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US Politics and Economics

Katrina – the real economic danger

Jerome a Paris, Daily Kos
Despite the recent growth in gasoline prices, which has triggered intervention by the government for refineries to forego minor maintenance in the coming weeks and to relax regulatory standard, and despite and the pretty gloomy assessments from the Department of Energy, which now forecasts oil prices above 70$ this winter and above 60$ next year, I think that the oil/gasoline situation is not the real danger for the US economy.

The real danger comes from two other places:
* natural gas
* the loss of the port facilities around NO

…Gas prices were already very high before Katrina struck, and the loss of both production capacity from the Gulf of Mexico (4 billion cubic feet per day, 40% of GoM production or roughly 10% of US consumption) AND the apparent long term loss of processing capacity in Louisiana (5 bcf/d – see the same source above) ensure that the market will be even tighter. And no help can come form abroad, as the only way to carry natural gas across oceans is in the frm of LNG, and the US only has 4 import terminals, already used at full capacity. Canadian imports already provide more than 20% of US demand and cannot grow enough either.

So expect what are VERY HIGH gas prices to remain, and to slowly feed through pwoer prices and industrial prices. This will hurt consumers, and it will hurt industrial producers unless they can pass these price increases through. So expect lower profits or inflation, or both. Retail electricity prices could also rapidly become a hot political issue as utilities grapple with vastly more expensive wholesale prices and have to decide to pass these on to consumers or lose money.

But the biggest worry by far comes from the literal disappearance overnight of the Port of South Louisiana, the largest commercial port in the USA and the 5th largest in the world. The LOOP, the offshore oil terminal seems to be coming back to normal, and the river facilities of the Port of New Orleans (on the Mississippi river) seems to be starting some operations again (6 page pdf), but the overall transport node seems GONE.

…The power and transport stories may not be as visible as the oil and gasoline situation, but they are just as dangerous for the economy and potentially a lot more disruptive on the long run.
(8 September 2005)

Let a hundred reactors bloom

Todd Crowell, Asia Times
Not far from the fabled Silk Road city of Dunhuang in northwestern Gansu province, Chinese scientists are drilling boreholes deep into the Beishan Mountains. It is here that China expects to permanently store the radioactive wastes that are accumulating from its rapidly expanding nuclear power industry.

In the next few weeks – before the end of the year certainly – Beijing is expected to make a decision on who will get contracts to provide reactors for four new nuclear power plants being built along China’s coast, two at Sanmen in Zhejiang province and two others at Yangjiang in Guangdong province.

Everyone in the nuclear power industry from Moscow to Pittsburgh is watching this deal closely. The four new plants are likely to be only the first installments of a wave of new nuclear power plant construction, which is likely to see as many as 30 new plants constructed in China by 2020. Currently, China gets only about 2.5% of its electricity from nuclear power – compared with about 30% in Japan.

Explosive economic growth has made China probably the most power-hungry nation on earth. The burning of coal, China’s most abundant fuel, has polluted the air in many of China’s cities and contributes to the buildup of greenhouse gases. That, plus concerns about petroleum depletion over time and the need for energy independence, lead logically to an increased reliance on nuclear power.
(9 September 2005)

Another storm would devastate US energy: analysts

Erwin Seba, Reuters
HOUSTON- U.S. oil and natural gas supplies would be devastated if another strong storm hits while the Gulf of Mexico is recovering from Hurricane Katrina, energy analysts said on Wednesday.

“We certainly can’t stand another storm,” said Tom Bentz, vice president and senior energy analyst for BNP Paribas Commodity Futures Inc. “That’s why people are watching the storms out there now.”

Two hurricanes and a tropical storm were churning in the Atlantic Ocean on Wednesday. None of the current storms are forecast to enter the Gulf.

The 2005 hurricane season, which lasts until November 30, has been one of the most active on record and is just reaching the traditional peak of activity in early September.
(7 September 2005)

U.S. machine not well-oiled

Gal Luft, Baltimore Sun
WASHINGTON – As we come to grips with the tragedy wrought by Hurricane Katrina, three of the worst structural flaws in the nation’s energy system must be examined: the overconcentration of oil and gas infrastructure in the part of the country most prone to natural disasters, the lack of refining capacity and the near-complete dependence of vehicles on petroleum.

…in the medium to long run, it is critical that we act expeditiously to diversify our sources of transportation fuel beyond petroleum. Vehicles that can run on blends of gasoline and alcohols made from coal or agricultural products can use the latter when gasoline supply is compromised.

