Order Code RS22233
Updated September 16, 2005
CRS Report for Congress
Received through the CRS Web
Oil and Gas: Supply Issues After Katrina
Robert L. Bamberger and Lawrence Kumins
Resources, Science, and Industry Division
Summary
Hurricane Katrina made landfall on August 29, 2005, leaving behind considerable
devastation. Some onshore refineries were shut down in advance of the storm; others
remain down now because of the widespread interruption of electric power and flooding.
Assessment of damage to oil and gas production rigs, as well as refineries, continues.
Some operating refineries whose crude supply has been interrupted are borrowing crude
from the Strategic Petroleum Reserve (SPR). On September 2, the International Energy
Agency (IEA) announced a coordinated drawdown of European and Asian stocks
totaling 60 million barrels to be released at the rate of 2 million barrels daily. Some
refineries have resumed operation, but at reduced runs. A number of major refineries
remain shut. The Louisiana Offshore Oil Port (LOOP) resumed operation late
September 1, and is accepting crude oil imports. The Colonial pipeline, which supplies
refined products to regions of the South and Northeast, has resumed operation and is at
100% of pumping capacity. The industry advises that it may be months before the area’s
oil and gas production and refining are fully restored. Spot and futures prices for
gasoline and middle distillates rose sharply in the days following the storm, but prices
began to fall early the week of September 5; the price decline continues. This report will
be updated.
Hurricane Katrina shut down oil and gas production from the Outer Continental
Shelf in the Gulf of Mexico, the source for 25% of U.S. crude oil production and 20% of
natural gas output. Four oil refineries that provide almost 5% of the nation’s refined
petroleum products were seriously damaged and will remain shut for an indeterminate
period. Others were damaged but have resumed or are in the process of resuming
operations. Much of the product from Gulf refineries is transported by pipeline for the
East Coast and Midwest. Important to policymakers will be continuing information on
the damage to production facilities, refineries, and transport facilities and how soon they
can be restored to operation. Most of the information cited in this report is from the trade
press, the Minerals Management Service, and the Energy Information Administration.
On August 31, Secretary of Energy Bodman announced that the Bush Administration
was authorizing releases of Strategic Petroleum Reserve (SPR) crude oil. Operating
refineries whose crude supply has been interrupted have requested to borrow roughly 9
Congressional Research Service { The Library of Congress

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million barrels. The release of SPR oil and the announcement on September 2 from the
International Energy Agency (IEA) of a coordinated drawdown of 60 million barrels of
crude and refined products calmed markets by early in the week of September 5. The first
of this supply should reach the United States shortly. However, recovery from the
hurricane’s effects will depend upon resumption of production and refining operations in
the Gulf, and the ability to transport petroleum products.1 Roughly 900,000 barrels of
refining capacity at four plants in the Gulf remains completely shut down; more than 2.0
million barrels per day were down at the end of August. Outage and slow startups have
reduced the amount of fuel in commercial inventories significantly, contributing to high
gasoline and other refined product prices.
Factors Affecting Oil and Natural Gas Supply
! Outer Continental Shelf (OCS) Production. Natural gas and petroleum
production in the Gulf is beginning to come back. Almost 60% of oil
production (4% of U.S. consumption) was offline as of September 15, as
was 34% of gas output (5% of U.S. consumption).2 On September 16,
Minerals Management Service (MMS)director Burton indicated that it
would take three months for OCS output to return to 90%of its pre-
Katrina output.3
! Lack of Alternative Gas Supplies. OCS natural gas supply losses are not
easily made up by imports because additional supply possibilities from
Canada and from liquefied natural gas (LNG) are limited. There is no
Strategic Petroleum Reserve (SPR) for gas.
! Crude Oil Imports. About 2.5 mbd of crude oil imports — including 0.9
mbd by way of the Louisiana Offshore Port (LOOP) — flow through
impacted ports in LA, MS and AL. This constitutes more than 12% of
petroleum consumption.4 LOOP resumed operation late September 2,
and is operating near full capacity. Other Gulf Coast ports through which
oil imports flow are resuming operation but may not be capable of full
capacity throughput.
! Pipeline Transport of Crude Oil and Refined Products. Pipelines from
the Gulf to the Midwest and East Coast have been affected. The Colonial
and Plantation Pipelines — serving the whole East Coast with refined
products — was operating at full capacity early in the week of September
5. The Capline pipeline , which supplies crude oil to the Mid-continent,
1 For additional information, see CRS Issue Brief IB87050, The Strategic Petroleum Reserve, by
Robert L. Bamberger.
2 Energy Information Administration, Special Report — Hurricane Katrina’s Impact on U.S.
Energy
, at [http://tonto.eia.doe.gov/oog/special/eia1_katrina.html], frequently updated.
3 Bloomberg.com, Gulf Oil and Gas Output Seen Taking 3 Months for 90% Recovery. Sept.16,
2005 10:06 EDT.
4 Ibid.

