Hurricanes Fuel Bush's Call for New Refineries, Conservation

WASHINGTON, DC, September 26, 2005 (ENS) - The federal government is going to use the Strategic Petroleum Reserve to mitigate any shortfalls in crude oil that could affect consumers as a result of hurricanes Rita and Katrina, President George W. Bush said today. At a news conference at the Energy Department in Washington, the President said "when you have a Hurricane Katrina followed by a Hurricane Rita, it's natural, unfortunately, that it's going to affect supply."

Bush asked consumers to conserve as much oil and gasoline as possible. He said more refining capacity is needed, and also that he wants to move the nation in the direction of more nuclear power plants.

After a briefing by Energy Department officials, the President said "about 1.56 million barrels of oil" a day is not being produced, or as the industry puts it is "shut in." Before Rita, just to put that in perspective, said Bush, "that was approximately 880,000 barrels a day that were shut in due to Katrina.


President George W. Bush, Energy Secretary Samuel Bodman, and Interior Secretary Gale Norton hold a news conference at the Energy Department to discuss the effects of Hurricane Rita on oil production in the Gulf of Mexico. (Photo by Paul Morse courtesy The White House)
The federal Minerals Management Service said in its daily report today that the shut-in oil production is equivalent to 100 percent of the daily oil production in the Gulf of Mexico, which is currently approximately 1.5 million barrels of oil per day.

About 47 percent of U.S. refining capacity and 28 percent of oil production is concentrated in the Gulf of Mexico. Within a week of Hurricane Katrina’s landfall on August 29, the national average retail price for motor vehicle gas rose by 46 cents to $3.069 per gallon, and prices of other refined fuels also rose.

Of the 819 manned oil platforms in the Gulf, 92 percent were evacuated last week ahead of the hurricane, and 75 percent of the 134 oil rigs currently operating in the Gulf were evacuated. Right now the producing companies are assessing damage to the platforms and rigs.

Saturday afternoon Shell conducted an overflight of its Gulf of Mexico assets in the path of Hurricane Rita and the company said "it appears they suffered no significant topsides damage." On Sunday 65 operations staff were redeployed to begin restart operations and by the end of Monday over 400 staff will be back on location.

But at Shell's Motiva Port Arthur Refinery there is no power and some flood damage has been identified. The company says severe winds damaged the hydro cracking unit, power lines, cooling water-towers and other facilities and there is no start-up date for operations at the Port Arthur refinery, which has a capacity of about 275,000 barrels per day. Two other Motiva refineries continue to run at normal production, shipping gasoline, diesel and aviation fuel to the market.

ExxonMobil says its Beaumont refinery and chemical plant operations still do not have power, but initial assessments do not indicate significant damage.

Chevron says its Typhoon tension leg platform located in 2,000 feet of water about 165 miles south-southwest of New Orleans was severed from its mooring and suffered severe damage during the storm. The facility has been located and is being secured.

Chevron’s refined products terminal at Galena Park, Texas, was closed prior to the storm but re-opened to tanker truck service mid-day on Saturday. The facility is operating around the clock to transfer more than 1.2 million gallons of motor vehicle fuels per day to more than 450 service stations within a 100 mile radius of Houston.

President Bush said his administration is watching the refinery assessments closely because of their affect on gasoline prices. "There are a lot of gasoline refineries in the Houston area, in the Beaumont area, in the Port Arthur area, as well as Lake Charles, and the Louisiana area," the President said. The storms show that "we need additional refining capacity," he said.


A crane at a refinery near Sabine Pass lies smashed on the ground Sunday. The Sabine Pass Port Arthur area was hit hard by Hurricane Rita. (Photo by Ed Edahl courtesy FEMA)
"There was about 5.4 million barrels per day that were shut in as a result of Rita and Katrina. A million of it is back up already, and we expect another 1.8 million barrels a day to get back on line relatively quickly because the storm missed a lot of refining capacity down the Texas coast," said Bush, a former oil company executive and Texas governor. "We don't know yet about 1.7 million barrels a day that were located right in the path of Rita."

Pipelines also affect the ability of people to get gasoline, and the President said one of the four major gasoline pipelines from the Texas and Louisiana refineries, the Plantation Pipeline, which is an East Coast pipeline, is at 100 percent capacity. That's one of the real success stories of this storm. In other words, it didn't go down at all."

But three of the four pipelines in the affected area, those that send gasoline to the Midwest, are operating at less than 100 percent capacity. Bush said one should be fully operational by the end of this week, another by next week sometime, and the third, now at 75 percent of capacity, has no specific time when it will be functioning normally.

Bush said the government has suspended summer gasoline blending requirements put in place to limit air pollution so that it will be easier to import gasoline from overseas. "In other words, there's a supply of gasoline in Europe, and by suspending these rules, it's a lot more likely to be able to get gasoline into our markets," he said.

