Energy

Supply Concerns Elevate Futures

By Justin Blum
Washington Post Staff Writer
Thursday, September 29, 2005

Gasoline and natural gas prices soared on the futures markets yesterday as traders grew concerned that energy operations damaged by hurricanes Rita and Katrina could be hobbled longer than expected.

Analysts said that if futures prices remain at elevated levels, national pump prices for a gallon of regular could move above $3 a gallon, as they did following Hurricane Katrina. They added that a run-up in natural gas prices likely will mean increases for winter heating bills.

The Energy Department's Energy Information Administration said yesterday that 15 percent of U.S. refiners' ability to produce gasoline, jet fuel and other oil products "could be out for at least another couple of weeks" because of Rita and Katrina. In addition, the Minerals Management Service reported that 80 percent of natural gas production in the Gulf of Mexico remained shut down yesterday because of the hurricanes.

The higher futures prices came on the same day that two House committees took up Republican legislation designed to encourage refiners to build more plants and to spur more domestic oil and natural gas production. Supporters said the measures eventually would help bring down consumer prices. Some of the provisions had been considered -- and rejected -- as part of consideration of a broad energy bill that was signed by President Bush in August.

The Resources Committee sent to the full House a measure that opens to natural gas drilling offshore areas that are now off limits; it allows states to override bans on new offshore oil drilling. The legislation also would open Alaska's Arctic National Wildlife Refuge to oil and natural gas development, a controversial measure that supporters said likely will be approved as part of the budget process.

The Energy and Commerce Committee last night approved a measure that would provide incentives to expand refining capacity and change regulations on permits. The legislation sparked intense opposition from Democrats and environmentalists, who complained that it would roll back some provisions of the Clean Air Act.

Demand for gasoline has been growing faster than refiners have expanded capacity. Some lawmakers blamed oil companies, saying they did not want to build new refineries because doing so would bring down prices. Companies have disputed that, instead citing concerns about environmental regulations and future profits.

On the New York Mercantile Exchange yesterday, gasoline futures rose about 8 percent from the day before and natural gas was up about 10 percent. U.S. benchmark crude oil for November delivery rose $1.28 a barrel on the mercantile exchange to close at $66.35.

Traders were concerned that refineries damaged by the hurricanes, along with those shut down as a precaution, were taking longer to restart than expected, analysts said. They said that could lead to a tighter market for gasoline than expected.

"We're probably talking about retail getting above $3 a gallon," said Michael Burdette, an analyst with the Energy Information Administration. "The real issue is just getting those refineries back online. If we see them come back up relatively quickly, it will trim the market back down . . . possibly before the retail prices catch up."

Traders also are concerned about natural gas and oil production in the Gulf of Mexico, much of which was shut down in advance of Rita and remains out of service. Energy companies have been surveying damage to production platforms. While lost oil production can be made up in additional imports and by tapping the Strategic Petroleum Reserve, the lost natural gas production cannot easily be offset because few additional imports of liquefied natural gas are available.

In the House, supporters of the legislation approved yesterday said it was needed to provide more energy suppliesand lower prices.

"It is unfortunate that it takes a hurricane like Katrina or Rita to show us just how acute the problem is," said Rep. Joe Barton (R-Tex.), chairman of the Energy and Commerce Committee, referring to refining capacity. "Now is the time to start to correct this problem and build more refineries in the United States."

Democrats on Barton's committee said the measure was a giveaway to industry that was being rushed through without hearings or enough time for deliberations.

Rep. Henry A. Waxman (D-Calif.) said Republicans were trying to "exploit Katrina for a special interest bonanza." Rep. John D. Dingell (D-Mich.) said the committee's process was "cockeyed" and would produce "doomed legislation."

Barton said the measure needed to be approved quickly and that many of the issues had been discussed previously.


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