Hurricanes Heap Energy Supply Problems on United States

By J.R. Pegg

WASHINGTON, DC, October 27, 2005 (ENS) - It will take "many months" before the oil and natural gas infrastructure on the Gulf Coast is repaired and full production is restored, Interior Department Secretary Gale Norton told a Senate panel on Thursday.

Some 68 percent of the region’s oil production and 55 percent of its natural gas production remains offline due to damage from Hurricanes Katrina and Rita, Norton said, and repair costs will be in the "billions of dollars."

Norton said the slow recovery is due to the extensive damage as well as the "limited amount of repair equipment and skilled personnel."

platform

Damaged oil platform in the Gulf of Mexico awaits skilled repair crews. (Photo credit unknown)

Energy Secretary Samuel Bodman joined Norton at the Senate Energy and Commerce Committee hearing and told lawmakers the nation is dealing with an "extraordinary situation by the one-two punch of Katrina and Rita."

More than 50 percent of the Gulf Coast’s oil and gas pipelines are either damaged or offline and 16 natural gas processing plants remain closed, according to the Energy Department.

"The hurricanes have clearly demonstrated the need for diversification of our energy supply," said Norton, who praised Congress for moving forward to open the Arctic Refuge to oil and gas drilling and touted the administration’s efforts to boost drilling in the West.

But lawmakers pressured the administration to push more aggressively offshore - in particular an area off the coast of Florida known as Lease 181.

The area, close to the Florida Panhandle in the eastern Gulf of Mexico, is not restricted under the federal moratorium that bars oil and gas development in some federal waters.

Norton

Secretary of the Interior Gale Norton (Photo courtesy DOI)
It was approved for leasing under the Clinton administration, but the Bush administration declared it off limits under an agreement with Florida Governor Jeb Bush, the President's brother.

"181 has to be done," said Committee Chairman Pete Domenici, a New Mexico Republican. "We have been told it is the most significant act that can be taken to stabilize and possibly reduce the cost of natural gas. This shouldn’t be delayed."

Norton said the Interior Department is revising its five year plan for lease sales in the region and the earliest it could open the area is July 2007.

Legislation approved Wednesday by the House Resources Committee would open the lease area immediately – bar about one-fourth of the area within 125 miles of Florida’s coast.

Governor Bush has endorsed the move, but no such language has yet been approved by the Senate.

The House language also applies to all coastal states and offers them 40 to 50 percent of revenues from the federal leases if they opt out of the moratorium.

Louisiana Democrat Mary Landrieu told colleagues she would "vigorously oppose any opening of Lease 181" unless the language offers the same revenue sharing to Gulf states with existing federal leases off their shores.

Failure to grant revenue sharing to states with existing production "is an insult," Landrieu said, in particular at a time when "the energy coast is flat on its back."

spill

A contract worker places absorbent pads on surface oil at the Bass Enterprises South Facility in Cox Bay, Louisiana, October 6, 2005. Hurricane Katrina caused an estimated 3.8 million gallons of oil to be spilled here that could have supplied U.S. fuel needs. U.S. consumers use about 20.4 million barrels of oil per day. (Photo by Mike Lutz courtesy U.S. Coast Guard)
The administration has not yet taken a position on the House proposal, Norton said, but is willing to consider revenue sharing.

Bodman said that in light of the oil industry’s record profits oil companies "have a responsibility to expand refining capacity."

As much as 25 percent of the nation’s refinery capacity was offline due to the hurricanes, a factor that contributed to record high gasoline prices.

The world’s five largest oil companies are expected to reap in a combined third-quarter profit of some $28 billion. Today Exxon-Mobil announced profits of some $9.9 billion.

The last new refinery was built in the United States in 1976, and Bodman noted that oil companies "have not found it profitable to invest in refinery capacity."

Experts say oil companies have shut refineries and balked at constructing new facilities in order to take advantage of a very tight market for gasoline.

Legislation to provide financial incentives to encourage construction of new refineries failed in the Senate Environment and Public Works Committee on Wednesday, with critics concerned that the bill was yet another giveaway to the oil industry.

Bodman

Energy Secretary Samuel Bodman said Hurricane Katrina inflicted unprecedented damage on the Gulf Coast energy sector. (Photo courtesy Nevada DCNR)
Energy Secretary Bodman said the idea of a strategic refinery reserve, akin to the Strategic Petroleum Reserve, "ought to be considered," but is a complex matter.

"Gasoline has a limited shelf life," he said. "It begins to lose its performance characteristics after two to three months. And we also have about 15 types of gasoline … so which grade are you going to put in the reserve?"

Bodman told the panel the administration’s new energy efficiency and conservation campaign stands as "the major effort" that will help consumers in the short-term with energy costs – in particular as colder weather approaches.

Lawmakers praised the conservation campaign, which includes a new website: http://www.energysavers.gov, and a booklet on energy saving tips, but said more is needed.

"I feel this is terribly underfunded," said New Mexico Democrat Jeff Bingaman, who urged Bodman and other administration officials to use television to promote their conservation tips – a view echoed by Idaho Republican Larry Craig.

"Maybe we could put the president in a sweater and put him on television," Craig said.

Bodman declined to discuss funding needs or whether the campaign should be expanded to include television spots.

pipeline

A small section of the 800 mile long Trans Alaska Pipeline System. It stretches from Prudhoe Bay on Alaska’s North Slope to Valdez, the northernmost ice-free port in North America. With Gulf of Mexico infrastructure damaged, the United States relies even more heavily on oil from other sources such as Prudhoe Bay. (Photo courtesy Alyeska Pipeline)
Public service announcements have been distributed to 4,500 radio stations, according to the energy secretary, and the administration has made "every effort to get out to largely the states that are most affected by the winter fuel issue."

"We are doing an effective job given the resources we have," Bodman said.

The administration is preparing proposals to boost funding for the federal program that helps poor families pay winter heating bills, Bodman told the panel.

On Wednesday the Senate rejected a bid to increase funding for the program – known as the Low Income Energy Assistance Program (LIHEAP).

Senate Democrats and Northeastern Republicans sought to increase LIHEAP funding from $2.2 billion to $5.1 billion.

It is the third time this month lawmakers have failed to boost funding for the program.

Bodman said he opposed the premise that a new tax be imposed on the oil industry to help fund LIHEAP – some critics say oil companies could simply pass the fee onto consumers.