No Ida threat in economic forecast
Energy, shipping take hit, but storm pales against Katrina
WASHINGTON — With more than 1 million customers in Louisiana and Mississippi having lost power, Hurricane Ida is sure to take a toll on the energy, chemical and shipping industries that have major hubs along the Gulf Coast. But the effect on the overall U.S. economy will likely be modest so long as damage estimates don’t rise sharply and refinery shutdowns are not prolonged, economists say.
The hurricane is expected to inflict a less severe financial impact than Hurricane Katrina did 16 years ago, thanks in part to a lower storm surge and New Orleans’ improved levee system. Analysts at Boenning & Scattergood, a financial consultancy, noted that Ida’s wind field is smaller than Katrina’s, which likely narrows the area of catastrophic damage. The analysts estimated that losses for the insurance industry will hit around $10 billion, far less than the $90 billion-plus from Katrina.
Oil prices barely moved Monday as oil companies and refiners assessed any damage from the storm. The price of crude on the New York Mercantile Exchange was flat at $69.12 per barrel. Gasoline futures rose 1.5%.
Still, Ida, which tied for the fifth-strongest hurricane ever to hit the mainland, left so many customers without electricity that any prolonged power failure could have repercussions, at least temporarily, for the oil, natural gas and chemical companies that have major operations along the Gulf. The longer power remains out, the longer those companies will struggle to restart their operations.
The hurricane downed a major transmission tower in Jefferson Parish along the Mississippi River, sending wires into the river, causing widespread failures and halting river traffic, said Joe Valiente, director of emergency management for the parish.
Roughly 96% of oil production and 94% of natural gas production in the Gulf remain shut because of Ida, according to the U.S. Department of Energy. Nearly 300 manned oil platforms and drilling rigs were closed and evacuated.
Those lines supply power to the New Orleans area.
Valiente told NPR that the entire power grids collapsed in about 10 parishes and that it could take six weeks to fully restore power.
Roughly 96% of oil production and 94% of natural gas production in the Gulf remain shut because of Ida, according to the U.S. Department of Energy. Nearly 300 manned oil platforms and drilling rigs were closed and evacuated. At least nine oil refineries in the region have also been shuttered, representing 13% of the nation’s total refining capacity. Several pipelines are also closed as a precaution.
The service disruptions aren’t expected to immediately affect the availability of gasoline nationally, though, because of ample fuel reserves in the system, the department said.
PORTS CLOSED
For now, the ports of Baton Rouge, Gramercy and Morgan City in Louisiana and the Port of Pascagoula, Miss., are all closed. The Louisiana Offshore Oil Port has also suspended operations. The Port of New Orleans was closed but reported that “initial reports indicate no major damage to our facilities.”
Early indications are that refineries along the Gulf Coast were spared the kind of damage they suffered during Hurricane Harvey in 2017, which caused flooding that inundated several refineries in the Houston area.
But Jacques Rousseau, an analyst for Clearview Energy Partners, cautioned that “we need to wait a little longer to see if there is some sort of extensive damage that could take a refinery out for more than
just a shutdown-and-restart period.”
All of New Orleans lost power on Sunday evening as the hurricane barreled ashore. Gov. John Bel Edwards’ office said damage to the power grid appeared to be “catastrophic,” and local officials warned that it could take weeks to fully restore power. As the storm approached, offshore oil production in the Gulf was nearly entirely shut down, and crews were evacuated as a precaution. Exxon said it was surveying offshore platforms to determine whether any were damaged.
The hurricane and the resulting disruptions to offshore production and onshore refining are occurring just as demand for gasoline and other fuels is likely to decline, as it typically does in September and October. That trend, if it holds, could lessen the storm’s effect on prices.
Most natural disasters cause little overall damage to the $23 trillion U.S. economy. Even the hardest hit regions often recover quickly, thanks to all the money typically spent on rebuilding from the destruction.
REPEATED SETBACKS
Still, New Orleans’ job market never regained its strength after Hurricane Katrina. In July 2005, the month before the hurricane struck, its metropolitan area had more than 620,000 jobs. It lost 185,000 in September and October that year as people fled the flooded city. Many never returned.
Since then, New Orleans’ recovery has been disrupted by the recession of 2007-2009 and covid-19, which crushed an economy that depends on tourists. In July, New Orleans had 530,000 jobs, down nearly 15% from its level before Katrina. Over the same period, employment across the United States has risen 9%.
On a national scale, Mark Zandi, chief economist at Moody’s Analytics, said the disruptions caused by Ida will likely lead him to downgrade his forecast for annual U.S. economic growth in the current July-September quarter by a few tenths of a percentage point. But that economic loss, Zandi said, could be reversed in the final quarter of the year as a result of the rebuilding from the hurricane’s damage that will likely follow.
“The key channel for Ida to impact the broader economy is through energy prices,” Zandi said. “We will have to see how much damage occurred to production in the Gulf and how long that production will stay offline.”