Bush Releases Oil From Petroleum Reserve

WASHINGTON - President Bush raised the possibility Wednesday that Hurricane Katrina will lead to even higher gasoline prices and shortages in some areas, even as his administration moved to release oil from an emergency government stockpile and to temporarily ease pollution standards on gasoline and diesel fuel.

"Our citizens must understand the storm has disrupted the capacity to make gasoline and distribute gasoline," Bush said in a Rose Garden speech after meeting with top officials to discuss the crisis.


"A lot of crude production has been shut down because of the storm," Bush said after returning from his Texas ranch to oversee federal relief efforts. He flew over some of the affected area on his way.

The decision to tap the Strategic Petroleum Reserve was an effort to keep production of gasoline and other fuels steady.

Even so, gasoline prices leaped nationwide as the extent of damage to the nation's oil-distribution network became more apparent. Key refineries and pipelines remained out of service, reducing fuel shipments to retailers.

Tapping the government reserves will "certainly help those companies and those refineries to function, whereas they wouldn't be functioning without a supply of crude oil," Energy Secretary Samuel W. Bodman told The Associated Press in an interview.

Moments afer Bush's speech, Sen. Charles Schumer (news, bio, voting record), D-N.Y., said the president's actions do not go far enough. "On energy, Americans were expecting a lot more from the President. He took a tiny baby step when a giant step is required," said Schumer, who contends Bush needs to release enough oil from the reserve to flood markets and drive down prices.

Rising gasoline prices have taken a political toll on Bush, helping to drive down his approval ratings to an all-time low.

The oil reserves — about 700 million barrels of crude oil stored in underground salt caverns in Texas and Louisiana — were last tapped in September-October 2004 during disruptions caused by Hurricane Ivan.

In the aftermath of Hurrican Katrina, some 95 percent of the Gulf of Mexico's oil output was out of service, according to the U.S. Minerals Management Service. Nearly 5 million barrels of production have been lost since Friday because of the powerful storm and the shutdown of eight refineries.

"It is clear the consequences of the hurricane have become more widespread," Stephen Johnson, the
Environmental Protection Agency's administrator, told a news conference.

A day after the EPA announced it would temporarily allow the sale of higher-polluting gasoline in Alabama, Florida, Louisiana and Mississippi, it acted to ease certain restrictions on gasoline blends and diesel fuel in the rest of the country as well.


"This will help take some pressure off the gas price," Bush said as gasoline prices soared toward $3 a gallon in many parts of the country, surpassing that level in some places.

Bodman said freeing oil from the petroleum reserve would do little toward easing gasoline prices.

"Will it make a major difference in the price of gasoline? Based on the numbers that I see, probably not," Bodman told the AP. "It'll help some, but we have significant refining capacity that is dysfunctional, either because they don't have electric energy or because they're flooded, or both."

Some lawmakers have urged Bush to tap the reserve more aggressively in hopes of forcing prices down.

But the president's action is limited to just giving refineries a temporary supply of crude oil to take the place of interrupted shipments from tankers or offshore oil platforms affected by the storm — and it requires the oil companies to replace the borrowed crude oil at a later time.

Bodman told a news conference he had approved the first in a series of requests from companies requesting oil from the reserve. But the company later rescinded its request after finding a private source for the oil, Energy Department officials said.

He said it was too early to tell how much oil would be released.

"We've also begun working with other agencies on planning, even before the storm came ashore, and have been in close contact with the state and local authorities assessing the overall impact of this storm on our nation's power infrastructure," Bodman said.

The administration's narrowly targeted step drew criticism from those advocating large releases from the reserve to try to drive down prices.

"The president is willing to do what it takes to relieve an oil company, but not enough to relieve the crushing burden of oil speculation and price-fixing on American consumers and small businesses," said Rep. Edward J. Markey (news, bio, voting record) of Massachusetts, a senior Democrat on the House Energy Committee.

Rep. Joe Barton (news, bio, voting record), R-Texas, chairman of that committee, announced a congressional hearing Tuesday on Katrina's impact on energy markets. "I hope this is the silver lining that lets us really look at building new refineries and new pipelines and diversify the location so we are not as dependent on the area that the hurricane hit," Barton said.


Bodman ruled out action to impose a national ceiling on the price of gasoline.

"I don't think you'd find a lot of support for that," the energy secretary told CNN.

The production and distribution of oil and gas remained severely disrupted by the shutdown of a key oil import terminal off the coast of Louisiana and by the Gulf region's widespread loss of electricity, which is needed to power pipelines and refineries.

Bush, who returned from his Texas vacation to chair a meeting of a White House task force set up to coordinate federal efforts, had Air Force One fly over New Orleans and other affected areas on the way to Washington.

While on the plane, Bush took a call from King Abdullah of Saudi Arabia. "The king offered Saudi Arabia's support," said White House spokesman Scott McClellan. The world's biggest crude oil producer, Saudi Arabia has pledged to boost output by 1.5 million barrels a day — to 11 million — to replace shortfalls.

Meanwhile, European nations began considering the release of their own government-controlled stockpiles of gasoline and heating oil to help stabilize markets, said officials at the Paris-based International Energy Agency.