Houston area’s commerce in ‘total shutdown’

Johnny Walker’s trucks have hauled pipes and pumps from Houston to oil fields scattered across the Gulf Coast for four decades, roaring down highways and rumbling on dirt roads even in the worst of the recent energy bust and the catastrophic aftermath of Hurricane Katrina.

But as Tropical Storm Harvey continues to pelt Houston with heavy rain and flood key highways, Walker’s firm has sidelined its entire local fleet of oil equipment vehicles and has braced for its worst week ever.

“We’re in a total shutdown, basically. It has never been this bad, ever, ever,” said Walker, president of local transportation company J.H. Walker Trucking, in an interview as he evacuated his son’s Houston home on Monday. “These storms usually come in, do their damage and then go away. This thing is just sitting here, and it has shut the city of Houston down.”

The storm’s catastrophic tantrum across the Texas Gulf Coast has decimated Houston’s usually rapid commercial traffic by land, air and sea and could cost the city up to $50 billion in economic activity and property damage combined, according to the Greater Houston Partnership and the consultancy Moody’s Analytics.

Floodwaters clogged the city’s streets, closed down regional rail lines, port and airports, incapacitated refineries and emptied skyscrapers at a time when local companies had just begun to emerge from the worst oil downturn in a generation. And it could set the city’s economic progress back by months, delaying hundreds of thousands of freight loads that travel through Houston every day, economists and analysts said.

“Commerce in Houston has been brought to a standstill,” said Gary Conner, sales director at Houston transportation and warehousing company Overland Express Co. “You can’t get the trucks through.”

It’s a natural disaster with the potential to cause billions in losses for industrial companies that rely on the transportation millions of tons of commercial freight and incapacitate Houston, the capital of the U.S. oil industry, even as the region becomes an increasingly important choke point for global energy markets and a hub for surging domestic crude production and oil and natural gas exports.

Patrick Jankowski, an economist at the Greater Houston Partnership, estimated a week of economic output in Houston is worth $10 billion. The region, he said, will lose at

least a week of employee wages, retail sales, sales taxes and business revenue as Harvey dumps water on the city. And Moody’s believes Harvey’s rampage will leave behind $30 billion to $40 billion in property damage in Houston – though that number could easily keep climbing the longer Harvey lingers above the city.

Some won’t recover

“Some of that activity we’ll get back, but some of it we’ll never get back,” Jankowski said. “There will be businesses that don’t recover from this. There will be businesses and families that will decide they’ve had enough of Houston.”

On Monday, the symptoms of the storm had not yet dissipated. Commercial service remained suspended at the Bush Intercontinental and Hobby airports. Southwest Airlines said its Hobby flights will be suspended at least through Tuesday, and United has suspended flights from Bush until at least noon Thursday. Houston Airport System spokesman Bill Begley said airport officials are assessing the situation on a daily basis, and that the airports will open only when the weather clears, personnel can get to the airport to support flights, and roadways are no longer flooded so passengers can safely get to and from the airport.

Houston electricity provider CenterPoint Energy said 114,000 customers were still without power early Monday evening, with no hope of having the lights turned on any time soon. It has some 2.4 million local customers. Two major rail lines in Houston, BNSF and Union Pacific, have suspended service. Union Pacific spokesman Jeff DeGraff said inspectors haven’t been able to assess facilities to determine when trains can run again.

In La Porte, a chemical leak triggered a shelter-inplace emergency warning late Monday after a pipeline ruptured amid Harvey’s ruin. The leak was in northeastern La Porte just to the south and west of the intersection of Texas 225 and Texas 146. Details were not immediately available, but residents were warned to stay inside and asked to close their windows and shut off their air conditioning.

Harvey’s wreckage could surpass the $12.5 billion of insured losses inflicted by Hurricane Ike in 2008, experts said. On Monday, insurance claims mounted statewide as people began phoning in about the destruction. But with Harvey continuing to dump rain throughout the Houston area, many homeowners won’t be able to file claims for days to come.

Damage estimates

That makes it difficult to peg down damage estimates. The Texas Windstorm Insurance Association, the insurer of last resort for wind and hail coverage along the coast, had so far received 4,239 claims as of 2 p.m. Monday. As of 4 p.m. Monday, Farmers Insurance had received 5,400 Harvey-related claims. That includes more than 1,100 in the city of Houston and more than 2,800 for Houston and the surrounding areas. State Farm reported about 5,000 claims at the end of Sunday, the most recent numbers available.

J.P. Morgan reported that Harvey could result in $10 billion to $20 billion of industry-insured losses, making it one of the top 10 most costly hurricanes to hit the U.S. Catastrophe modeling firm AIR Worldwide estimates that industry insured losses resulting from wind and storm surge in Texas will range from $1.2 billion to $2.3 billion. That does not include damages caused by Harvey’s torrential rain and catastrophic flooding.

Damages aren’t the only thing that will squeeze industrial profits. There is also costly downtime.

“The longer these major employers are shut down, the longer the loss of revenue and other economic impacts start to pile up,” said Robert Dye, chief economist at Comerica Bank. For example, the region’s refineries, he said, will remain offline for at least a few weeks, depending on the extent of the flooding. That will crimp Houston’s industrial output.

Higher fuel prices

Fuel prices are expected to surge in Houston and nationwide in the days and perhaps weeks ahead after Hurricane Harvey brought many Texas Gulf Coast refining and pipeline operations to a halt. In Houston and Corpus Christi, Exxon Mobil, Royal Dutch Shell, Phillips 66 and others temporarily closed operations representing at least 12 percent of the nation’s oil refining capacity. That percentage could rise if more capacity is taken offline near Houston, Beaumont or Lake Charles, La., as Harvey moves farther east.

Exxon Mobil said Monday its Beaumont refinery is operating at reduced production rates for now.

People should gear up for fuel shortages and higher prices in the weeks, said Patrick DeHaan, senior petroleum analyst for GasBuddy, which tracks fuel pricing and refining activity. The refinery closures have tilted the delicate balance of supply and demand, he said.

“Prices will likely rise nearly countrywide heading into Labor Day, from rural towns in the Rockies to major cities in the Midwest and West Coast,” DeHaan said. “The impact could linger for several weeks or longer, depending on how long it takes Texas refiners to return to normal operations. In addition, the situation could worsen should more shutdowns or outages happen in the coming week as Harvey continues to drop feet of rain on already flooded Texas.”