Hurricane Katrina :: Economic Impact
Hurricane Katrina has already had significant economic effects, which are expected to continue.
Oil industry
Port Fourchon takes direct hit from Katrina (7 a.m. CDT, August 29, 2005)Katrina has interrupted oil production, importation, and refining in the Gulf area, thus having a major effect on fuel prices. A tenth of all the crude oil consumed in the United States and almost half of the gasoline produced in the country comes from refineries in the states along the Gulf's shores. An additional 24 percent of the natural gas supply is extracted or imported in the region. The Strategic Petroleum Reserve is stored along the Gulf. The hurricane accelerated the Oil price increases of 2004 and 2005.
Continue below...
The power outages in the wake of Katrina have also caused distribution problems for oil and natural gas. Pipelines which move petroleum products from places like Houston to areas of the east coast have had their flows interrupted because power outages shut down the pumps that kept materials flowing.
According to the Hattiesburg American, Dick Cheney personally called the manager of the Southern Pines Electric Power Association on the night of August 30 and again the next morning and ordered him to divert power crews to substations in nearby Collins that were essential to the operation of the Colonial Pipeline, which carries gasoline and diesel fuel from Texas to the Northeast [1].
At least twenty offshore oil platforms have gone missing, sunk, or gone adrift, according to the Coast Guard [2]. One oil rig, in dock for repairs before the storm, broke loose and hit the Cochrane/Africatown USA road bridge over the Mobile River in Mobile, Alabama. Two others went adrift in the Gulf of Mexico, but they were recovered. [3]. One platform, originally located 12 miles (20 km) off the Louisiana coast, has washed up onshore at Dauphin Island, Alabama. The Royal Dutch Shell MARS platform, producing around 147,000 barrels (23,000 m³) a day, has been severely damaged [4].
On August 29 at 7 a.m. CDT, Ted Falgout, port director, Port Fourchon, Louisiana—a key oil and gas hub 60 miles (100 km) south of New Orleans on the Gulf of Mexico—reported on FOX that the port had taken a direct hit from the hurricane. This port services approximately 16 percent of the nation’s supply of crude oil and natural gas [5]. According to Falgout, Hurricane Katrina "will impact oil and gas infrastructure, not just short term but long term as well. The impact of the storm—the Gulf is shut down; all of the area of the storm is shut down; a half billion dollars a day of oil and gas is unavailable". Louisiana Highway 1, the only major access route to Port Fourchon, is 75 percent submerged [6].
The Louisiana Offshore Oil Port, basketball which imports 11% of US oil consumption, closed on August 27, and Royal Dutch/Shell reports a reduction in production of 420,000 barrels per day [7]. The AP reported at 12:44 pm CDT that this port was undamaged and would be able to resume operation within hours of getting power back [8]. Many refineries are located in this area and may be disrupted by the hurricane.
Due to fears that the production of oil in the United States will be cut by up to one-third of normal capacity, the price of oil fluctuated greatly throughout the day. West Texas Intermediate crude oil futures reached a record high of over $70 a barrel USD. Long lines developed at some gas stations throughout the U.S. as customers rushed to buy gasoline, anticipating price increases in the wake of the storm.
Emphasizing the seriousness of the situation and in light of similar incidents in his own state, Governor Mike Easley of North Carolina has issued a statement asking all North Carolinians to conserve gas, limit fuel consumption and non-essential road trips, and state employees to car pool [9]. On the day of the Governor's announcement, many gas stations around the state ran out of gas and lines formed at others.
As of August 31, 12 p.m. CDT, eight Gulf of Mexico refineries remain shut down and one is operating at reduced capacity. Evaluation of five of the eight refineries is incomplete since access is limited. Aggregate offline capacity exceeds 1.9 million barrels per day (about 10% of total US oil consumption). Aside from the problems involved in re-starting the refineries (which is a lengthy process) there are major issues with worker housing, since a large proportion of their homes were destroyed by the hurricane.
The Environmental Protection Agency has moved to reduce prices by temporarily lifting fuel standards in America until September 15. The Strategic Petroleum Reserve will be releasing some crude oil as well to combat prices as major economic consequences are predicted if they remain high for a long period of time — leading consumer spending to drop and causing many foreign economies, especially in Asia to suffer.
President Bush has temporarily waived the Jones Act to allow foreign oil companies to ship oil between ports of the United States.
As of Wednesday, September 7, gulf oil production had returned to 42% of normal, up from 9% on Monday [10]. Of 10 refineries that were shut down by Katrina, four are expected to be back at full capacity within a week, however another four may be out of commission for months [11].
Next...