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resumed operation on September 1. Availability of pipeline inputs remain
an issue.
! Damage to Offshore Natural Gas Pipelines. The extent of damage to
underwater gas pipelines and gathering systems is difficult to estimate.
Analysts following storm recovery have been unable to develop a clear
picture of pipeline damage, noting that lack of information likely
indicates problems. One report notes that MMS continues to decline to
provide details about offshore pipelines and platforms, noting that one
pipeline had confirmed a line which had been severed and displaced and
another gathering platform and associated piping had significant damage.
Other facilities surveyed revealed “the majority of the measurement and
electronic equipment in the area had been damaged or destroyed.”5 Spot
prices at Henry Hub rose from a $9.00 average6 in August to $11.34 on
September 15. Prices could rise more if pipeline outages continue into
the heating season.
! Product Imports and International Energy Agency (IEA) Response. On
September 2, the IEA initiated a coordinated stock drawdown of 60
million barrels of crude and refine product stocks from Europe and Asia.
Two million barrels daily will be released. Gasoline imports currently on
the water should begin reaching the United States soon.7
Refineries
Four facilities having total capacity of about 900,000 barrels per day remain closed;
DOE said they are expected to be down for an extended period. The facilities are:
! ExxonMobil/PDVSA’s 187,000 b/d plant at Chalmette LA
! ConnocoPhillips’ 250,000 b/d plant at Belle Chasse LA
! Murphy Oil’s 125,000 b/d plant at Meraux LA
! Chevron’s 325,000 b/d plant at Pascagoula MS
This means over 5% of the nations refining capacity will be out of service for an
indeterminate period. More than 2 mbd of refining capacity in the Gulf was completely
shut down at some point after the storm. Even though much has been restored, a
significant period of hard-to-make-up output has been lost, and this will impact
inventories as the numbers are tallied.
5 Platts Oilgram News, Numbers Belie Norton’s Optimism on US Gulf Damage, Sept. 14, 2005.
P.1.
6 Energy Information Administration, Short Term Energy Outlook. Sept. 7, 2005.
7 IEA Releases Emergency Crude, Gasoline, Oil Daily, Tuesday, September 6, 2005.

