This diary is meant as an overview of the situation on the energy front. This is obviously not the most urgent issue right now, but it will have a significant impact on all of us in the near future and is worth, I think, a few minutes of your attention.
- oil and gas
- refining and gasoline
Warning – about 400kb of picture below. You can click on all pictures for bigger versions.
Yesterday’s survey can be found here
Oil and (natural) gas
Not much change on the oil production side. Using the daily updates provided by the (federal) Minerals Management Service:
Today’s shut-in oil production is 1,356,498 BOPD. This shut-in oil production is equivalent to 90.43% of the daily oil production in the GOM, which is currently approximately 1.5 million BOPD.
Today’s shut-in gas production is 7.866 BCFPD. This shut-in gas production is equivalent to 78.66% of the daily gas production in the GOM, which is currently approximately 10 BCFPD.
The numbers yesterday were respectively 91.4% and 83.4%, so progress is almost inexistant for the time being. That means that close to 1.5 mb/d, equivalent to 1.5% of world production and 8% of US consumption, are out, and seem likely to be for a while.
The missing natural gas production (8 bcfd) is close to 20% of US consumption and is even more worrying, as the huge jump in natgas prices shows:
As I wrote yesterday, this will have a very nasty long term effect on electricity prices (probably 50-100% increases) for everybody in the US.
refining and gasoline
On the oil front, the most worrying part is not oil per se, but the downstream sector, i.e. refining and retail sales. A number of diaries have come out with tales of increasing gasoline prices, and they reflect something simple: prices are up and stocks are down:
But let me explain in more detail what’s going on. The immediate reason is that:
A number of refineries have seen their production stop either because they have been flooded (as the New Orleans ConocoPhillips one in the picture above), because their supplies have been cut off (mostly due to power failures for the pipelines) and/or because their employees are not around (whether due to the evacuation or to lack of access).
The inserts in the picture above show this in grim detail:
You can also find more details from the (again, federal) Office of Energy Assurance: September 1, 4pm update (5 page pdf).
The result is that a big chunk of US gasoline production is down brutally:
About 1.8 mb/d or more than 10% of the nation’s capacity – and daily consumption – is down, and prognoses for their return to normal appear increasingly unlikely, especially in view of the localisation of these refineries (see map above) and the lack of roads (from the NYT):
In addition, a number of vital pipelines are still functioning at limited capacity (from the EA report above):
- Colonial Pipeline is now operating at 40% of normal operating capacity. Once additional generators are activated at inactive pump stations, production will increase to 1.2 to 1.3 million barrels per day. Both gasoline and distillates are currently being transported and delivered. The line was full when it went down, so deliveries were possible within hours – not days – of restart. The company anticipates that it may be able to achieve approximately 74% of normal operating capacity by Sunday and 75% to 86% by early or mid-next week if additional electricity can be supplied to critical pump stations. Further increases cannot be made until normal power is restored. The capacity of Colonial is about 2.4 million barrels per day. Solutions for power restoration are being actively pursued.
- Plantation has partially started its system as is operating at 25% of capacity and hopes to be up to 50% of normal operations by Friday.
- Capline, a crude oil pipeline serving the Midwest, was restarted yesterday at a rate of 720,000 barrels a day and can operate at reduced rates until the LOOP is fully operational.
- The Seaway Interstate Pipeline to Cushing, OK, is operating at full capacity (350,000 barrels a day). From Cushing, the Enbridge (Ozark) pipeline to Wood River and the BP pipeline to Chicago are operating at full capacity.
Colonial and Plantation bring oil to the whole eastern region of the USA, all the way to New England, which means that a large fraction of the US population is directly affected. And it is a big deal:
US pays the price of years of living dangerously
For years, industry observers have warned that the US oil refining system has been forced to run ever closer to full capacity to meet rising demand. Yet there has been not a single new refinery built for more than a quarter of a century.
Until now, says John Thieroff of Standard & Poor’s rating agency, the US has had the luxury of not having to address the problem. “They could have it both ways: don’t build any new refineries because no one wants to live next to them, while also having enough spare capacity – and unfettered access to ample imports – to maintain the status quo,” he said.
Hurricane Katrina ended that, sweeping through America’s energy heartland this week, shutting down nine refineries and leaving another three unable to run at full capacity.
Overnight, 12 per cent of US refining capacity disappeared. And, because of ever tighter environmental regulations, not all of that lost capacity can simply be replaced indefinitely with imports.
“The refining market is at its limit, and the storm kicked it over the limit,” says Robin West, chairman at PFC Energy, the industry consultancy.
Lack of investment due to poor profitability in the past 20 years, difficulty to fight nimbyism, and producers more recently enjoying the margins provided by the newly tight market have combined to let the system have no spare cpacity and no ability to tolerate small shock, let alon big ones.
As the USA do not have gasoline stocks, only oil stocks, the only place to get help is from Old Europe, which has most of the available gasoline stocks. Europe has offered to provide reserves as required by the US, but the Bush administration may be reluctant to pay the political, symbolic and diplomatic price from acceptign such help:
Europe’s offer of petrol places Bush in quandary
As news of massive, long-term damage at its refineries emerges, Washington appears to be in an unenviable position.
Long criticised for having no energy policy and an insatiable demand for gas guzzlers fuelled by cheap petrol, the US must now decide whether to accept help from Europe.
In so doing, US President George W. Bush would implicitly acknowledge some of his critics’ accusations and open himself up to demands for political and economic favours in return.
(…)
So far, the US has lost 5m barrels of petrol production because of the refinery damage caused by Katrina. Based on information from the US government yesterday, some analysts say that could swell to 52m, which would probably be enough to trigger an emergency plan by the IEA, they say.
The plan would involve not only putting tens of millions of barrels of petrol – and perhaps also jet fuel – into the market but would also allow countries to curb demand through reducing speed limits by up to 25 per cent, mandating car-pooling or compressing the working week for civil servants.
The IEA is not the only group willing to help. Venezuela, a member of the Organisation of Petroleum Exporting Countries but not a member of the IEA, has offered to send petrol to the US. It has strategically well-placed storage tanks on Curaçao island, which houses the hemisphere’s biggest refinery, and Borco in the Bahamas.
Whether Mr Bush would be pleased to accept aid from one of his most vocal opponents is less certain.
There are other hurdles for petrol coming to the US as well. Pipelines have been ruined by the storm and port facilities are also badly damaged. The US yesterday reduced its environmental restrictions on petrol. But traders say there are other laws that still prohibit certain types of petrol from being imported. This problem would be solved if the IEA called an emergency, agency officials said.
Will reality override pigheadedness within the Bush administration? If the current disruption in production, both for oil and for refining continue, there will soon be a very real major crisis for US drivers and thus also for the US economy.
The urgency is to help the people stuck in New Orleans to survive, but the survival of the US economy should be the next priority.
