Although several months have passed since Hurricanes Katrina and Rita, their impact is still widespread and devastating. Residents of those states affected by the storms continue to rebuild their lives, homes, and businesses. Even Americans not directly in the storms’ path are feeling the effects in terms of the resulting oil and natural gas prices. The Energy Information Administration (EIA), part of the U.S. Department of Energy, recently released its Short-Term Energy Outlook, which predicts energy estimates and expected trends while illustrating how Katrina and Rita continue to affect our nation.
As of early February, the EIA projects that retail regular gasoline prices will average $2.45 in 2006 compared to the average of $2.27 per gallon in 2005, and retail diesel prices are estimated to average $2.51 per gallon in 2006, up 4.1 percent from 2005. The EIA also predicts a barrel of crude oil will average $65 in 2006 compared to $56 a barrel in 2005. Natural gas prices will be slightly lower in 2006 with an estimated average of $8.87 per thousand cubic feet (mcf) compared to $9.00 per mcf in 2005. This is attributed to the unusually warm winter weather, most notably in January.
The Short-Term Energy Outlook assumes no disruptions to oil production from hurricanes or overseas political instability. Other major factors, such as new regulations for blending more ethanol into gasoline and complications with production and distribution of ultra-low sulfur diesel, may also affect the estimates, according to EIA Chief Guy Caruso.
The Minerals Management Service (MMS), an agency of the U.S. Department of the Interior, recently provided an update on the hurricane damage to the oil and natural gas infrastructure in the Gulf of Mexico. The MMS estimates that 3,050 of the 4,000 Gulf platforms and 22,000 of the 33,000 miles of Gulf pipelines were in the direct path of either Hurricane Katrina or Hurricane Rita. This resulted in severe damage.
Katrina, a category 5 storm, damaged 100 pipelines, and only 12 have returned to service. Katrina also destroyed 46 platforms, damaged 20, and caused 211 minor pollution incidents, which are classified as spills of fewer than 500 barrels of oil that do not reach the coastline.
Rita, a category 4 hurricane, damaged 83 pipelines, and only 10 have been restored. In addition, Rita destroyed 69 platforms, damaged 32, and caused 207 minor pollution incidents.
“Assessments on pipeline and facility damages are still ongoing, and any updates will be reflected in future releases,” said MMS Regional Director Chris Oynes. “It is likely that additional damage will be reported as underwater damage assessments are completed. These have been delayed because of overwhelmed support resources, such as diving equipment, support vessels, and remotely-operated vehicles.”
The MMS estimates 255,000 barrels per day of oil production and 400 million cubic feet per day of natural gas output will probably not be restored prior to June 1, the start of the 2006 hurricane season. The response and recovery to the hurricane damage has been complicated by damage to onshore refineries, compressor stations, gas processing terminals, and plants supplying power to the facilities.
“The overall damage caused by Hurricanes Katrina and Rita has shown them to be the greatest natural disasters to oil and gas development in the history of the Gulf of Mexico,” Oynes said.
While the EIA forecast and the MMS report are important for assessing the damage and impact of Hurricanes Katrina and Rita, they may also inadvertently highlight the importance of developing alternative fuel and advanced technology vehicles in order to curb the United States’ reliance on oil and foster acceptance of renewable energy sources. Adoption of alternative fuel and advanced technology vehicles could help mitigate the impact of future hurricane seasons on oil and gas prices.