Other rules have been waived as well. The Jones Act on restrictions on fuel transportation have been waised, allowing foreign flag ships to temporarily transport fuel from one U.S. port to another.

And the Treasury Department and the Internal Revenue Service have announced that dyed diesel fuel for off-road use will be allowed on on-road use without penalty.

"The storms have shown how fragile the balance is between supply and demand in America," Bush said. "I've often said one of the worst problems we have is that we're dependent on foreign sources of crude oil, and we are. But it's clear, as well, that we're also really dependent on the capacity of our country to refine product, and we need more refining capacity."


Traffic was heavy on the Houston freeways as people fled the on-coming Hurricane Rita. (Photo by Ed Edahl courtesy FEMA)
Bush said he would work with Congress "to expedite the capacity of our refiners to expand and/or build new refineries."

"It is clear that when you're dependent upon natural gas and/or hydrocarbons to fuel your economy and that supply gets disrupted, we need alternative sources of energy. And that's why I believe so strongly in nuclear power," the President said.

All consumers now need to be "better conservers of energy," Bush said. "I mean, people just need to recognize that the storms have caused disruption and that if they're able to maybe not drive when they - on a trip that's not essential, that would helpful."

Bush said federal government employees can help by curtailing nonessential travel. "If it makes sense for the citizen out there to curtail nonessential travel, it darn sure makes sense for federal employees," he said. "We can encourage employees to carpool or use mass transit. And we can shift peak electricity use to off-peak hours. There's ways for the federal government to lead when it comes to conservation."

The Democrats told Bush he could ease situation for American consumers by not permitting the oil companies to profit from the shortages. "President Bush should do the right thing for America's working families and stand up to his big oil cronies who are making record profits as gas prices surge," said Democratic National Committee Chairman Howard Dean.

"While he's acknowledged that we need to be less dependent on foreign crude oil, he has failed to act and failed to lead," said Dean. "Democrats have a plan that puts America on the path toward energy independence and will continue to fight for the American people by putting people ahead of profits for Bush's big oil cronies."

But Republicans acted quickly to get legislation before Congress to increase domestic refining capacity. House Energy and Commerce Chairman Joe Barton of Texas today released a discussion draft of the Gasoline for America’s Security Act of 2005.

“Hurricane Katrina has taught us some harsh lessons,” said Barton. “One of those lessons resonated loudly in our committee’s hearing on Katrina - if we expect gasoline to remain affordable for America’s working people, we absolutely must build additional refinery capacity.”


Refineries such as the Diamond Shamrock facility in Commerce City, Colorado continue to work while refineries in the Gulf Coast area are down. (Photo by David Parsons courtesy NREL)
“I think it’s a good thing we have tough environmental laws and a good thing we enforce them. But if you were to build a refinery overseas in certain countries, you don’t have to do anything environmentally. I don’t think that’s fair,” Barton said.

“Let’s say a new refinery costs $1.5 billion. If I add a half-billion dollars to that in this country it’s because of the requirements for environmental quality, that is a good thing, not a bad thing," Barton said. "But that automatically creates a disincentive to build a new refinery in this country compared to overseas.”

The Foundation for Taxpayer and Consumer Rights (FTCR) said Barton's legislation is a wish list for refiners that have been profiteering off of Hurricanes Katrina and Rita.

"Representative Barton's legislation rolls out the red carpet for oil company profiteers who have intentionally reduced refining capacity to pump up profits to world record levels," said FTCR president Jamie Court.

"Since deregulation in 1982, oil consumption has increased 33 percent, but oil companies have reduced refining capacity by about 10 percent. The answer is not more carrots for the industry, like gutting environmental laws and immunizing companies for the harm they cause, but sticks such as forcing companies to invest in beefing up refining capacity when it is needed," said Court. "We need supply side regulation, not more supply side economics."

Barton's bill reforms "cumbersome siting procedures," provides regulatory risk insurance, requires the President to designate sites on federal lands, including closed military installations, that are appropriate for the purposes of siting a refinery, and limits "boutique fuels" that Barton says "have propped up gasoline prices by artificially limiting supply."

The bill requires the U.S. Environmental Protection Agency administrator to identify a total of six gasoline and diesel fuels for a Federal Fuels List, down from more than a dozen today that Barton says makes excess fuel from one part of the country unusable where shortages occur.

No new refinery has been constructed in the United States since 1976. Total capacity at operating refineries is 17 million barrels per day, while total United States demand averages nearly 21 million barrels per day. This growing gap is met by an increasing amount of imports of refined products from foreign sources.

Refined petroleum product imports are expected to grow from 7.9 percent today to a 10.7 percent of total refined product by 2025.