Hurricanes Katrina and Rita shut down oil and gas production from the Outer ContinentalShelf in the Gulf of Mexico, the source for 25% of U.S. crude oil production and 20% of natural gasoutput. Katrina, which made landfall on August 29, resulted in the shutdown of most crude oil andnatural gas production in the Gulf of Mexico, as well as a great deal of refining capacity in Louisianaand Alabama. Offshore oil and gas production was resuming when Hurricane Rita made landfall onSeptember 24, and an additional 4.8 million barrels per day (mbd) of refining capacity in Texas andnearby Louisiana was closed. The most profound impacts of the hurricanes were on refined product supply, althoughnatural gas supply to the U.S. pipeline grid is also a concern. At one point, about one-third of thenation's refining capacity was closed. Virtually all have been restored, although output at a coupleof units is still in the process of ramping up. Heroic recovery efforts at refineries and increasedimports of refined products met a warm heating season's needs and kept gasoline supplies flowingwithout isolated run-outs. About 400,000 bd of crude oil from the outer continental shelf (OCS) and Louisiana statelands is currently shut in. This is the equivalent of about 5% of total U.S. petroleum demand. Imported crude has kept stocks at more than adequate levels. Refined product supplies were initially made up from the release of 30 million barrels ofgasoline, middle distillate and other products from the strategic reserves of member nations of theOrganization for Economic Cooperation and Development (OECD) who are International EnergyAgency (IEA) members. Since those barrels arrived in early fall 2005, the world market privatesector has provided the United States with an increased level of imports. Supply appears to havematched demand, as prices fell through late 2005 and early 2006. A number of crosscurrents bear on this situation, including how fuel demand is affected byprices, and when winter weather arrives and how cold it might be. On the supply side of therelationship are factors which include the rate at which U.S. refining recovers, and the availabilityon world markets of commercial refined products. In addition, some waivers of gasolinespecifications have been granted by the Environmental Protection Agency (EPA), aimed at makinggasoline easier to supply. With natural gas, about 85% of the nation's supply comes from domestic production; thereis very little opportunity to import replacement supply. As of October, nearly 10% of totalnationwide consumption was shut-in because of production problems in the Federal Offshore Gulfof Mexico, or because of damage to critical infrastructure. Another 3% of nationwide supply fromLouisiana state lands is shut-in. Despite reduced output, gas was still being placed in storage; theadditions during the week ending October 14 were 75 billion cubic feet (bcf). The amount of gasalready in storage was equivalent to the five-year average, although it was slightly below year-earlierlevels. Gas sold from storage is used to balance seasonal demand swings, and not to replace acatastrophic loss of production. Given that the current amount of shut-in OCS and Louisiana statelands gas is the equivalent of half the most recent week's storage addition, the perception of a robustinjection to storage should be adjusted accordingly. Despite the fact that supplies continue to flow, wellhead prices have doubled since lastsummer. Issues for the onset of cold weather include timing and severity, as with oil, as well as"demand destruction" resulting from higher prices. But if Gulf of Mexico production does notrecover, there is no import safety-valve, and supplies could become tight and prices could spike. In the immediate wake of Katrina and Rita, much of the impacted area was without electricpower. But nearly all customers who had been without power in Texas have had service restored.In Louisiana, power outages are more widespread, although many customers listed as being withoutpower are unable to receive it because of damage to the premises. Nearly 1.6 mbd of crude oil -- the equivalent of 7.6% of U.S. oil consumption -- wasproduced on the Gulf of Mexico Federal Offshore before the hurricanes struck. Production wasvirtually halted in the wake of both storms, as production facilities were evacuated and wells wereshut down. The storms destroyed 111 production platforms, and 52 were seriously damaged. Anumber of drilling rigs were destroyed, which will limit future production from new wells yet to becompleted. Oil production has begun to resume. Output has begun to ramp-up, reaching 600,000 bd onOctober 11. But 60% of Gulf of Mexico oil remains shut in, and over 50 million barrels of oil outputhave been lost since Katrina-related shutdowns began on August 26. The amount