It's going to be a very busy and very interesting day for world energy markets today. The NY light, sweet crude contract has already traded at $70 in Singapore. The results of Katrina are likely to make things much, much worse.
The Louisiana Offshore Oil Port is closed. It is the only terminal in the US capable of receiving very large oil tankers, such as those used to ship Saudi or Venezuelan crude to the US. Much of the US Gulf of Mexico crude output is probably shut in right now, and will likely remain shut in for some time to come. Shipping will also be disrupted for a while, too. Refining is also concentrated on the Gulf coast. If a large enough number of refineries are closed -- and stay closed -- gasoline prices will skyrocket.
If that is not bad enough, the Henry Hub in Louisiana is closed too. It is the main -- I think possibly the only -- point where US Gulf natural gas flows into the continental US natural gas network. The folks at the New York Mercantile Exchange are having an emergency meeting about this (the Henry Hub is the price point for NY natgas futures). A lengthy closure will cause problems for traded natural gas.
And could cause a major crisis for natural gas in the US as soon as this week if it closed too long. With all the focus on oil, no one has paid much attention to the fact that natural gas production in North America has been declining for the last several years and, aside from the deepwater Gulf of Mexico, the Alaska North Slope and the McKenzie Delta (the gas from Alaksa and northern Canada will likely not its way south before 2010), there is not enough gas out there to meet rising demand (especially for power generation). Americans are heavily dependent on the Gulf for natgas and oil, and lengthy outages or severe damage to capacity will only tighten the squeeze on energy markets.
This will only get worse, by the way. Mexico's big onshore field, the Cantarell, which provides Pemex with about 3 million barrels per day, is beginning to decline, and over the next few years Cantarell output is expected to fall dramatically. Unless Mexico can field the resources to drill in its deepwater section of the Gulf, Mexico will -- sometime in the next 10 years -- likely become an oil importer.
If it is a very cold winter this year, heating -- regardless of whether you do it with gas, oil or electricity -- is going to become very, very expensive. I would advise everyone who lives in a cold clime to prepare for the worst, buy a few thick blankets, and find someone to snuggle with.
For everyone else who has built their lives on lengthy commutes by car from where they live to where they work, gasoline is very likely going to be expensive for some time to come. I've never understood the desire to drive to work (I hate it myself) a long way from pristine suburb to inner city (or suburb to suburb), but you have a couple of choices -- suck it up, move closer to work, or work closer to home.
The war for resources -- the "kicking their ass and taking their gas" -- is not working. And won't. So give up on it.