In Brazil, for example, most cars can operate interchangeably on ethanol and gasoline. Since U.S. electricity is essentially not generated from petroleum, advanced hybrids that literally may be plugged in add the electricity grid as yet another alternative transportation fuel resource.

Winston Churchill once wrote that “safety and certainty in oil lies in variety and variety alone.” If the United States wants to better insulate itself from oil supply disruptions, which thus far have precipitated every recession since World War II, it should seek such variety not only in the sources of the petroleum it imports but also in the locations of its petroleum infrastructure and the types of fuel that the transportation sector can use.

Gal Luft is executive director of the Institute for the Analysis of Global Security and co-chairman of the Set America Free Coalition.
(6 September 2005)
According to the IAGS website: “The Institute for the Analysis of Global Security (IAGS) is a non-profit organization which directs attention to the strong link between energy and security and provides a stage for public debate on the various avenues to strengthening the world’s energy system.” (More about IAGS)

Energy policy: emphasize conservation, alternative fuels

Michael T. Klare, South Florida Sun-Sentinel via CommonDreams
Of the many lessons to be learned from the effects of Hurricane Katrina, none is perhaps more important over the long run than the obvious need for a new national energy strategy.

The existing strategy announced with great fanfare by President Bush in May 2001 has now collapsed. It’s been swept away like so many under-strength dikes around New Orleans. As a result, every American will face the pain of suddenly much higher gasoline prices and home heating costs, along with other economic liabilities. As we strive to rebuild New Orleans and other Gulf Coast communities, we must also construct a new energy plan that will better serve our needs.

Bush’s 2001 plan has one overriding goal: to increase the supply and consumption of petroleum through any means necessary. “The goals of this strategy are clear: to ensure a steady supply of affordable energy for America’s homes and businesses and industries,” Bush intoned on May 17, 2001.

To achieve this objective, the administration called for increased oil drilling in the U.S., particularly in the Gulf of Mexico, the only area of the nation believed capable of supplying increased yields in the years ahead (given the anticipated decline in output from most other fields).

That the Gulf is a major magnet for hurricanes doesn’t appear to have figured in this calculation.

…Now, in Katrina’s wake, we have to start over. The U.S. needs a new energy strategy that emphasizes conservation and the alternative fuels. As a first step, Congress must impose substantially higher minimum fuel-efficiency requirements for all vehicles, but especially for SUVs and light trucks (which now enjoy much lower requirements than ordinary cars). Other measures, like reduced speed limits and bigger incentives for driving hybrids and using public transit, should also be considered.

Most important, we need a long-term strategy that weans us off fossil fuels like oil and natural gas and moves us toward the fuels of the future whether derived from biomass (ethanol), hydrogen, or some other potential source. Aside from rebuilding New Orleans, Biloxi and other flattened cities, the adoption of such a strategy is the most important and valuable thing we can do in the wake of Hurricane Katrina.

Michael T. Klare is a Foreign Policy In Focus scholar, a professor of peace and world-security studies at Hampshire College, and the author of Blood and Oil: The Dangers and Consequences of America’s Growing Dependency on Imported Petroleum (Metropolitan Books, 2004).
(8 September 2005)

Shell game at gas stations pays big

Juan Gonzalez, New York Daily News
On Sept. 1, just three days after Hurricane Katrina struck the Gulf Coast, top executives at Shell Oil’s Texas headquarters took a public stand against gasoline price gouging.

“We encourage our wholesalers and dealers to . . . practice restraint during these periods,” the press release from Shell said.

The company even urged the public to contact local governments “if you feel a gasoline station is charging a price that is out of line with other stations in your market.”

That same day, Motiva Enterprises LLC, Shell’s oil refining subsidiary, hiked the wholesale price of gasoline for Shell dealers throughout the Bronx by a whopping 20 cents a gallon, according to company records obtained by the Daily News. Those records show that since the hurricane disaster, Shell has increased its wholesale gasoline price on six separate occasions for its Bronx dealers.

On Aug. 31, the company hiked the price twice in one day – first at 3 p.m. and then at 6 p.m. “These oil companies are out of control,” said a veteran Shell dealer in the Bronx who is furious at the company’s tactics.

“There’s no supply problem,” said the dealer, who asked not to be identified.

