Reserve release but no immediate relief
By Andrea R. Mihailescu
Aug. 31, 2005 at 12:07PM
The White House decided to tap into oil from the nation's emergency petroleum stockpiles Wednesday to
help to cushion markets and alleviate strain on demand following damage from one of the largest storms
in U.S. history. However releasing oil from the Strategic Petroleum Reserve may not provide immediate
relief for markets or consumers.
Energy Secretary Samuel W. Bodman said: "Last evening it was approved and I think you'll be seeing an
announcement about it later in the day." Bodman did not specify how much oil will be released.
Prices meanwhile continue to remain on the high, even though they began to slip after Bodman's
announcement. Crude oil futures reached a new record this week, rising above $70 per barrel as Katrina, a
category 5 storm, disrupted oil and gas production in the Gulf of Mexico, home to a quarter of domestic
production and equivalent to nearly 2 percent of global production.
Releasing oil from the SPR will give Gulf Coast refiners a boost with a temporary supply of crude to replace
interrupted shipments from tankers or offshore oil platforms hit by the storm but the effects will not be
"The oil released from the SPR takes weeks to hit the market; it still needs to be refined," Vincent DeVito,
former Acting Assistant Secretary of the U.S. Department of Energy, told United Press International
Wednesday. "One of the real problems caused by the storm is the damage to refinery and pipeline capacity
and releasing SPR oil will not improve these factors nor significantly improve the market."
In response to Hurricane Ivan last Sept., the Department of Energy loaned some 5.4 million barrels of oil
from the SPR to five companies but the loan barely affected the market.
"However, the purpose of the release is not intended to lower prices, it is to ameliorate a disruption in
supply," DeVito noted. "Releasing the SPR will not have an affect on demand."
The shutdown of a key oil import terminal off the coast of Louisiana and the Gulf region's widespread loss
of electricity, which is needed to power pipelines and refineries, caused a disruption in oil and gas
production and distribution.
"There is an issue with respect to getting electrical power so that we can operate the various pipe lines that
supply fuel to the rest of the country," Bodman said. These facilities "deliver finished products, diesel and
gasoline, to the Northeast and to the Southeast."
Royal Dutch/Shell's Mars platform, one of the largest in the region, seemed to be potentially one of
Katrina's biggest casualties. Aerial footage showed serious damage to the top of the facility that has an
output of 220,000 barrels of oil per day and 220 million cubic feet of natural.
Without functioning energy infrastructure, a gasoline shortage is likely as oil refinement is delayed.
Bodman said the administration will "do everything we can do to get fuel available to the rest of the country."
The White House relies on the assessment and requests of U.S. oil companies when it decided tap into
the SPR, DeVito said. Loans from the SPR will most likely "be allowed incrementally over the next few days
as industry requests are made to the Department of Energy."
The SPR has a capacity of nearly 700 million barrels of oil stored in underground salt caverns along the
Texas and Louisiana Gulf Coast. SPR was created to respond to serious domestic supply disruptions.
Damage to the Gulf's natural gas infrastructure largely remains undetermined. The industry has more than
3,000 rigs that produce the majority of gas used by Americans to keep warm. But some 90 percent of the
gas wells are west of New Orleans, farther away from the center of the hurricane.
Parts of the Gulf are expected to be up and running in 48 hours while other parts are in dire need of repair
and may take weeks or months to repair.
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