Why Hurricanes Raised the Price of Gas in 2005 and Will it Happen Again in 2006?

By Scott Siegel

http://www.beatthegaspump.com

June 1 marked the start of the hurricane season, which lasts through the end of November.  The Atlantic hurricane season of 2005 was the most active season since accurate record-keeping began in 1944.  In fact, last year’s 27 named Atlantic storms included 15 hurricanes, 7 of which were classified as Category 3 or greater.  

The paths of 5 of these major hurricanes passed through the Gulf of Mexico, significantly disrupting crude oil and natural gas production.  Hurricanes Katrina and Rita were particularly damaging to the energy industry, causing widespread shut-in of production. Some of this production remains shut-in today.

In fact, since Katrina and Rita struck 9 months ago, over 162 million barrels of crude oil and 784 billion cubic feet of natural gas production from Federal offshore fields had been lost by June 1, 2006.  This amounts to about 30 percent and 21 percent, respectively of a normal year’s crude oil and natural gas production from the Federal offshore fields (Minerals Management Service).

In addition to the upstream impacts to Gulf production, hurricanes have had significant impacts on midstream and downstream infrastructure. Four hundred fifty-seven underwater pipelines were damaged, and the Louisiana Offshore Oil Port had to temporarily stop accepting shipments during both hurricanes. Also, some onshore refineries and natural gas processing facilities suffered heavy damage.

After Katrina hit Louisiana, nearly 2 million barrels per day of refinery capacity were shut down, due to either direct damage or interruption of power supplies.  IA estimates that at the height of the refinery outages (September 22-25, 2005), as much as 4.9 million barrels per day of refining capacity (nearly 29 percent of U.S. refining capacity and over 60 percent of refining capacity in the Gulf Coast region) were shut down.   

Some of the  shutdowns were precautionary, ahead of the storms, but several refineries were damaged extensively, thus keeping them shut down for a relatively long time.  For example, even as late as October 10, 2005, more than 2 million barrels per day of refining capacity were still shut down.

So to summarize, the hurricane season of 2005 is still affecting the price of oil.  The US oil industry has not fully recovered from the damage that was done last season.  Unfortunately we have now entered into the new hurricane season of 2006.  While the overall forecast of the season is lower than what actually occurred last year, the initial forecast is actually higher than the initial early forecast was last year.  As to what will really will really happen is anybody's guess.  The bad part is we are already behind.  

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Scott Siegel is the author of "Beat The Gas Pump!"

Learn how to protect yourself as the price of gas goes up! Learn more about saving money and gas at the pump.  Over 130 ways to save and increase fuel economy.

If you want to take your money out of your gas tank and put it back in your pocket go to:

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