Houston Democrats

This is good news.  One of the biggest fears about Katrina's after-effects was the long-term affects on gas prices.  However, Europe's announcement it would sell the US oil has helped to alleviate the short-term problem.  But, it might not be enough.  Heating Oil futures started increasing in late August.  Natural gas prices spiked after Katrina hit and the prices have yet to recede.  Although prices retreated on Friday, they are clearly in a clear uptrend.  Before Katrina, heating prices were predicted to increase 20%-30% this winter.  Now that number may be higher.

From The San Francisco Chronicle"

Higher heating bills for Northern Californians this winter are likely to follow in the aftermath of Hurricane Katrina, which left fuel production along the Gulf Coast at a virtual standstill.

Pacific Gas and Electric Co. said the likelihood of higher bills is being driven by a sharp rise in natural-gas prices. Unusually high even before the hurricane, prices have since soared -- nearly 20 percent this week alone -- to close Thursday at $11.76 per million British thermal units in futures trading on the New York Mercantile Exchange.

From Syracuse Post-Standard

Winter heating costs, already projected to be among the highest in history, could get even worse as a result of the disaster in the Gulf of Mexico, said Rick Cohen, director of power and gas operations for Select Energy.

The Price was running (high) before the hurricane, and the hurricane just kind of piled on," said Cohen, whose company supplies gas and electricity in 12 states throughout the Northeast. Cohen splits his time between Select's offices in Syracuse and Connecticut.

From The Chicago Sun-Times

Natural gas distributors, such as Peoples and Nicor, pass through the market price of natural gas dollar-for-dollar to consumers and don't take a markup. The distribution companies estimate the unit price of gas each month with the Illinois Commerce Commission, which later reviews those prices to assure they were "just and reasonable."

Earlier this week, Nicor told the ICC it will pass through a cost of $1 per British thermal unit in September to consumers. That's up a numbing 61 percent from September 2004.

"All year long, we've seen prices creeping up, and we're trying to prepare our customers for even higher bills," said Nicor spokeswoman Annette Martinez.

The geographic breadth of these papers indicates the entire northern US will experience higher heating costs as a result of Katrina.  The country is already experiencing gasoline over $3/gallon.  There are reports of gas lines and stations running out of certain grades of fuel.  Although Europe has provided the US a stop-gap supply for the next several months to alleviate the lost Gulf production, that supply will take 10 days to arrive.  During that time, expect more shortages, gas lines and price spikes.

In addition, winter is just around the corner.  If US gas production gets back on line and prices drop, the US consumer will not see a break in energy costs because winter heating costs will start-up when the best-case gasoline refinery restart scenario ends.  In other words, the US consumer is looking at highly elevated energy prices for the next 4-6 months.  That's long enough to do serious damage to consumer confidence and seriously hurt Christmas sales.

This is a huge wildcard for an economy dependent for 2/3 of its GDP on consumer spending.  It may be enough of a shock to slow that spending to the point of recession.  Personally, I would place the possibility of recession around 30%.  However, that number will increase the longer retail gas remains high.