Running on Empty
Across the Southeast, motorists have been running on fumes. The gas shortage afflicting the region is finally showing signs of relief after three long weeks, though supplies will likely remain tight through mid-October.
Early last month, the double wallop of Hurricanes Gustav and Ike hammered the Gulf Coast, shutting down operations across a network of Louisiana and Texas oil refineries and crimping critical fuel pipelines. Hardest hit by the supply interruptions are the metro areas of Atlanta and Charlotte, where spotty availability and hour-long gas lines have plagued city commuters.
In scenes reminiscent of the 1970s, queues of idling vehicles stretched vast distances for a chance to fuel up. Prices for a gallon of regular spiked to as much as $4.69 in some locations, with Atlantans continuing to pay the most for gas in the lower forty-eight states. At the height of the shortage, local 911 centers were overwhelmed with calls from frantic drivers hunting for freshly stocked stations. Reports of fights erupting at the pumps and cars tailing tankers on the freeways highlight a fuel-starved anxiety that mounted as the crisis wore on.
“We’re beyond panic,” remarked Tex Pitfield, president of Atlanta-based gas distributor Saraguay Petroleum. “We’re into desperation.”
The painful duration of the gas shortfalls has taken many by surprise, prompting serious backpedaling from government officials. In a September 25th statement, Georgia Governor Sonny Perdue downplayed the situation, insisting there is “ample fuel in the city.” He suggested people stay calm, adding that the problems were partly “self-induced” by panicky drivers rushing out to top up their tanks and quickly draining off new shipments.
As the shortages continue, however, Perdue is facing stiff criticism for what some view as his slack response to the lingering crisis. (The governor met with similar outcries last summer, when a creeping drought threatened the capital city’s water supply and grabbed national headlines.) In an attempt last Monday to assuage public concerns, Perdue made an emergency plea for President Bush to release unrefined crude oil from the nation’s Strategic Petroleum Reserve – a hollow bit of political grandstanding, unlikely to fill Atlanta’s empty tanks in the near term. While the situation appears to have improved recently, as refineries in the Gulf come back online and ramp up production, experts predict another week or more of reduced supply to the region, to the dismay of beleaguered drivers.
A host of factors have been named as contributing to the fuel scarcity. Most directly, an absence of refining plants in the Southeast puts the region critically dependent on gasoline piped in from the Gulf Coast. Because other parts of the U.S. secure their gas from a broader range of sources, the diminished output from the Gulf had little impact elsewhere. Supply issues are further complicated by some 200 “boutique” fuel blends tailored to local air-quality standards – a nearly impossible arrangement to maintain during a crisis. Panic buying and stockpiling of gas also played a big role in the rapid depletion of what little gas became available.
Still, many in the industry are at a loss to explain the severity of the current predicament, which has eclipsed the milder gas disruptions from 2005’s devastating twin storms, Hurricanes Katrina and Rita.
“This is significantly worse than Katrina, but we haven't quite been able to … figure out how or why," Pitfield told The Christian Science Monitor. “We can't get anywhere near the amount of gas to satisfy the demand.”
Some energy analysts see the drama in Atlanta and Charlotte as troubling evidence of a national fuel supply grown dangerously overstretched. In a posting at the energy futures blog The Oil Drum, a trend among oil refineries towards keeping less inventory is called out as a fragile link in the distribution system. With profit margins hemmed in over the past few years by skyrocketing crude prices and relatively lower retail costs, refineries are storing less surplus gas to save on expenses. When an unexpected event like a hurricane temporarily shutters operations, there’s now a reduced emergency inventory to float consumers until the system comes back online, resulting in chaos at the pumps.
Such severe disruptions in the fuel supply are highly unusual, raising new concerns about a system presumed to be stable and secure. Arising over a two-week stretch that also saw the near collapse of the global financial markets, the dramatic gas shortages may point to a broader systemic breakdown underway.
Interviewed by The Oil Drum, Red Cavaney, CEO and President of the American Petroleum Institute, warned that the credit freeze currently stymieing Wall Street could have “a big impact” on smaller players in the oil industry, who rely on borrowed capital to cover operation costs. With profit margins under increasing pressure from high crude prices, the added squeeze of reduced credit lines will force refineries and distributors further out along the razor’s edge.
“Most people would like to think that the oil and gas business is unaffected by today's credit problems,” concludes The Oil Drum. “This is clearly not the case. If we cannot fix the US credit problems (and it is not clear to me that we can), these … are likely to spill over into things we take for granted, like gasoline production and inventories.”
U.S. energy secretary Sam Bodman echoed these concerns in a Reuters report on the sluggish pace of repairs at Gulf refineries. The deepening financial crisis, he noted, could inhibit oil industry growth projects critical to meeting increasing fuel demands. If the markets do not soon turn around, “these long-term projects – and these are the most difficult to finance – long term projects are at risk I think,” Bodman said.
Whatever the underlying cause, the national gas supply is in frighteningly bad shape. A recent Fortune article on the Southeastern crisis notes that the Gulf refinery shutdowns plunged U.S. fuel inventories to levels not seen since August of 1967, when daily oil demand was nearly half what it is today.
“Liquidity must be returned soon to this market,” writes Fortune’s Brian O’Keefe, “or we could be facing a crippling run on the gasoline bank.
This is a truly astounding situation – a paradoxical sign of an industry in dire straits, despite raking in record profits. If it remains contentious to say that we have hit Peak Oil, perhaps we can agree that we’re witnessing Peak Greed in the petroleum business. After smashing the $100-per-barrel ceiling at the start of the year, the price of crude soared to an all-time high of $147.20 per barrel in July. And while surplus capacity has dropped to disastrously low levels, the bubble of speculative oil trade has grown grotesquely bloated with Wall Street graft, perpetrated by the same banker-buccaneers embroiled in the ongoing mortgage debacle.
Despite its recent slump following the convulsions of the financial markets, crude oil’s skyward trajectory is not likely to reverse course for long, some analysts say. In “Here Comes $500 Oil,” a high-profile feature from O’Keefe in last month’s Fortune, energy investment banker and peak-oil proponent Matt Simmons is quoted offering a bullish, albeit bleak, forecast to an assembly of oilmen:
“There’s no end in sight to higher oil prices, unless the world economy absolutely collapses,” he warns.
It remains be to be seen whether he’s right and the price of crude will continue its steady climb – or the global economy, its plunging ruin. But in light of the past fortnight’s market bloodbaths and unprecedented government bailouts, Simmons' reputation for prescience demands pause.
Looking to the future of a credit-pinched, fuel-strapped America, O’Keefe sums up the situation:
“If you think Americans are outraged about Wall Street, wait until their Main Street grocery store doesn't get the bread and milk delivery for a week or two.”
As plentiful gas returns to the sprawling suburbs of Charlotte and Atlanta, the wake-up call about our dwindling fuel supply threatens to fade from attention. But the inventory problems aren’t going away so easily – and next time, the effects could be far more painful.