Ten days after Hurricane Katrina struck the U.S. Gulf Coast Aug. 29, Congress has begun looking for answers to questions raised by the American public about the unsettling response of federal, local and regional authorities and the energy industry to the disaster.
The Category 5 hurricane and the abysmally slow emergency response that followed in her wake is believed to have cost thousands their lives in Louisiana, Mississippi, Alabama and Florida as well as caused upwards of $100 billion in damages.
The U.S. House Energy and Commerce Committee held a full committee hearing Sept. 7 titled, “Recovering from Katrina,” in what Chairman Joe Barton, R-Texas, said would be the first of several hearings on the impact of the storm on energy, health and telecommunications.
“This is not a hearing to engage in a blame game or to pose recriminations against one another,” Barton said in an opening statement. “This is a hearing to begin to understand the effect Katrina had on our committee’s areas of responsibility.”
Vulnerable energy sector
Barton said one positive outcome of the tragic situation caused by Katrina may be a new awareness of how fragile the U.S. energy sector and energy infrastructure are and a reminder of what needs to be done.
“We’re living on the razor’s edge, and Katrina pushed us off,” Mark Cooper of the Consumer Federation of America told the panel. Cooper said the gasoline industry has difficulty handling minor shocks let alone a major disaster like Katrina.
Barton said Katrina highlights the need to encourage investment and diversification in the energy industry, especially in the refining sector, which last built a new refinery in 1976 and has had 30 refineries close in the past 10 years. Barton noted that 29 percent of U.S. oil production and 20 percent of natural gas is in the Gulf of Mexico; Katrina forced a shutdown of about 25 percent of U.S. refining capacity; and 10 percent of the nation’s gasoline refining capacity will be out of commission for some time.
According to the Minerals Management Service, as of 11:30 Central Time Sept. 6, Gulf of Mexico oil production was reduced by more than 870,000 barrels per day as a result of Hurricane Katrina, equivalent to 58.02 percent of daily Gulf of Mexico oil production (which is 1.5 million bpd). The MMS also reported that 4.160 billion cubic feet per day of natural gas production was shut in, equivalent to 41.6 percent of daily Gulf of Mexico natural gas production (which is 10 bcf).
Barton said the $15 billion energy bill recently passed by Congress has a number of provisions that will help, including $500 million for coastal restoration and authority for a governor to petition the Environmental Protection Agency for technical and financial assistance in a state’s refinery permitting process.
Possible price gouging in spotlight
While members of the energy and commerce panel expressed concern and sympathy for the victims of Katrina, most of the questions put to members of the Bush Administration during the hearing focused on possible price gouging nationwide as prices soared at the gasoline pump in the hurricane’s aftermath.
A representative of the U.S. Department of Energy told the committee that the government has received more than 7,000 complaints about possible price gouging at gasoline stations.
Committee members appeared baffled by pricing mechanisms that enabled gasoline retailers to hike their prices anywhere from 50 cents to $4.50 a gallon as early as the day after the hurricane.
“If it looks like a rat and smells like a rat, the American people aren’t stupid — prices went sky high in two days. No way it can’t be price gouging,” said Rep. Eliot L. Engel, D-New York.
Rep. Fred Upton, R-Mich., said prices in his district jumped Aug. 30 to $3.58 a gallon from $2.61 the day before.
Administration officials repeatedly assured the panel that the gasoline price hikes, in most cases, stemmed from a variety of market factors, including the hurricane, and likely did not result from gouging.
However, one station owner in Atlanta, Ga., was arrested after he boosted his gasoline prices to $6 a gallon, a committee member said.
Energy prices will not subside until winter
Panel members also raised questions about gasoline, crude and natural gas prices long term and were told by Energy Information Administration officials that gasoline prices would fall later this year and average $2.61 a gallon in the fourth quarter and $2.40 a gallon in 2006.
Rep. John Shimkus, R-Ill., asked if it is realistic for the American public to expect to pay low gas prices when most of the industrial world pays much higher prices for gasoline. He noted that gasoline in Amsterdam, for example, currently sells for more than $7 a gallon.
Crude oil prices are expected to hover just under $70 a barrel for the remainder of 2005 and drop in 2006 to average $63.50, according to the EIA’s short-term outlook released Sept. 6. Natural gas prices, however, are expected to increase substantially this winter to range from $11.50 to $12.50 per thousand cubic feet, before falling in the spring to average about $8.50 per mcf in 2006.
An EIA representative told the energy panel that home heating oil prices are expected to jump 30 percent this winter, compared with a year ago and natural gas and propane will climb even higher.
Would ANWR help?
Among possible remedies to current tight gasoline supplies, Rep. Ed Whitfield, R-Ky., asked what the effect would be on oil prices of opening the Arctic National Wildlife Refuge to oil drilling.
Administration witnesses said they did not know but would attempt to find out. A subsequent witness, representing the environmental community, told the panel that ANWR oil would reduce gasoline prices by less than 1.5 cents per gallon.
Other committee members questioned why the federal Emergency Alert System wasn’t activated to notify Gulf Coast residents of the imminent danger from Katrina and from the levees giving way and flooding New Orleans from Lake Ponchartrain.
Representatives of the Federal Communications Commission said using the EAS was a decision for local and regional officials to make.
—Rose Ragsdale
