WASHINGTON (AP) – With more than a million customers in Louisiana and Mississippi losing energy, Hurricane Ida it is sure to take its toll on the energy, chemical and maritime industries that have major centers on the Gulf Coast. But the impact on the U.S. global economy is likely to be modest as long as damage estimates don’t rise sharply and refinery shutdowns don’t lengthen, according to economists.
The hurricane is expected to have a less severe financial impact than Hurricane Katrina 16 years ago, thanks in part to a lower storm surge and New Orleans’ improved dam system. Analysts at Boenning & Scattergood, a financial consultancy, noted that Ida’s wind field is smaller than Katrina’s, which is likely to reduce the area of catastrophic damage. Analysts estimated that losses for the insurance industry will reach $ 10 billion, far less than Katrina’s more than $ 90 billion.
Oil prices barely moved on Monday as oil companies and refiners assessed the damage from the storm. The price of the New York Mercantile Exchange was flat at $ 68.74 per barrel. Gasoline futures rose 1.2%.
However, Ida, which drew the fifth strongest hurricane to reach the mainland, left so many customers without electricity that any prolonged power outage could have repercussions, at least temporarily, for oil companies. natural gas and chemicals that have large operations along the gulf. The longer power is maintained, the longer these companies will struggle to restart their operations.
The hurricane tore down a major transmission tower in Jefferson Parish along the Mississippi River, sending cables into the river, causing widespread cuts and stopping river traffic, said Joe Valiente, the parish’s director of emergency management. These lines supplied power to the New Orleans area.
Valiente told NPR that all power outages had collapsed in about ten parishes and it could take six weeks to fully restore energy.
According to the U.S. Department of Energy, approximately 96% of oil production and 94% of natural gas production in the Gulf remain closed due to Ida. About 300 manned oil rigs and drilling rigs were closed and evacuated. At least nine oil refineries in the region have also closed, accounting for 13% of the country’s total refining capacity. Several pipes are also closed as a precaution.
Service outages are not expected to immediately affect gasoline availability nationwide, though, due to the system’s extensive fuel reserves, the department said.
At the moment, the ports of Baton Rouge, Gramercy and Morgan City in Louisiana and the port of Pascagoula, Mississippi, are closed. Louisiana’s offshore oil port has also suspended operations. The port of New Orleans was closed, but reported that “early reports do not indicate any significant damage to our facilities.”
Early indications are that Gulf Coast refineries saved the kind of damage they suffered during Hurricane Harvey in 2017, which caused flooding that flooded several refineries in the Houston area.
But Jacques Rousseau, an analyst at Clearview Energy Partners, warned that “we have to wait a little longer to see if there is any kind of extensive damage that could take a refinery out rather than a period of shutdown and restart.”
Over the weekend, Phillips 66 closed a refinery in Belle Chasse, Louisiana, and Exxon Mobil began closing production at a Baton Rouge refinery. On Monday, an Exxon spokeswoman said the refinery suffered no major damage and would begin restoring normal operations once the company knows it will have raw materials and energy.
All of New Orleans lost power Sunday evening when the hurricane hit land. Governor John Bel Edwards’ office said the damage to the power grid seemed “catastrophic and local officials warned it could take weeks to fully restore energy. As the storm approached, oil production on the high seas in the Gulf it closed almost completely and crews were evacuated as a precaution.Exxon said it was surveying offshore platforms to determine if there was any damage.
The hurricane and the consequent disruptions in maritime production and land refining occur in the same way that the demand for gasoline and other fuels will decline, as it usually does in September and October. This trend, if maintained, could diminish the effect of the storm on prices.
Most natural disasters cause little general damage to the $ 23 trillion U.S. economy. Even the most affected regions often recover quickly, thanks to all the money normally spent on rebuilding destruction.
Still, the New Orleans job market never regained its strength after Hurricane Katrina. In July 2005, the month before the hurricane attack, its metropolitan area had more than 620,000 jobs. It lost 185,000 in September and October of that year when people fled the flooded city. Many never returned.
Since then, New Orleans ’recovery has been interrupted by the 2007-2009 Great Recession and COVID-19, which crushed a tourist-dependent economy. In July, New Orleans had 530,000 jobs, nearly 15 percent of its pre-Katrina level. During the same period, employment in the United States has increased by 9%.
Houston fared better after Hurricane Harvey threw more than 4 feet of rain in the subway area in August 2017. It lost only 8,800 jobs immediately after the flood. By October he had already regained all his jobs, and more.
Nationwide, Mark Zandi, chief economist at Moody’s Analytics, said the disruptions caused by Ida are likely to lead him to lower his U.S. annual economic growth forecasts in the current July-September quarter by a few tenths of a second. percentage point. But that economic loss, Zandi said, could be reversed in the last quarter of the year as a result of the reconstruction of the hurricane damage that is likely to follow.
Citi Investment Research analysts agreed that any drag on growth is likely to be offset by subsequent reconstruction. They warned, however, that “inflationary effects may be more persistent as demand for building materials, cars and workers will face the existing shortage.”
“The key channel for Ida to impact the economy in general is through energy prices,” Zandi said. “We’ll have to see how much damage was done to production in the Gulf and how long it will stay offline.”
There could be a brief rise in gasoline prices, Zandi said, due to production shutdowns.
“The worst case scenario is that Ida could add 10 cents to 20 cents to the price of a gallon of gas by September,” he said. But he suggested that the rise in pump prices could only last a few weeks.
Brian Bethune, an economist at Boston College, warned that increases in gas prices could be more severe depending on the length of production shutdowns and whether other regions have alternative supplies. He noted that after the piracy of the colonial pipeline earlier this year, some states saw prices rise sharply as gas stations ran out of gas.
Chemical and plastics companies in the region also closed. But Citi analysts said the chemical industry in general can withstand summer storms as long as there are no sustained floods that cause damage to power stations.
Robert Handfield, a professor of supply chain management at North Carolina State University, said he is concerned that outages from petrochemical plants will disrupt supplies to plastics factories, which are still struggling to recover from the freeze. February in Texas and bottlenecks in the supply chain. .
“They’re already behind where they should be,” Handfield said. “Inventories are quite scarce.”
If the damage caused by Ida “affects the petrochemical facilities, we are in real trouble,” he added. “We already have general shortages.”
As for the oil refineries, Handfield said, “Once this thing is over, they will go back to the people and assess the damage and we will know.”
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Koenig reported from Dallas. AP writers Martin Crutsinger and Michael Biesecker in Washington contributed to this report.