Gas Prices Resource Page

High Gas Prices – before and after Katrina and Rita

            Prior to Katrina, gasoline prices were already climbing well over the $2 per gallon mark.  The primary reason for this increase is a surge in global demand for oil, coupled with tight supply.  Demand increases are coming primarily from Asia, in particularly China .  China , by itself, is responsible for 40% of world oil demand growth over the past four years.  Last year, China surpassed Japan as the world’s second largest oil consumer, burning over 6.5 million barrels of oil a day (compared to 20 million barrels in the day from the U.S. ).  Unfortunately, supply is not keeping up with this robust demand growth.  The Energy Information Administration projects spare global capacity (the amount of extra oil that can be brought to market quickly) is down to about 1 million barrels a day, compared to over 5 million barrels a day in 2002.   

            With global demand pushing gasoline price upward prior to hurricane season, Katrina and Rita dealt a devastating blow to our nation’s domestic oil and gas supply, as well as America ’s energy infrastructure.  Nearly half of the U.S. refining industry, 28% of oil production, and 20% of natural gas output is concentrated in and around the Gulf of Mexico .  The hurricanes completely shut down oil and gas production in the Gulf, as well as nearly 20 refineries accounting for a significant portion of our nation’s gasoline production capability.  As of October 19, 2005, 19.2 percent of the nation’s refinery capacity was down or was restarting (14.2 percent Rita; 5 percent Katrina) as a result of damage by both hurricanes.  All this meant daily U.S. gasoline production was down 1.9 million barrels a day (or down 11%) from normal conditions.  Refinery shutdowns continued in the Gulf region until the end of May 2006.  In addition, 22.7% of Gulf Coast oil production is still shut down, leading to 340,438 fewer barrels of domestic oil available on any given day.

While gas prices subsided at the end of last year, they have once again spiked to some of the highest levels since the post hurricane period.  Price predictions for the rest of the summer are also pessimistic.  According to the U.S. Energy Information Administration (EIA), “Summer (April 1 to September 30) regular gasoline pump prices are expected to average $2.76 per gallon, 39 cents higher than last year’s average of $2.37 per gallon.”  Increasingly tightening world oil supply and escalating demand are the primary reasons for these price increases, which are projected to persist throughout the year.  EIA notes, “Consumption growth outpaces production growth in 2006 by 0.4 million barrels per day (bbl/d), compared to 0.1 million bbl/d greater consumption growth than production growth in 2005.”  Given these conditions, it is imperative government look at measures to protect consumers from price gouging, increase supply and ease demand, while simultaneously working to shed our addiction to oil through the promotion of feasible alternative fuels.

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