Hurricanes, Refineries and How Oil Prices Could Afftect Post-Katrina Reconstruction

I got a glimpse of the future on Saturday when I stopped in to a Sheetz gas station in Northern Virginia. For those of you not familiar with Sheetz, it's one of those chains that generally has around two dozen pumps to choose from -- and every last pump had a piece of plain white paper taped to it, each with the hastily scrawled words "Out of Gas."

In the past, I have seen a station out of 87 octane or one pump cleaned out of 93, but never have I seen two dozen pumps all completely dry. The only explanation we got from the clerk was this: "The supplier has no gas." When I asked when more fuel was expected to arrive, he shrugged.

The Sheetz shortage may not last long, since Rita didn't pack the punch many had anticipated -- see Earl Bockenfeld's Radio Weblog for a map of refineries and roundup of analysts' chatter on this. But when the next big hurricane hits that very vulnerable piece of coastline, what if a number of refineries do suffer extensive damage?

More importantly, since this week's Debate is about rebuilding, what do gas prices have to do with anything? The answer: plenty.

Higher oil prices mean higher costs of building materials -- both in production and, more importantly, in freight. Wood that might otherwise have been harvested locally will have to come from farther away due to storm damage. Naturally, where building costs were to be paid for or subsidized by the federal government, any price hikes will be passed onto taxpayers.

And those able to get jobs in reconstruction will be hit doubly hard by rising fuel prices, because they'll already be at risk of making less than they otherwise would thanks to the suspension of the Davis Bacon act. Writes columnist Harold Meyerson: "the prevailing wage that Bush's Labor Department has designated for the Gulf region averages about $9 an hour. For more highly skilled carpenters in New Orleans, the prevailing hourly wage rises to $13.75 -- which means that if a New Orleans carpenter is lucky enough to work 40 hours a week for 50 weeks a year, he or she will have a princely pretax annual income of $27,500."

Another big problem with higher fuel costs? For the poor -- particularly the elderly -- not being able to afford heating oil can be life threatening. A lot of displaced people are just going to be getting back into houses and apartments come this winter, and money will be tight enough without worrying about how to keep warm. The governor of New Mexico has the right idea -- he is proposing rebates to offset heating costs, which one of the Free New Mexican readers comments at the end of the story is better than suspending the gas tax, which "is simply a subsidy to the gasoline companies."

(More about those gas taxes in the next post.)

Paul Krugman writes in the New York times that "America's current state of mind reminds me of the demoralized mood of late 1979, when a confluence of events -- double-digit inflation, gas lines and the Iranian hostage crisis -- led to a national crisis of confidence." (Here's the link, but don't bother to click unless you want to fork over the $50 for one whole year of the privilege of reading Times columnists.)

The Post's Sebastian Mallaby also suggests taking a "moment to recall the lesson of the 1970s" -- that piling on the debt will only worsen the "oil shock." In case you're looking for more reasons to be nervous about rising gas prices, Mallaby's got you covered.

By Emily Messner |  September 26, 2005; 5:34 AM ET  | Category:  Looking Ahead
Previous: Rethinking Reconstruction As the Levees Give Way | Next: Hurricanes and Gas Taxes (cont.)

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Argh. Maybe it's the rain, but this gas/oil situation coupled with this new wave of environmental awareness in the U.S. frustrates me so much. Who couldn't see this coming? Why did it take a catastrophe? Why is it that the people on the wrong side of the debate get to make policy?

Posted by: Benny | September 26, 2005 06:46 PM

We need more refineries. It's that simple. And it's been the environmental movement that has stifled the construction of new facilities and the expansion of existing ones. Let's be realistic. The country will need gas, and with a good percentage of the country's refining capacity shut down by hurricanes, everyone - rich and poor - is going to suffer at the pump if we don't diversify and expand beyond the Gulf.

Posted by: KB | September 28, 2005 10:41 PM

The environment is not making money off higher gasoline prices, the big oil companies are. The environment did not shut down half of the refineries operating in 1980, big oil did. The environment is not sitting on 500 billion bucks (and not investing in refineries or drilling, big oil companies are. Until those companies get some real competition in the market place, big oil will continue to manipulate oil prices.

Posted by: McCall | September 29, 2005 02:30 PM

Money for refinery rebuilding, ugh. Some people are equating strengthening oil chains around the public when ever I read about needing more refineries and oil. I would like to take the opportunity to back the progress made in the University of California at Berkeley since 2000 with the advent of using algae in the manufacturing of Hydrogen and get off the slippery oil platform once and for all. If you had finite dollars and the choice was to continue the push for oil and the refining capabilities of the US or banding together, knotching the belt to free the country of prefabricated noose, I would choose the new technology. To me, the United States means land of the free. Try a search on algae and hydrogen and instead of arguing about prices of gas and oil, and where to place new refineries, rather argue how this discovery made several years ago can be made possible in the near term with a better source of energy. And gress what, the outcome is water. I think it would put to bed several energy discussions.

Posted by: Muller_Jr | September 29, 2005 07:08 PM

Interesting discussion...it is indeed interesting why the whole world should be surprised and shocked one fine day that oil stocks were depleting...I mean, we knew it all along, just that other more important short term events pushed this under the carpet...

Let's put up more refineries, but let them be bio-refineries...It took 4 and 1/2 billion years for the world to create all the oil, and just less than 300 years to completely exhaust...ok, may be not 300, 500? Even still, it is apparent that we cannot rely on fossil fuels...they are woefully endangered to help us in the long run...if we wish to leave a legacy that our descendants would remember us for, that should high-quality research into alternative energies...

Of particular interest to me research happening on producing biodiesel from algae ( see also a good site on this Oilgae.com @ http://www.oilgae.com )...we should remember that petrol originally came from algae and planktons and related plant species...so what better feedstock for human beings to again produce it from the same feedstock?? You know, thus it was ordained, thus it shall be...will even please the Vatican

Some thoughts

Ec @ http://www.eit.in

Posted by: Ecacofonix | June 16, 2006 01:48 PM

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