API Addresses Congress on Impact of Katrina

Source: API 9/7/2005, Location: North America

In the aftermath of Hurricane Katrina, American Petroleum Institute President Red Cavaney today urged Congress to facilitate bringing American consumers greater energy reliability by encouraging further energy conservation and greater domestic onshore and offshore oil and natural gas production, as well as additional liquefied natural gas (LNG) terminals.

Testifying before the House Energy and Commerce Committee, Cavaney also cautioned against “trampling the structure of the free market” in reaction to current higher energy prices.

“The U.S. oil and natural gas industry recognizes the catastrophic impact that Hurricane Katrina has had on millions of Americans,” he said, “and our industry is working with government and others in the private sector to do all we can to alleviate their suffering.”

“The Gulf Coast region includes some 4,000 offshore platforms in federal waters, a dozen refineries and hundreds of production, transportation and marketing facilities,” Cavaney said. “We are not just responding to this disaster. We are living it,” he said, adding that thousands of industry employees and their families, friends and neighbors are suffering dislocation and other hardships along with others living in this devastated region. “The Gulf Coast is the heartland of the U.S. oil and natural gas industry,” Cavaney said. He noted the reason for this geographic concentration in a high-risk hurricane area is that government policies have largely limited offshore exploration and production to the Central and Western Gulf. “Our onshore facilities, including refineries, have been welcomed in communities in the region as well,” he said.

To increase the reliability of clean-burning natural gas supplies to industries and consumers nationwide, Cavaney said, Congress should increase domestic natural gas production, both in the Rocky Mountain West and offshore, and build more terminals outside the Gulf region to permit increased imports of liquefied natural gas (LNG), Cavaney said. He urged Congress to consider siting LNG receiving terminals beyond the Gulf region.

“We know that Hurricane Katrina’s effects on our industry are having a nationwide impact through skyrocketing prices for gasoline and other fuels.”. “Before Hurricane Katrina struck, the price of gasoline was rising primarily because U.S. refiners are paying more for crude oil, the principal cost component of gasoline,” Cavaney said.

Cavaney cited a July Federal Trade Commission report which said: “The world price of crude oil is the most important factor in the price of gasoline. Over the last 20 years, changes in crude oil prices have explained 85 percent of the changes in the price of gasoline in the U.S.” The report included crude oil prices as the key factor in why gasoline prices rose so high and sharply in 2004 and 2005. Cavaney explained that more than half the cost of gasoline is for crude oil, and an average of 46 cents per gallon of what consumers pay at the pump goes for federal and state taxes per gallon of gasoline. Other costs, he said, are incurred to refine market and distribute the gasoline.

“. . . our fuels are sold at more than 168,000 retail outlets nationwide – and less than 10 percent of those outlets are actually owned by refiners,” Cavaney said. “The remaining 150,000 outlets are owned by independent small businessmen and women, who are your neighbors,” he said. “They are making business judgments every day, as is their right. However, if any of us breaks the law, prosecution must follow,” he added. Cavaney urged Congress to avoid repeating “the mistakes of some past energy policies by trampling the structures of the free marketplace. Imposing new controls, allocation schemes, or other obstacles will only serve to make a bad situation much worse.”

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