U.S. Releases Oil From Stockpile To Ease Crunch 

JOHN J. FIALKA, RUSSELL GOLD & RAFAEL GERENA-MORALES / Wall Street Journal 1sep2005

With fuel prices rising amid fears of 1970s-style shortages emerging in the aftermath of Hurricane Katrina, the Bush administration scrambled to ease the pain by releasing oil from government stockpiles and suspending air-pollution rules to gin up extra gasoline supplies.

Gasoline prices are now likely to stay above $3 a gallon the rest of the year, according to the Petroleum Industry Research Foundation. Yesterday, there were scattered reports of price increases — from Ohio to Maine — that pushed pump costs above that level.

		% change	% change
		past year	past 3 days
Unleaded	  36		  132
Natural Gas	  17		  126
Heating Oil	  12		   85
Crude Oil	   4.25		   64

More disturbing were signs of fuel-supply disruptions, as pipeline and refinery outages continued for a third day. Petroleum Traders Corp., one of the country's largest independent gasoline wholesalers, said BP PLC, one of the nation's biggest gasoline suppliers, had said it was cutting off delivery.

"I've been doing this for 26 years and I have yet to see a national disruption of this scope," said Michael Himes, president of closely held Petroleum Traders, of Fort Wayne, Ind. He added that he has gasoline-station owners calling him saying they will pay "any price, I just need the fuel."

BP spokesman Scott Dean said the company decided to focus on meeting its contractual obligations and stop crude to wholesalers who buy gasoline on spot markets. Even though no company refineries were impacted, he said, "we are facing disruptions to our crude supply and we are suffering disruption in pipeline availability."

Red Cavaney, president of the American Petroleum Institute, which represents most segments of the oil industry, warned that the impact on oil and natural-gas supplies "will be significant and protracted." Making a rare pitch for people to drive sparingly, Mr. Cavaney said: "Right now will be a good time for people to ramp up their energy conservation."

Hoping to avert a wide-scale energy crisis, the Bush administration announced an emergency, temporary easing of some pollution-control standards on gasoline and diesel fuel. "It is clear the consequences of the hurricane have become more widespread," said Stephen Johnson, head of the Environmental Protection Agency as he announced the moves. Under existing federal air pollution rules, many cities must have special "reformulated" gasoline to curb smog, which requires refiners to make and store a variety of different fuel blends. Yesterday's waiver allows existing supplies to be marketed over broader areas.

The Department of Energy said it had given one major oil company, which it didn't name, permission to borrow crude oil from the 700 million barrel Strategic Petroleum Reserve, though the department said later the company rescinded its request. The Energy Department said it was working out the details of similar swaps with several other companies.

But some of the government's emergency stockpile must travel through the same immobilized pipelines that normally supply oil from the Gulf, so it was not clear how quickly the government aid might ease the supply shortfall. "You can't put products in the pipeline if you don't have any pressure," Mr. Cavaney said. He also noted that refineries must undergo a period of testing before they can begin to produce gasoline.

European nations hold large volumes of gasoline in their strategic reserves. Claude Mandil, executive director of the Paris-based International Energy Agency, said his 26 member nations were prepared to funnel gasoline to the U.S. immediately, if needed. But John Felmy, the petroleum institute's chief economist, said that it will take two weeks or more to get additional gasoline from Europe.

The big unknown is whether recovery will take days or weeks. Storm flooding and widespread electricity outages in the Gulf area kept key pipelines shut down that would supply both crude oil to the region's refineries and ship refined products, including gasoline and heating oil north to the Midwest and the East Coast.

The key problem will be the lag before new supplies reach major gasoline markets. Transportation Department teams scrambled yesterday to hook up dozens of emergency generators to oil pipelines in an effort to get the Gulf's oil circulation system running again. Meanwhile, according to the API, 25% of the nation's domestic oil production — most of it coming from platforms in the Gulf — remained shut down.

Some officials were concerned that Port Fourchon, La., which is the major ingress point for pipelines, and which supplies crews and supplies to offshore oil rigs, could be closed for as long as a month because the storm drove silt into its shipping lanes.

Widespread flooding and power outages conspired to keep eight refineries shut down yesterday morning and a ninth, Exxon Mobil Corp.'s gigantic Baton Rouge facility, on a reduced run. Crews were unable to reach at least four major refineries because of flooding. Still, one of the two pipelines that carry refined products like gasoline from the area to the South and East Coast said it was restarting.

Mr. Felmy said that until supplies began moving again, gasoline, propane, heating oil and other products could be in short supply, especially in the Midwest and upper East Coast, areas which are normally fed with both crude oil and refined products from the Gulf.

In West Virginia, two major transportation authorities that supply gas to public buses, ambulances and police cars escaped a fuel crunch only by getting emergency deliveries yesterday. The Transit Authority in Huntington, W.Va., was about to run out of gas today[Thursday], which would have shut down its public transportation system for disabled residents, said Paul Davis, an assistant general manager of the authority.

Paul Fiore, executive vice president of Service Station Dealers of America and Allied Trades, which represents state service stations around the country, says he hasn't heard of any supply shortages or outages among gasoline retailers. He said, however, that he has heard prices at the pump rose by as much 50 cents to more than $3 per gallon overnight.

Asked about price gouging at a terrorism press conference, Attorney General Alberto Gonzales said that government officials had a meeting yesterday about the situation due to Katrina. "Long term, things we are concerned about are issues like price gouging, fraudulent charities," he said. "Short term, we're focused on ensuring we have efficient law and order."

— Karen Matusic of Dow Jones Newswires contributed to this article.

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