According to EIA data, gasoline inventories the week that Hurricane Gustav hit were the lowest that they had been since 2000, amounting to 187.9 million barrels, or about 21 days supply. Quite a bit of this inventory is needed just to keep the pipelines filled. EIA does not publish information as to how far inventories need to drop before we start seeing outages, but it is clear that we have now reached the point where shortages are developing.
Insight 1. Even before Hurricane Ike hit, inventories were very low.
Insight 2. Friday, September 12, before Hurricane Ike hit, there were already gasoline shortages in some parts of the country. These occurred primarily because of the earlier impact of Hurricane Gustav.
See below for further insights.
Insight 1. Even before Hurricane Ike hit, inventories were very low.
Insight 2. Friday, September 12, before Hurricane Ike hit, there were already gasoline shortages in some parts of the country. These occurred primarily because of the earlier impact of Hurricane Gustav.
See below for further insights.
Gasoline traveling by pipeline from Texas to New Jersey takes an average of 18.5 days to make the trip, so it shouldn't be surprising that it took 11 days (from September 1 to September 12) for the Hurricane Gustav shortage to start to be felt.
Insight 5. One of the biggest refined product pipelines, Colonial Pipeline, is now reported to be shut down, because of lack of refined product input.
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Insight 9. If 5 million barrels of refinery production is taken off-line, this is equivalent to a little over 25% of US refined product usage.
We would hope that the amount of refinery production off-line would drop fairly quickly, but it could be several days before it drops from the current 5 million barrels off-line. It will be impossibile to make up this huge shortage with imports of refined products from overseas, or the use of winter grade gasoline in summer.
Because shortages are likely to vary by part of the country, depending on pipeline service to the area, it is quite likely some areas will experience shortages of 25% for several days, even if loss in refined product declines to "only" a shortfall of 2 million barrels a day, which equates to 10% of current usage. At 10% of current product usage, there would be a shortfall of gasoline of about 900,000 barrels a day.
Insight 10. Because some areas are likely to be very short of supply, it is likely that gasoline prices would need to rise to $10 a gallon or more in those areas, to cut back demand sufficiently.
In some areas, there may be temporary shortfalls of 25% of more of gasoline supply. To allocate such short supplies would take a very high price. Government officials are not likely to let this happen. Instead, we are likely to see many stations that are completely out of gasoline, and other stations with long lines, selling at most 10 gallons per customer.
Insight 11. The lack of diesel, gasoline, and jet fuel is likely to cause feedbacks to the rest of the economy.
If people are forced to cut back on gasoline use, they are likely to cut back considerably on trips to restaurants and other discretionary trips. Restaurants that were doing poorly before will find their business much worse. Restaurants on the brink of bankruptcy may be forced over the edge.
Some people will suddenly find their incomes lower (for example, gasoline station owners who have no fuel to sell; waitresses in restaurants; truck drivers whose trips are reduced). These people will find it more difficult to pay their bills than previously. Some may default on mortgages and credit card debt.
Insight 12. We will all get to see first-hand a little of what the impact of peak oil is likely to be.
When there are shortages of fuel, people can be expected to hoard supplies. This may cause shortages to be worse than they would otherwise be. [NVDL: And panic buying].
Co-operation could go quite a way to solving day-to-day problems. We will get to see to what extent this actually comes into play.
Allocation by price has long been advocated as the American way. We will get to see how long this lasts when there is clearly not enough supply at prices voters consider "acceptable".
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