Jane Van Ryan
Posted August 4, 2009
In this week's episode, I talk with Al Mannato, fuels issues manager at API, about how the oil and natural gas industry plans to continue supplying fuels to the United States in the aftermath of hurricanes.
Use the audio player below to listen to my conversation with Mr. Mannato and follow along with the show notes. I hope you find the podcast informative.
00:17 It's been nearly four years since the Gulf Coast was struck by Katrina and Rita, the two hurricanes that lead to widespread destruction and loss of life in coastal communities. Last year, we again faced back-to-back hurricanes--Gustav and Ike. As you might recall, the storms also damaged refineries, reduced or eliminated power to pipelines and led to tight fuel supplies in parts of the country.
00:44 The oil and natural gas industry takes its role in ensuring a steady stream of fuel to consumers very seriously and is always updating its hurricane preparedness plans.
01:14 After Rita, the second major hurricane in 2005, 29 percent of U.S. refining capacity was shut down.
01:28 In 2008 after Gustav, almost 20 percent of the refining capacity was shut down. During both the 2005 and 2008 incidents, there also were major disruptions to the pipelines that send fuel to the East Coast and oil to the Midwest.
01:54 There were some shortages in supply caused by the hurricanes in 2005 and 2008, but these disruptions were temporary despite the extensive damage to infrastructure and to the refineries previously mentioned.
02:09 The industry quickly and safely brought back refining production and pipeline operations to previous levels. After the hurricanes in 2008, there were near-record levels of gasoline and record levels of diesel and home heating oil.
02:33 One thing that consumers need to do during these times of stress is to reduce discretionary fuel usage.
02:37 The oil and natural gas industry worked with the federal government to make sure that there was fuel available after the storms.
02:47 The Energy Policy Act of 2005 allows the Environmental Protection Agency (EPA) to issue fuel waivers when there are extreme and unusual supply circumstances that occur. These temporary waivers allow the industry to increase the amount of fuel that is available to the public. When it becomes apparent that there is potential for a large hurricane, the industry works with the government to provide supply information that enables them to issue these very important waivers.
03:34 If extreme and unusual supply circumstances occur again this year or in subsequent years, these waivers will be available. They are the single most important thing for getting increased fuel supplies to our citizens.
03:59 Since Katrina and Rita, the refineries as well as the oil and oil products pipelines have been working hard in both the Gulf and other operations to make facilities less vulnerable to hurricanes.
04:14 There were many lessons learned--the industry worked with the electric utility industries to identify refineries as Critical Infrastructure so that when they bring the power back online, refineries are among the first facilities to get that power.
04:37 The industry has secured back-up [power] generation for refineries and distribution companies, and has identified those companies as Critical Infrastructure for state and local officials because they often have a say in how these back-up utilities get used.
04:59 The industry has set up redundant communications systems to provide better communication with employees. Industry employees are directly impacted by these hurricanes--they live in these areas that take direct hits.
05:20 The industry also has worked to preposition food, water, transportation and other critical necessities for when the hurricanes occur.
05:39 Before each hurricane season, the industry participates in meetings with state and local officials to update emergency contact lists: should an emergency occur, the industry will know who to contact. They also cover the procedures for applying for a waiver at the federal or state level.
06:09 The industry talks with state officials to explain the fuel distribution system in their state and the interrelationships between their state and other states, especially if there is a pipeline that goes through or feeds their state.
06:32 At the state and local level, the industry has planned or already participated in meetings, similar to those with state officials, with the Department of Energy and EPA.
06:52 There is no silver bullet when it comes to supplying fuel after a hurricane. The industry believes that a refined product reserve would have unnecessary costs and unintended consequences. There would be significant costs associated with filling a reserve, rotating fuel supplies, and other issues.
07:18 The unintended consequences are even more significant. What may occur is that because this reserve exists, importers or other fuel suppliers would decide not to supply fuel to a needed area. Government officials have looked at product reserves and rejected this idea as one that would not work very well.
07:56 The product reserves also would be subject to the critical problems associated with the lack of electricity in the pipelines and the refineries.
08:32 So, in general, is it correct to say that allowing the market to adjust for unplanned refinery outages is better than trying to solve the problem through regulation?
08:42 The market adjusts quickly to supply challenges without the need for government intervention. The movement of supply into an area is determined by market circumstances. As we've seen withRita, Katrina andGustav, the market responds to the need to supply fuel.
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