As I pack my bags to head to Washington for Congressional Black Caucus hearings
on the September 11th attacks (to be conducted this Friday and Saturday) my
inbox is being progressively flooded with emails from inside sources in the
energy industry about what Hurricane Rita is now likely to accomplish –
the near-complete destruction of an already teetering US economy.
Fully 30% of all US refining capacity is in the target zone. Perhaps most importantly,
almost every refinery capable of producing diesel fuel is in immediate danger.
This promises (especially in the wake of Katrina) a devastating and irreplaceable
shortage of the diesel fuel needed to power America’s harvest of grain
and food crops this month and next. Without diesel fuel to power the harvesters
and combines, crops may be left to rot in the ground presenting a double whammy:
food shortages (with prices that may treble or quadruple) and export defaults
negatively impacting the financial markets and trade deficit.
Even before Rita strikes, fully 30% of all domestic natural gas production
is shut in. The US cannot import natural gas from overseas like it can both
crude and refined products. Repair work on infrastructure damaged by Katrina
has been halted as crews have been evacuated. The remaining half of Gulf energy
production undamaged by Katrina is directly in Rita’s
crosshairs. Natural gas prices are up over 110% and home heating oil futures
are up almost 70% before Rita even gets here. Since Katrina, US domestic oil
production is down one million barrels per day (from 5Mbpd to 4 Mbpd). We were
producing 9 Mbpd less than a decade ago.
Peak Oil has made replacement of losses almost impossible even as Saudi heavy-sour
is being spurned as useless around the world, even with discounts of up to $10
and $12 per barrel.
article today contains a quotation from a Wall Street energy expert as saying,
“‘Rita is developing into our worst-case scenario,’ said John
Kilduff, vice president of risk management at Fimat USA in New York. ‘This
is headed right into our other major refining center just after all the damage
done to facilities in Louisiana. From an energy perspective it doesn't get any
worse than this.’”
The Chairman of Valero Energy agrees with the Bloomberg assessment calling
Rita a potentially
national disaster. His opinion is important because Valero operates more
refineries in the US than any other company.
CNN is now predicting $5 per gallon gasoline and this will not likely go away
with market manipulations. We had not yet experienced the permanent spikes resulting
from Katrina, and the emergency reserves of the United States’ Strategic
Petroleum Reserve and the International Energy Agency have already been tapped
once and not refilled.
The South Texas Project nuclear plant – one of the largest in the country
– is being completely shut down in preparation for Rita’s landfall.
It is only 12 miles from the Texas coast and almost dead center in the hurricane’s
projected path. Texas has its own power grid but catastrophic electricity shortages
could easily ripple throughout the country in a short time. Electricity lost
from that that facility will only be added to what is lost from other facilities
powered by now critically short supplies of natural gas.
For those of you who expect FEMA to behave any differently in Texas than it
did in New Orleans you are in for a crude awakening. FEMA will do what it must
now do to preserve even a functioning part of America’s governing and
economic infrastructure. Saving lives will be one of the least important functions
in its mandate. While I had serious doubts about America’s ability to
recover from Katrina, I am certain that – barring divine intervention
– the United States is finished; not only as a superpower, but possibly
even as a single, unified nation with the arrival of Hurricane Rita.