- The Washington Times - Tuesday, August 30, 2005

It still may be several days before we know the full extent of the damage that Hurricane Katrina unleashed against the nation’s energy infrastructure. Given the concentration of oil and natural-gas facilities in the area, the impact could be extensive, though almost certainly not overwhelming. While there has been talk of dipping into the 700 million barrels of oil stored in the Strategic Petroleum Reserve to mitigate Katrina’s impact on oil and gasoline prices, we believe such a decision would be premature. Instead, policy-makers should strongly lean toward allowing market forces to allocate the pain of Katrina’s temporary disruptions.

The purpose of the SPR is to provide what amounts to catastrophic insurance coverage against a major disruption of oil supplies. Policy-makers embraced the idea of establishing a large U.S. oil stockpile in the wake of the Arab oil embargo of 1973-74. Then, Arab members of OPEC removed more than 5 million barrels of oil from the market at a time the United States imported 6.3 million barrels per day of petroleum and consumed 17.3 million barrels. In 1979, during the Iranian Revolution, Iran’s daily oil output plunged from about 6 million barrels to nearly zero, while the United States continued to import more than 6 million barrels. Today, U.S. petroleum imports total 13.4 million barrels per day, representing nearly 65 percent of the 20.5 million barrels we consume. The Energy Department projects that petroleum imports will exceed 19 million barrels per day by 2025.

In the post-September 11 world characterized by growing American dependence upon petroleum imports, the SPR must always be available to temporarily alleviate such catastrophic events as terrorist assaults upon Persian Gulf oil fields or a major oil disruption resulting from a wide-ranging Mideast war. The 700 million barrels of oil in the SPR today could replace half our oil imports for 100 days. Coincidentally, that time period approximates how long it might take the U.S. military to gain control of any indispensable oil fields rendered inoperable for whatever reason.

In the Gulf of Mexico on Monday, Katrina curtailed more than 90 percent of oil output and more than 80 percent of natural-gas production. Normally, 1.5 million barrels of oil are produced each day in the Gulf. That accounts for about 27 percent of the nation’s daily crude-oil output of 5.4 million barrels. (Production of 1.8 million barrels of natural-gas plant liquids brings the total U.S. petroleum output to 7.2 million barrels per day.)

The market should be allowed to manage a temporary disruption of this magnitude. Before tapping the reserve, policy-makers should make sure that Saudi Arabia makes good on its pledge to raise its output from an estimated 9.5 million barrels to a promised 11 million barrels.



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