of lost outputcontinues to mount, as about 1 mbd of capacity remains shut-in. Between October 1 and October 7, oil output rose by 300,000 bd, an encouraging sign ofrestarting operations. But a full assessment of damage to facilities, including underwater productionplatform-wellhead connections and pipeline gathering systems, has not been completed. It may betoo early to assess whether production is steadily coming back, or if all the production that has comeback was the easiest to restore while currently shut-in output presents significant challenges atproduction platforms, within transport infrastructure, and at coastal processing facilities. Productioncan come back only as fast as pipelines and processing facilities return to service. That said, Energy Information Administration (EIA) Administrator Guy Caruso has estimatedthat shut-in production will continue being restored; the amounts shut-in will likely average 930,000bd in October, 724,000 bd in November and 517,000 bd in December. (1) In addition to disrupted production, the operation of two important long-distance crude oilpipelines were impeded. CAPLINE, which transports crude from Louisiana to Illinois, was shut forseveral weeks; it is now operating at 80% capacity. This limited crude supply to a number of refinersin the central part of the nation. And the Sun Pipeline and terminal started limited operations in earlyOctober, supplying a number of Texas and Louisiana refineries. Some pipelines transporting refined products had service outages or throughput reductionsas a result of the hurricanes. Most notable was the Colonial Pipeline, which transports fuels from theGulf northeastward, ending in New York. This is an important source of supply for consumers allalong its route, and its outage resulted in very high prices in places like Maryland and Washington,D.C., which at one point had the highest gasoline prices in the nation. Colonial received fullcommercial electric power on October 13; full capacity is now available, subject to availability ofpipeline input. Gasoline prices in its service area are returning to parity with prices elsewhere. About 2.5 mbd of crude oil imports -- including 0.9 mbd by way of the Louisiana OffshorePort (LOOP) -- flow through storm-damaged ports in Louisiana, Mississippi, and Alabama. Thisconstitutes more than 12% of petroleum consumption. (2) LOOP was operating at full capacity when it was shut down againas a precautionary measure in anticipation of Hurricane Rita. It is reportedly operating at 100%capacity, having escaped more damage from Rita. Other Gulf Coast ports through which oil importsflow have resumed operation, except for Port Arthur, which can accept barge traffic only duringdaylight hours. The Mississippi River is open with some restrictions. In the days after Rita, 5.6 mbd of refining capacity was shut -- nearly one-third of the nation'stotal. By mid-October, most of this capacity was operating or in the start-up process. Four facilitieswere closed in the wake of Hurricane Katrina; one has restarted, and full production is expected atthe end of October. Electric power has recently been restored to three other Louisiana plants whichsustained substantial damage, and they are expected to be down for an extended period. They havea combined capacity of 554,000 bd (3) . An additional 722,000 bd of capacity shuttered in the wake of Rita remains off-line, leavinga total of 1.3 mbd down as a result of both hurricanes. This represents nearly 8% of nationalcapacity, and presents potentially serious supply problems, given the lack of any spare U.S. refiningcapacity. Additionally, the shutdown of over 5 mbd of capacity for virtually all of September hasaffected refined product stocks as seasonal demand starts to grow. On August 31, Secretary of Energy Bodman announced that the Bush Administration wasauthorizing releases of Strategic Petroleum Reserve (SPR) crude oil. Seven refiners requested loansof crude oil totaling more than 13 million barrels. The release of SPR oil and the announcement onSeptember 2 from the IEA of a coordinated drawdown of 30 million barrels of crude and 30 millionbarrels of refined products calmed markets by early in the week of September 5. The U.S. SPR holds crude oil only. The net-importing IEA member countries are requiredto hold at least 90 days of net imports, and this obligation is met with a combination of crude andrefined products. At the end of June 2005, these stocks amounted to 222 million barrels of productsand 545 million barrels of crude. Two million barrels were to be released daily by the IEA. (4) Nearly all 30 million barrelsof products have been released, gasoline and heating oil imports are still in transit and continue toreach United States. (5) Theyare reflected in the gasoline import statistics reported each Wednesday by EIA.