The past month has seen the US Gulf Coast battered by two major hurricanes. During the preparations for and aftermath of Hurricanes Katrina and Rita, US consumers and government officials have learned how tight the gasoline markets have become in the past few years. Increased demand and decreased supply due to a myriad of reasons have led to record high prices and, in some locations, gasoline shortages.
On the supply side, facilities in and along the US Gulf Coast-such as refineries, production platforms, and pipelines-were shut down in preparation for the hurricanes. Although refiners have brought their plants online as fast as safely possible, many refineries in Louisiana and Texas are still shut down and will take weeks or even months to restart.
Gasoline factors
In terms of demand, many factors influenced the gasoline situation during the past month. Unseasonably warm weather in August and September meant that drivers used their air conditioning more than in past years. According to calculations by analysts with Friedman, Billings, Ramsey & Co. Inc., the additional air-conditioning demand amounted to 30,000 b/d of gasoline consumption compared to the same period in 2004.
Some consumers top off their gasoline tanks if they expect higher prices or supply interruptions; this tends to increase short-term demand. The practice was recently evident along the Texas Gulf Coast. Nearly all the gas stations in Houston, which has the highest concentration of refinery capacity of any city in the world, ran out of gasoline 2 days before Hurricane Rita made landfall. An estimated 2.5-2.9 million people evacuated the city.
But perhaps the most significant, yet least publicized, factor is higher demand due to traffic congestion.
All congested
According to the “2005 Urban Mobility Report,” from the Texas Transportation Institute (http://mobility.tamu.edu/ums), the amount of fuel wasted due to traffic congestion in the US has increased steadily for the past 20 years. The main problem is that “urban areas are not adding enough [road] capacity, improving operations, or managing demand well enough to keep congestion from growing larger.”
Although a unique occurrence, the gridlock around Houston during the Hurricane Rita evacuation made the lack of sufficient road capacity especially poignant.
The mobility study evaluated data for traffic during 1982-2003 and studied traffic in 85 urban areas. The study compared travel time indexes (TTIs) for different periods. TTI is defined as the travel during peak conditions compared to free-flow travel along the same route. A TTI of 1.2, for example, means that drivers spend 20% more time traveling during peak hours.
In 1982, the US TTI was 1.12. By 2002-03, the TTI had jumped to 1.37. This meant that US drivers spent a total of 3.7 billion hr delayed in traffic congestion in 2003 compared to 0.7 billion hr in 1982.
More time spent idling in traffic means more wasted fuel. The study estimated that US motorists wasted 2.3 billion gal of fuel in 2003 vs. 0.4 billion gal in 1982. Each driver in the US wasted an average of 9 gal of fuel in 1982. This more than tripled to 28 gal/driver in 2003.
In economic terms, the cost of congestion has risen to $63.1 billion in 2003 from $12.5 billion in 1982.
The fact that the US actually decreased refinery crude capacity from 17.9 million b/d in 1982 to 16.6 million b/d in 2003 only serves to magnify the effects of traffic congestion on the gasoline demand-supply balance.
Solutions
The study outlined a number of solutions to ease congestion, including more road capacity, greater use of public transportation and high-occupancy vehicle lanes, and methods to ensure smoother and more regular traffic flow.
High fuel prices resulting from extremely tight markets are starting to cause a reduction in fuel use. Many cities have recently reported significant increases in the use of public transportation. In addition, sales of gas-guzzling sport utility vehicles have been falling.
In the wake of localized gasoline shortages, adding more refining capacity has become a higher priority in the eyes of US politicians. Although one must wonder, given the past treatment of the industry and inherent economic risks involved in refining, whether a refiner will be willing to build a new refinery in the US.✦
Editor’s note: The author spent 13 hr driving to Austin from Houston in advance of Hurricane Rita. The trip normally takes 3 hr.
