The Katrina crisis *.

• Author: Yergin, Daniel
• Position: Reprint

Hurricane Katrina's full impact will not be understood for some time to come. Even as we confront the human tragedy, the consequences will also force its to think more expansively about energy security, and to focus harder on a matter which other events have already emphasized: The need for new infrastructure and investment in our energy sector.

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Man's technical ingenuity has collided with nature's rage in the Gulf of Mexico, and the outcome has been an integrated energy disaster. The full scope will not be understood until the waters recede, the damage to platforms and refineries is assessed, and the extent of damage to underwater pipelines from undersea mudslides is determined. Yet what has happened is on a scale not seen before, and the impact of the price spikes and dislocations will roll across the entire economy. Even as we confront the human tragedy, the consequences will also force us to think more expansively about energy security, and to focus harder on a matter which other events have already emphasized: The need for new infrastructure and investment in our energy sector.

What makes it an integrated crisis is that the entire energy supply system in the region has been disabled, and that the parts all depend upon each other for recovery. If the next weeks reveal that the losses are as large as some fear, this would constitute one of the biggest energy shocks since the 1970s, perhaps even the biggest. Unlike the crises of the '70s or the Gulf Crisis of 1990-91, this does not involve just crude oil: It includes natural gas, refineries and electricity. The 1.5 million barrels of oil production capacity that has been "shut-in"--closed down--is much less than was lost to the market when Saddam invaded Kuwait. But although it has received less attention, 16% of U.S. natural gas is also shut-in; and 10% of our refining capacity is under water at a time when there is no slack at all in the world's refining system. The electric and natural gas distribution system in the region has also been knocked out. All of this has a knock-on effect: Boats can't get out to the platforms without diesel fuel; and refineries can't operate without electricity or people. Those last two are the preamble to recovery. With communications broken down, companies are still trying to make contact with the missing employees who run the different parts of the energy infrastructure. As for electricity, a frontline manager summed up the problem: "You can't overemphasize the absolute enormity of the undertaking to put this place back together again."

This shock has revealed how crucial is the vast Gulf of Mexico energy complex. In the 1930s, drillers had put down wells in the waters off the beaches of Louisiana and Texas, to little effect. The first company to really go off...