ARC's 1st Law: As a "progressive" online discussion grows longer, the probability of a nefarious reference to Karl Rove approaches one

Wednesday, August 31, 2005

The Coming Gasoline Crunch

As a result of Katrina we have lost 20% of our crude supplies for the country as a whole. But more importantly than that, the Louisiana refineries are all down because they have no electricity. No crude, no refineries... no gas.

The refineries in the St Louis area, one of which my Dad built, are either dinasaurs or mothballed. No new refineries have been built in this country in over a quarter of a century. We have been operating on the edge for many years and it finally caught up with us.

This is going to be a major problem for the Midwest, Southeast and Northeast, but most of all the Southeast and Midwest as they are nearly totally dependent on the Gulf. Atlanta, for example, has about 10 days supply of product on hand. Their pipeline, Colonial, is down due to there being no electricity let alone product. Two days of that 10 are gone.

This could be a major mess.

"Experts" are predicting $4/gallon in the immediate future.

The price is going to be what it is going to be until consumption falls and supply and demand meet, economics 101. The problem is too little supply and too much demand. Our supply is down by 20%. Demand is at 100%. Something has to give. We had no wiggle room (excess) on the supply side to start with.

In 1979 this happened, but we were only 10% (or less) short that time around. The prices soared and there were lines at the pump. Some may recall the odd/even rationing.

Equilibrium will be retored, it is only a question of when and at what price.

Eventually we will get the supply back from the Gulf, hopefully sooner rather than later.

Perhaps we have learned our lesson this time and that we will drill for new sources off Florida, California and the North Slope of Alaska in addition to building new refineries.

Your Co-Conspirator,
ARC: MontereyJohn