gas production in the gulf are operating at less than 50 percent of pre - katrina levels. since the first evacuations of oil and gas facilities were ordered before katrina, cumulative shortfalls represented almost 4 percent of the nation's annual production of crude oil and 2 percent of our output of natural gas. the combination of flooding, wind damage, and a lack of electric power also forced many crude oil refineries and natural gas processing plants to shut down. the restoration of production at the affected natural gas processing facilities has proceeded particularly slowly, in part because of the lack of natural gas feedstocks and infrastructure problems. most refineries, however, will be back on line within the next month or so, though a few may take longer. in the interim, a greater output of refined petroleum products in other areas of the country and much higher imports, especially of gasoline, are making up for the production shortfalls in gulf refining. the temporary lifting of some environmental regulations and the suspension of the jones act facilitated those adjustments. in addition, refiners have shifted the mix of production toward more gasoline and less heating oil and jet fuel. that shift has had benefits in the short run, though the longer it continues, the greater the possibility of upward pressure on distillate fuel oil prices during the winter heating season. releases from the nation's strategic petroleum reserve relieved much of the upward pressure on crude oil prices, and imports of refined products responded rapidly to ease the price pressures stemming from the loss of refinery production in the gulf. as a consequence, the nationwide retail price of gasoline for all grades has declined 60 cents per gallon from its peak of $ 3. 12 per gallon in the week of september 5. motorists appear to have economized on their driving, and gasoline demand appears to be off a bit. however, it will take time and an appreciable increase in the fuel economy of our stock of motor vehicles to fundamentally change the amount of motor fuel used on our nation's highways. 1 / 3 the far more severe reaction of natural gas prices to the production setbacks that have occurred in the gulf highlights again the need to expand our nation's ability to import natural gas. in contrast to the fall in crude oil prices and the sharp narrowing of refinery margins during the past two months, natural gas prices have remained high. moreover, judging from elevated distant futures prices, traders expect natural gas prices to edge lower but to stay high for the foreseeable

reversed, at some point these budget trends will cause serious economic disruptions. we owe it to those who will retire over the next couple of decades to promise only what the government can deliver. the present policy path makes current promises, at least in real terms, highly conjectural. if fewer resources will be available per retiree than promised under current law, those in their later working years need sufficient time to adjust their work and retirement decisions. crafting a budget strategy that meets the nation's longer - run needs will become ever more difficult and costly the more we delay. the one certainty is that the resolution of the nation's demographic challenge will require hard choices and that the future performance of the economy will depend on those choices. no changes will be easy, as they all will involve setting priorities and making tradeoffs among valued alternatives. the congress must determine how best to address the competing claims on our limited resources. in doing so, you will need to consider not only the distributional effects of policy changes but also the broader economic effects on labor supply, retirement behavior, and private saving. the benefits of taking sound, timely action could extend many decades into the future. 3 / 3