Six days after Hurricane Katrina hammered a main conduit of the U.S. energy and shipping industries, much of the crucial infrastructure on the energy industry in the Gulf Coast region those remains shut down. Although a full assessment of the status of the region’s infrastructure still cannot be made because of the post-storm chaos, it is becoming increasingly clear that refining and production capacity in the region will be curtailed for a prolonged period of time. Earlier posts on the developing economic effects of Katrina over the past week are here, here, here, here, here and here.
First, the impact on refining capacity. The storm shut down about two million barrels a day of crude-oil refining capacity. That translates to the loss of about one million barrels a day of gasoline production, which is about 10% of total U.S. demand. It is now apparent that at least four refineries that together generate about 5% of U.S. oil-refining capacity will be down for at least a month as those facilities are repaired. Meanwhile, damage to production capacity has also been extensive. Although production is coming back on-line slowly, it’s becoming clearer that it will take at least several weeks — and perhaps months — for production levels to return to near pre-Katrina levels.

As noted here, the International Energy Agency ordered the release of two million barrels a day of crude oil, gasoline and other fuels on to the world market from their strategic stockpiles over the next month and, in response, gasoline and crude-oil futures fell on the Nymex Exchange for the first time since the storm. But the IEA’s move refects that the world is now running partly on its fuel reserves that have been set aside for emergency use. Inasmuch as the amount of spare production capacity on the world market is particularly thin at this time, any further blips on the energy supply or demand radar screens would have even greater economic impact than those we are already experiencing.
Similarly, the news on the production side of the energy industry is not particularly optimistic, either. Six days into the recovery from Katrina, energy producers have been able to restart about 250,000 barrels a day of oil and 3 billion cubic feet of daily gas production that had shut down in anticipation of the storm. In comparison, six days after the smaller Hurricane Ivan last year, energy producers had restarted almost 850,000 barrels a day of oil and 4.1 billion cubic feet of natural gas. In addition to the extensive damage to offshore drilling and production facilities, roads and waterways, a big reason for the slow recovery is a practical problem — the service companies that provide transportation and equipment for damage assessment and repair along the Gulf Coast are also in a state of chaos. Many of those companies’ employees are homeless and living temporarily elsewhere, complicating the damage assessment process greatly. As a result, concrete information on the status of offshore production facilities and pipelines remains sketchy, at best.
Finally, at least indirectly tied to the dislocation of gasoline supplies resulting from Hurricane Katrina, don’t miss James Hamilton’s witty analysis of California Attorney General and demagouge Bill Lockyer‘s incredibly disingenuous plan to keep California gasoline prices low.