Op-Ed: Gasoline price hikes from hurricanes seen as temporary

  • By John Portella
    For The Almanac
    writer@thealmanac.net
September 14, 2017

Robert McHugh was more than a little concerned about Hurricane Irma. McHugh, a Whitehall resident who works in downtown Pittsburgh’s financial district, was in the Naples/San Marco Island area of Florida visiting family when reports of the storm came in.

“We got out,” he said, but “had to wait a very long time to get gasoline.”

Naples would endure 140 mile per hour wind gusts from Hurricane Irma that struck the area Sept. 10.

In the first half of the one-two hurricane punch, on the other side of the gulf in Houston, the fuel that was available got more expensive very quickly. Gasoline prices usually decline after Labor Day, which marks the end of the summer driving season. It may take a while for that to happen this year.

Before Hurricane Harvey made landfall in Texas Aug. 23, the average regular unleaded national pump price was $2.39 a gallon, while the price for Pittsburgh was $2.62. According to AAA, these costs at the start of September grew to $2.65 and $2.89, respectively, and one report at the end of August found that the gasoline futures price on the New York Mercantile Exchange had hit a two-year high.

These increases are expected to abate by the end of September, and the pre-hurricane $2.62 price in Pittsburgh was still the lowest for that period in seven years. Two years ago, drivers paid $2.93 per gallon.

The hurricane brought with it more than 50 inches of rain, the largest downward deluge in the history of the continental United States. Only Hurricane Hiki, which hit Hawaii in 1950, had more. The next closest continental rain disaster was Tropical Storm Amelia in 1978, which dropped forty-eight inches on Medina, Texas.

Harvey left Houston, America’s fifth largest city, at a standstill and forced the partial or complete shutdown of 10 oil refineries, which turn crude oil into gasoline. The Texas gulf coast is home to 30 percent of U.S. refinery capacity. This amounts to 5.6 million barrels a day (mb/d) of refined output, compared to 13 md/d for the country as a whole.

Refineries ordinarily send fuel to tankers waiting offshore and to pipelines, which supply the east coast. The largest of these is the 5,500-mile Colonial pipeline to New Jersey, which carries some 2.5 mb/d of gasoline, diesel and jet fuel, some of which comes to Western Pennsylvania. Colonial was only briefly affected by the storm and gasoline tankers have also been prevented from making deliveries because of high flooding.

Reduced refinery demand also cut the need for oil supplies to these facilities. This meant that the spot price for West Texas Intermediate, the crude benchmark, hovered around $46 a barrel in New York. Crude prices have also been kept down by the growth of shale oil production in the more or less hurricane-proof midwest and mid-Atlantic states.

The same cannot be said of Texas. Harvey cut off most of the 1.4 mb/d produced at the south Texas Eagle Ford shale oil formation, and swamped the energy infrastructure needed to get it to market, including especially railroad train tracks which move it in tanker cars. Over the longer term, however, the application of shale oil drilling technology will undoubtedly keep prices low. It is one of the greatest discoveries in the history of the U.S. national laboratories, where the fracking technique was invented.

The last major storm to hit the gulf coast was Hurricane Katrina in 2005. Katrina’s devastation of New Orleans was worsened by the unsustainable cutting back of water absorbing wetlands, to widen the Mississippi River shipping channel. This was a different problem from that of Houston, where flat scrublands allowed the waters to spread more widely.

Overall, economic growth in the U.S. as a whole has not yet experienced widespread disruption. Harvey’s limited economic impact may partially be attributable to safety measures adopted by the oil industry after Katrina. Exxon Mobil, the largest refiner, issued a corporate citizenship report in 2015, which said that it was “aware of the risks posed by extreme weather events.”

But it’s not clear how the arrival of follow-up storms will affect refinery and transport operations, or the price of gasoline.

John Portella of Mt. Lebanon is a Pittsburgh-based freelance journalist who covers defense and energy issues. He earned an international relations doctorate at American University in Washington, D.C. with a dissertation on oil, and was a research fellow and lecturer in Americans University’s School of international Service.

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