“Shell’s just forcing us to raise the price. This gas was refined more than a month ago, so why charge people more for it? It’s just greed.”
(8 September 2005)

U.S. sued over appliance energy standards
More efficient models would ease power plant use, states and city argue

Associated Press via MSNBC
ALBANY, N.Y. – Fifteen states and New York City on Wednesday sued the U.S. Department of Energy for failing to enact stronger energy standards required by Congress for 22 common appliances.

The suit led by New York Attorney General Eliot Spitzer claims the federal agency has failed to set tougher energy requirements for manufacturers that would save electricity, natural gas and oil. Some deadlines set by Congress lapsed years ago, the state officials said. They estimate if the standards were set, the annual energy savings would meet the total energy needs of 3 million to 12 million American households. The electricity savings would equal the output of 13 to 42 large power plants, the state officials claimed in the civil lawsuit.
(8 September 2005)
Related story in the Sacramento Bee: States sue U.S. to tighten energy efficiency rules.

Oil prices increase plastics recycling market

Julia O’Malley, Portland Oregonian
The cost of plastics, used in everything from shopping bags to defibrillators, is rising quickly. Though the price increase affects the cost of goods, it’s also sparking a renewed interest in recycling.

Plastics are made from petroleum byproducts generated in the refinement process of oil and natural gas. Even before Hurricane Katrina crippled Gulf Coast oil refineries, high oil prices led many businesses to look for alternatives to virgin plastics in products and packaging, driving up the market for recycled plastics, says Dennis Denton, of Denton Plastics, a plastics recycler in Northeast.

“Somebody who’s making flower pots out of virgin resin, they are thinking, maybe instead of paying 60 cents (per pound) for virgin, maybe I should pay 40 cents for recycled,” Denton says.
(8 September 2005)

A report on the energy sector after Hurricane Katrina

Joseph Dancy, Financial Sense University
…We have had more than a decade of under-investment in the energy and basic material sectors, and the demand growth has begun to outstrip the ability of the sector to supply consumer’s needs. When this occurs prices naturally trend upward.

Over the next decade we think massive amounts of capital will be needed in the energy and basic materials sectors as the world attempts to increase global productive capacity to meet the needs of rapidly growing countries such as China and India – and the millions of citizens that are attempting to attain a ‘middle-class’ lifestyle.

We think Hurricane Katrina was the catalyst that will ignite a long term interest in the energy sector. Many investors who here-to-date have expected energy prices to fall back to levels seen in the 1990’s will be surprised at the durability of energy price levels. If we are correct in our analysis we are in the second inning of a nine inning game – and we expect the interest in the energy sector to continue to expand in the investment community.
(8 September 2005)
Joseph Dancy is advisor to an investment newsletter, LSGI Market Letter, so use your judgment when reading his analysis.

Republicans eye expanding U.S. offshore drilling

Chris Baltimore, Reuters via ENN
WASHINGTON – Barely a month after President Bush signed a $14.5 billion energy bill into law, Hurricane Katrina’s destructive dance through the U.S. oilpatch is being seized on by Republicans as a reason to open more federal offshore waters to drilling.

The House and Senate energy committees are also looking at measures to help the energy industry, such as incentives to build the first U.S. refinery since 1976 and cutting the array of fuel blends required by anti-pollution rules.

Before Katrina shut most of the Gulf of Mexico’s oil and gas production and 10 percent of U.S. refining capacity, Republicans were gunning for a budgetary step to open the Arctic National Wildlife Refuge (ANWR) to exploration.

Now they have widened their scope to include drilling in banned Outer Continental Shelf (OCS) waters off Florida and other states. Currently, federal offshore drilling is allowed only in Alaska, Alabama, Louisiana and Texas.
(9 September 2005)

Where do gas prices go next?

Mark Trumbull, Christian Science Monitor
Gasoline prices have begun to ease, but even when all Gulf Coast refineries are running again later this year, consumers may not see a full retreat to pre-Katrina levels.

That conclusion, analysts say, stems from a simple equation involving the cost of a barrel of crude, markups by middlemen, and little margin for error in the nation’s energy infrastructure. Across the country, gasoline prices soared into uncharted territory – above $3 per gallon last weekend – stunning motorists and prompting many to shorten or skip Labor Day trips.

Concerns about price gouging by gas stations are being investigated in state capitals and the halls of Congress. Prices have already begun to pull back, as some refineries and long-distance pipelines affected by hurricane Katrina return to full strength.

How far and how quickly prices fall now depend on a few critical factors: when four damaged refineries come back on line, how quickly emergency shipments of gasoline from foreign refineries arrive, and most important, where oil prices go from here.
(9 September 2005)