Sure Enough

I was doing errands this morning and sure enough, gas prices are topping three dollars already. As I noted in my gas whiners post below, our nation's production and distribution network is working at near capacity. Any disruption -- like Katrina -- is enough to cause shortages and other problems. Add media sensationalisation and you get lines and hoarding and other fear-related problems. Even the tiniest sidewalk crack can trip the most experienced runners if they are moving at full speed.

The problems in Louisiana aren't long-term or disastrous. They'll be fixed in very short order. But the bottlenecks, the hold-ups and the backups, and the distribution shortages are sufficient to cause a temporary spike in prices. A big, bad spike.

The President at least is doing the right thing in opening up the Strategic Oil Reserves and suspending EPA regulations on reformulation. That means that (temporarily) government rules on what kind of gas can be sold where and when will be ignored so that gas from different parts of the country can be shipped to the East, where the disruption from Katrina is being felt, and that the oil from the Reserves can be used as needed, and not only in specific formulations. In other words, the artificial walls will be knocked down for the emergency.

Have a happy Labor Day weekend! Drive carefully.

INSTANT UPDATE I posted something over at Michael Silence's blog where he wonders if four dollar gas is coming. I'll repost it here, since it ties in with this post:

It's way more complex than that. The problem mostly isn't the price of crude oil, but in the refinement and distribution chain that turns it into gas and gets it to the pumps.

America has a fixed infrastructure to refine oil. It's operating at something like 97% of capacity. There haven't been new refineries built to process crude oil since the mid-1970s, and yet demand for refined oil has grown tremendously since then.

The pipelines, etc., to carry gasoline and oil around the county and to market are operating at something like 93% of capacity.

There are also extensive and highly specific government regulations about the kinds of gasoline that can be sold. They specify certain additives, grades of refinement, content, etc., to combat air pollution. They also dictate when and where these various formulations can be sold. In other words, gasoline for sale in, say, Oklahoma cannot be sold (by law!) in Chicago or Nashville. That's why we had the Midwest oil shortage several years ago, even though other parts of the country had plenty of gas.

Any, *any*, disruption of this maxed-out flow spells disaster. Like we're seeing now. Until the Louisiana docks, drilling rigs, refineries and pipelines are repaired and back online, we'll continue to see this problem. And folks reacting fearfully only make it worse. Calm down.

High crude oil prices are actually a good thing, believe it or not. It makes marginal oil fields more attractive and increases the incentive to find and exploit those fields. It also makes places like Alberta, with its oil shale fields, more attractive to refiners, investors and oilmen. They are predicting a massive oil boom up there in the coming decades, in fields with as much as (if not maybe more) production potential than Saudi Arabia. That will help us, but China is also competing hard for oil these days as they industrialise and modernise their nation.

We need to build more refineries ASAP. We need to let oil prices rise, to increase the demand for hybrid vehicles and more more gas-sippers. We need to build more non-oil dependent power stations, especially nuclear. The new modular pebble-bed designs address all the concerns of environmentalists and are cheaper to build!

See what I said? Way more comlex than simple "crude oil is $70."

BACK-TO-BACK INSTANT UPDATE I was just talking to my neighbor who has a relative in Atlanta. She said that he paid six dollars a gallon for gasoline there. Can anyone confirm this?

THURSDAY NIGHT UPDATE: Sure enough, it's true.