Energy Lessons from Recent Hurricanes

By Merrill Matthews

Hurricanes Harvey and Irma killed dozens of Americans and caused tens of billions of dollars in property damage. But there’s one silver lining. The storms taught us three invaluable lessons about the U.S. energy market.

We need more refineries scattered around the country. Harvey decimated the Gulf Coast, which accounts for about 55 percent of overall U.S. refining capacity. S&P Global Platts estimates that Harvey temporarily shut down five refineries and limited the output of 10 more.

Federal regulations have made it harder and more expensive to build new refineries, which are needed more than ever to handle the fracking boom’s expanded oil and natural gas production.

According to the U.S. Energy Information Administration, no new refineries were built between 1998 and 2014. And only five were built in the 1980s and 1990s. So while five new refineries have been built in the past three years, only 10 have come online in the past 37 years.

The Gulf Coast will likely continue to be the primary U.S. refining hub. But expediting new refinery construction, especially in other parts of the country, should be a strategic energy goal.  The Trump administration ought to do what it can to remove obstacles and encourage new construction.

The Strategic Petroleum Reserve doesn’t need to be so large. The Strategic Petroleum Reserve was created in 1975, in the wake of the Arab oil embargo, to provide an emergency supply of crude oil in case U.S. imports were interrupted. The SPR currently holds nearly 700 million barrels of crude oil.

In Harvey’s wake, the U.S. Department of Energy only had to release 5 million barrels from the SPR — a quarter of the 20 million barrels Americans consume in a single day.

Harvey demonstrated that energy producers could keep refineries well supplied despite major challenges. So while it may make sense to keep some oil in the SPR for national emergencies, 700 million barrels is likely overkill. President Trump is right to have proposed shrinking or eliminating the SPR.

The fracking boom has prevented major spikes in energy prices. The most remarkable lesson of the hurricanes is not how much, but how little, they affected gasoline prices. There were some temporary price hikes. And a few gas stations in parts of Texas largely unaffected by Harvey sold out of all their fuel — but only because the public panicked and swamped the gas stations.

Officials clarified there was no actual shortage. “Concerns and even panic over gasoline shortages are leading to a sense that there’s a gasoline shortage. When in fact, there isn’t one,” said Texas Railroad Commissioner Ryan Sitton.

In fact, U.S. supplies were so unaffected that OPEC countries, whose embargo led to the 1970s gas lines and the creation of the SPR, were debating whether to cut their production even more in an effort to keep oil prices from falling.

A decade ago, no one would have believed we could be facing turmoil in the Middle East, sour relations with some major oil-producing countries like Venezuela, and several natural disasters and still see gas prices below $3.00 a gallon. The current stability is almost entirely due to the fracking boom that has made the United States a net exporter of natural gas and created an oil glut that is financially hammering a number of hostile countries.

The hurricanes have undoubtedly been devastating, but they proved that the energy sector is strong — and getting stronger.

Merrill Matthews is a resident scholar with the Institute for Policy Innovation in Dallas, Texas. Follow him on Twitter @MerrillMatthews.

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