As a columnist, I've had the experience more times than I care to count of seeing my predictions appear in print cays after they have become wrong. This month, alas, I have the opposite but equally distressing result: The dire outcomes I predicted from Hurricane Katrina now look even worse as a result of Rita's havoc.
Fortunately, Rita was far less devastating in terms of lives lost or houses rendered uninhabitable. Gasoline prices rose, but by far less than after Katrina struck, largely because Rita did not knock out major pipelines; it hit after peak driving season; supplies from Europe were already flowing to the U.S.; and drivers had already been shocked into conserving gasoline.
Thus, the public and some of the media may not recognize how damaging Rita was. But for trucking, among other industries, Rita either compounded the problems created by Katrina or added new ones.
For example, the refinery shutdowns, along with the loss of most oil production from the Gulf of Mexico, have slapped truckers hard. The national average retail price of on-highway diesel fuel jumped by a record 35¢/gal. in the first week after Rita hit the Texas-Louisiana refining zone. Sixteen refineries, including some of the nation's largest, were totally or largely shut down almost two weeks after the storm passed.
Furthermore, unlike gasoline, the demand for “middle distillates” — specifically heating oil, which is made from the same “fraction” of crude oil as diesel fuel — increases at this time of year. That demand will remain strong into January or later, particularly if predictions of a cold winter come true for the Northeast, which is the major heating oil-using region.
Demand for crude oil can be satisfied — at a higher price, to be sure — by tapping the strategic petroleum reserves of the U.S. and other countries, as has been done since Katrina struck.
But for natural gas, there are no government reserves. Natural gas can only be shipped by special liquefied natural gas (LNG) tankers and unloaded at five LNG terminals, all of which are at essentially full capacity.
As of October 7, more than one-eighth of U.S. production had been shut down for two weeks, with some lost for more than six weeks. Consumers are expected to get enough natural gas to heat their homes, although in some regions prices could be 90% higher than last winter. But power plants, factories, and chemical plants that use natural gas for fuel or feedstock to make products may be cut off. That can affect trucking in three ways.
First, some plants can switch from natural gas to oil, putting more upward pressure on diesel prices. Second, insulation and plastics used in trucks and trailers will be more expensive deliveries to carriers delayed. Third, factories that shut down, either because they can't get natural gas or a product made with it themselves or because they depend on a power plant that can't get it, won't be requesting trucking service. Over the not-so-long run, more natural-gas dependent plants will join the chemical industry's ongoing exodus overseas to countries with more secure supplies of natural gas.
Truckers may also feel the storms' combined impact where the rubber meets the road: The disruption to both natural rubber imports and supplies of carbon black, derived from petroleum, has forced tire makers to curb production.
The bottom line: “Kat-Rita's” most immediate and visible impact has been on fuel costs. But those effects may be the easiest to pass on or reverse. Other impacts will become more apparent as the winter wears on and may be harder to escape.
