Bodman: White House Will Tap Oil Reserves

Energy Secretary Samuel Bodman said today that the White House plans on tapping the nation's Strategic Petroleum Reserve to help refiners hurt by Hurricane Katrina.

"The SPR was put in place specifically for this kind of an event," Bodman said in one interview. "We now have, in some instances, problems with getting crude to some refineries."

The reserve is the government's emergency stockpile of crude oil, which is overseen by the Energy Department. The oil reserves are estimated at more than 700 million barrels stored in underground caverns in Louisiana and Texas.

U.S. crude oil prices were 21 cents lower at $69.60 in electronic trading following Bodman's comments. Crude prices had risen over $70 a barrel Tuesday before settling up $2.61 at $69.81 a barrel in New York.

Hurricane Katrina slammed into Louisiana and Mississippi on Monday, halting crude oil production in the Gulf of Mexico, which accounts for roughly a quarter of U.S. oil output.

Nine refineries were also closed along the coast due to the storm, Reuters reported Tuesday.

UPDATE: The Christian Science Monitor cautions that it is too soon to predict the long-term impact Katrina will have on the energy market -- it all depends on the extent of physical damage to facilities:

How long prices will remain this high depends on how much damage has been done to the energy installations located in and around Katrina's landfall. Some 21 percent of the nation's natural gas originates under the Gulf, and 30 percent of domestic crude-oil production occurs in the region (accounting for 7 percent of total US oil supplies).

... Even seasoned observers were stunned by the sharply rising prices on the futures markets. With 10 percent of America's refining capacity shut down by the storm, and another 10 percent affected, the markets are moving on very little information, says John Felmy, chief economist at the American Petroleum Institute. "Right now, the short-term markets are going a little crazy," he says. "If there is little damage, they can reverse themselves."

In coming days, government and industry officials will inspect the maze of pipelines that moves oil and gas onshore, as well as the platforms where oil is unloaded. Government inspectors also have to check every oil rig for safety before crews can return. The industry itself, counseling consumers to use energy wisely, says it could be several days until the extent of the damage is known.

"This is a severe but temporary situation," says John Lichtblau, chairman of the Petroleum Industry Research Foundation in New York. "Repairs can be done."

Many energy analysts are counseling consumers to remain calm. Despite the importance of the Gulf refineries, plenty of gasoline is available, they note. And it's only days until Labor Day, considered the end of the peak gasoline season.

... The natural-gas industry is also waiting to see if any damage has been done to the more than 3,000 rigs that produce the majority of gas used by Americans to keep warm. Fortunately, 90 percent of the gas wells are west of New Orleans, farther away from the center of the hurricane.

"They would have been impacted by the waves and rain but not by the blunt force," says Chris McGill, a policy analyst at the American Gas Association. "There will be parts of the Gulf where they will be up and running in 48 hours, but there will be other extremes of structural damage that may take weeks or months to repair."

Be sure to scroll down to the bottom of the article for a map of oil and gas production on the Gulf Coast, and of Hurricane Katrina's devastating path.

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