration’s latest report saying distillate inventories rose 2.7 million barrels in the week ended Aug 26, putting them 4.7 pct above levels a year ago.

Additionally, the government maintains a 2-million-barrel home heating oil reserve at storage sites in New Jersey, Connecticut and Rhode Island that the president can tap in response to market “dislocations.”

Because of the potential oil crunch, on Aug. 30 Pres. Bush authorized the Energy Department to open the Strategic Petroleum Reserve in order to make loans of oil to refiners hurt by the storm. It was the first time that oil from the SPR, which contains nearly 700 million barrels stored in salt domes in Louisiana and Texas, was tapped in nearly 15 years. It was expected that 30 million barrels would eventually be released from the SPR.

“In a word, it is going to be done,” Energy Secretary Samuel Bodman said. “The SPR was put in place specifically for this kind of an event.”

Other actions taken to help curb the oil crunch included:

Pres. Bush also ordered the Department of Homeland Security to temporarily waive the Jones Act, which permitted non-U.S. flagged vessels to transport gasoline and diesel fuel between U.S. ports to help replace the transportation capacity lost by pipeline shutdowns.
The Environmental Protection Agency first announced a temporary waiver to ease fuel regulations on those states most affected by Katrina, including Alabama, Florida, Louisiana, and Mississippi, and then expanded that waiver to all 50 states and territories in the U.S. The waiver allowed suppliers to sell gasoline that had a higher Reid Vapor Pressure and diesel that had a sulfur content of 500 parts per million until Sept. 15.
The Department of Transportation’s Federal Motor Carrier Safety Administration temporarily eased Hours of Service regulations for certain carriers to allow vital fuel transportation services. The declaration, limited to the delivery of fuel, was in effect until Sept. 14.
The IRS issued an announcement waiving the penalty for having dyed diesel in an on-road tank. The IRS also said it would not penalize those who acted in response to the EPA waiver in advance of their announcement.
International Energy Agency member countries agreed to supply additional crude oil and gasoline products to the market. The contribution consisted of both oil and gasoline with an emphasis on refined product.

Naturally, the rapid rise in gasoline prices brought with it suspicion of price-gouging at the pump, the same fear that came in the wake of the Sept. 11 attacks; however, many of those accusations of price-gouging four years ago turned out to be unfounded.

In fact, in the days before Katrina even made landfall, the attorneys general of Mississippi and Alabama issued warnings to retailers that “potential scams” in the sale of such necessities as bottled water, gasoline, generators, batteries, flashlights and hotel rooms would not be tolerated
.
Bush also announced that there would be “zero tolerance” for “price-gouging at the gasoline pump.”

Despite that declaration, in Illinois, for example, nearly 100 people had called Illinois Attorney General Lisa Madigan’s office as early as Aug. 29 to complain about price-gouging by gasoline stations, as reported by Copley News Service. As a result, investigators visited selected stations on Aug. 30 to determine whether the complaints were accurate and whether legal action might be warranted, the news service reported.

“We’re in hyperdrive,” National Association of Convenience Stores spokesman Jeff Lenard told Reuters. “These wholesale increases are going to be felt almost immediately. Right now we’re (retailers) losing money on every sale as we slowly pass on these increases, and in the meantime we’re being called all kinds of names.”

Some argued that to control prices, major oil companies should forfeit their profits in the time of crisis. In an interview on ABC’s “Good Morning America, Bush said that instead American corporations should contribute cash to hurricane relief funds.

Many companies in the oil industry have stepped to the fore to make donations to relief efforts. Below is a partial list of such contributions, with many more expected to be made as the cleanup and rebuilding move ahead:

Chevron Corp., $5 million.
Shell, $3 million.
ConocoPhillips, $3 million.
ExxonMobil Corp., $2 million.
CITGO Petroleum Corporation, $2 million.
Marathon Oil Corp., $1.5 million.
BP Foundation, $1 million.
Valero Energy Corp., $1 million.
Amerada Hess, $1 million.
Total S.A., $1 million.
Sunoco, $1 million.