Billion Dollar Blowout

Wednesday, May. 10, 2006 By DAREN FONDA

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But that doesn't mean we're running out of gas and oil. The U.S. consumes about 21.5 million bbl. of crude a day, and with inventories of 321.4 million bbl., stockpiles are above average for this time of year, according to the Energy Department. The major Gulf Coast pipelines were up and running by the end of last week, albeit at reduced capacity. The Louisiana Offshore Oil Port, the nation's only deep-water tanker port, unloaded its first cargo since Aug. 27. Still, some analysts predict that disruptions in the supply chain mean motorists will be in for several more months of $3 gas or worse. "The only thing we can hope for is an amazing amount of conservation," says Houston oil analyst Matt Simmons.

Optimists say the situation could stabilize relatively quickly. There have been no reports of major damage to Gulf refineries. The problem is there isn't enough electricity to power them. Demand for gasoline typically tapers off after Labor Day. And thanks to a presidential directive, the crude is flowing; 30 million bbl. from the Strategic Petroleum Reserve is being loaned to companies like Exxon. In addition, foreign producers in 25 countries have pledged another 30 million bbl. of crude and refined product. The EPA is allowing sales of less stringently refined fuel, and President Bush is permitting foreign vessels to ferry oil and gas between U.S. ports (suspending a law prohibiting such transport).

Cars, coffee, cement--what's happening to industry?

Katrina dealt another knockdown punch to Detroit. Ford and General Motors rely heavily on full-size SUVs for profits, and sales of those vehicles were softening even before the latest surge in gas prices. "We have some dealers we haven't been able to contact," says Ford spokesman George Pipas, who estimates that 40 Ford and Lincoln-Mercury dealerships in southern Alabama, Mississippi and Louisiana were affected by the storm. Katrina forced Nissan to close its assembly plant in Canton, Miss., 211 miles north of New Orleans. When the plant reopened, employees reported they were having a hard time finding enough gas to make the commute, says Nissan spokesman Fred Standish. The only nugget of good news: Katrina doesn't appear to have disrupted supplies of critical material like steel.

The airlines are in a precarious spot. They may have to pass on the cost of jet fuel--up more than 20%--to ticket holders, which could depress air travel. Northwest, for one, warned that higher fuel prices could tip it into bankruptcy.

Homebuilders are eager to start reconstruction--some 200,000 homes in New Orleans alone need to be rebuilt--but supplies may be tight as the city is an import hub for cement and other building materials. Plywood will probably cost more for a while; after Hurricane Andrew, the price shot from $222 per 1,000 sq. ft. to $321.