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Also impacting refining recovery are concerns about staffing facilities because
employees have been scattered by the storm; there is both concern and uncertainty
whether some will return to the region. Additional issues regarding crude supply and
transportation into and out of refineries linger as well.
Electric Power8
At the height of Katrina, it is estimated that 2.6 million customers lost power. Power
is now being restored. Inaccessibility due to flooding and saltwater damage to equipment
are major factors slowing restoration. Mississippi Power estimates that about 70% of its
8,000 miles of transmission and distribution lines will have to be repaired or replaced
because of Katrina — a process the utility estimates could take four weeks. Early in the
week of September 5, Mississippi Power had restored power to over 44% of its
customers.9 Entergy, which serves the greater New Orleans area, reports that a major
obstacle to restoring service is the lack of food and water for its repair crews, who are
sleeping in their trucks. Entergy reports that priority for crews includes restoring service
for pumping, sanitation, medical, and housing facilities.10 Power outages have hindered
or delayed the resumption of pipeline operations. The Louisiana Public Service
Commission is working with Entergy to assess the situation and provide guidance on
priorities. FEMA Region IV is working with Mississippi officials on the same subject.
Relaxation of Motor Fuel Standards11
On August 31, 2005, Environmental Protection Agency (EPA) Administrator
Stephen Johnson announced that EPA would temporarily waive certain gasoline and
diesel fuel standards through September 15, 2005, in order to help increase available fuel
supplies. For gasoline, EPA is waiving volatility standards that would otherwise prohibit
the sale of gasoline produced for northern states in the South, or the sale of “winter”
gasoline in the summer months. This waiver — -which was extended until early October
— -should allow gasoline normally prohibited in certain areas to be transported to those
areas in response to supply limitations. EPA is also waiving sulfur standards for diesel
fuel, so that fuel produced for non-road uses may be legally used in highway vehicles.
This waiver should help mitigate some of the disruption in diesel fuel supplies.12
Gasoline and Distillate Inventories
As of August 26, the Energy Information Administration reported that U.S.
commercial gasoline inventories were 194 million barrels, near the lower bound of the
normal range. By September 9, they had only declined to 192 million barrels. Minimum
8 Prepared by Larry Parker. For daily bulletins on Katrina’s energy impacts, see [http://www.
ea.doe.gov/hurricanes.html].
9 Ibid.
10 For more information on Entergy’s efforts, see [http://www.entergy.com/corp/].
11 Prepared by Brent Yacobucci.
12 Remarks by Administrator Stephen L. Johnson, United States Environmental Protection
Agency, August 31, 2005, [http://www.epa.gov/katrina/activities.html].

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operating level is 170 million barrels, representing the point at which localized shortages
occur because the distribution system cannot be drawn down further without hindering
operations. At current consumption rates, this amounts to less than three days of available
supply.
The situation with middle distillates (heating oil and diesel fuel) is somewhat similar,
reflecting the normal seasonal build of stocks, standing at 132 million barrels on
September 9, reflecting only a small decline from 135 million barrels on August 26. This
represents the equivalent of nearly nine days of available supplies.
As a result of Katrina, wholesale gasoline prices on the New York Mercantile
Exchange surged almost immediately, in anticipation of a shortage. At the beginning of
September, wholesale gasoline traded on the NYMEX briefly surged to $2.40 before
settling to $1.87/gallon on September 16. Pump prices also reached a new high of $3.06
nationwide, but have subsequently decline to $2.87, according to the American
Automobile Association. Distillate prices followed a course paralleling that of gasoline.
Commercial Inventories of Crude Oil
Crude stocks were 321 million barrels on August 26, up from 285 million barrels
during the same period last year. Minimum operating level for crude is 270 million
barrels, suggesting that 51 million barrels might be available from existing inventories.
This could be used to offset the shortfall of OCS production and imports, if it were
located where it could be accessed by refiners seeking replacement crude. But it is not
clear that logistics would support this, nor is it clear how rapidly refining capacity to
utilize these inventories will be restored.13
Strategic Petroleum Reserve
On August 31, Secretary of Energy Bodman announced that the Administration was
authorizing loans of crude oil from the Strategic Petroleum Reserve. By September 6,
loans had been granted to six companies totaling roughly 12.5 million barrels.14 A few
days later, on September 2, as part of an international 60 million barrel crude and product
stock drawdown co-ordinated by the International Energy Agency (IEA), the U.S. offered
30 million barrels of SPR crude for sale. On September 14, DOE announced the sale of
10.8 million barrels of sweet crude and 200,000 barrels of sour at prices ranging from
$59.76 to $66.46. Bids for an additional 8.2 million were rejected.
Industry analysts interpret the results of the sale, including the rejected bids, as an
indication that the fundamental problem in markets is product rather than crude supply.
Additionally, some of the companies awarded loans may not borrow the full volume of
crude for which they asked. As noted above, SPR oil can contribute to more product in
13 For weekly updates on inventories, as well as spot prices, see Energy Information Admini-
stration, Weekly Petroleum Status Report, [http://tonto.eia.doe.gov/oog/info/twip/twip.asp].
1 4 D e p a r t m e n t o f E n e r g y . O f f i c e o f F o s s i l E n e r g y . S e e :
[http://www.fe.doe.gov/news/techlines/2005/tl_spr_loan_090105.html].

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markets if there is insufficient refining capacity to turn its stocks of crude oil into gasoline
or diesel fuel.