July 28, 2006

Exposed Refineries, Price Gouging and the Gas Crisis That Never Was

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Highlights

The Article

  • While much has been made of the multiple failures of both state and federal governments following hurricanes Katrina and Rita, relatively little attention has been paid to regulatory restraint that followed the hurricanes and allowed for a speedier recovery. This article explores why hurricanes, which directly affected about only 2 percent of U.S. GDP, managed to cause so much disruption to the nation's fuel supplies, and how the same government that botched "hands on" relief efforts succeeded when it went "hands off."

Our Findings

  • Hurricane activity tends to run in generational swings lasting between twenty and thirty years. The current period that produced Katrina and Rita is part of an upswing that began in the 1990s, after the relative calm of the 70s and 80s, and is expected to last until at least 2020. Government policies that have restricted much of the nation's oil production, refining, and import capacity to the western Gulf Coast, extend and amplify the economic effects of hurricane season to the entire country.
  • Soon after the hurricanes, state and local officials immediately began looking for those engaging in "price gouging." However, price gouging is neither well defined, nor well understood. In the aftermath of a natural disaster, price gouging is essential to a speedy and effective recovery and the return of stable prices.
  • Although the federal government - especially FEMA - was roundly criticized for its humanitarian response to the hurricanes, the government's regulatory response was much more effective. The EPA waived restrictions on the sale of boutique fuels, high sulfur diesel, and the importation of foreign gasoline, which arguably prevented the nation from sliding into a national gasoline crisis. Furthermore, the government waived shipping restrictions, and, perhaps most importantly, shied away from the price controls, which proved such a disaster in the 1970s. In addition to gasoline, government at both the state and federal level waived pages of regulations, whose strict implementation would have done much to slow the recovery.

This article was published in the spring 2006 issue of Natural Resources & Environment, which is published by and available through the American Bar Association Section of Environment, Energy, and Resources.