Harvey slams region’s economy, with damage in the billions
DALLAS—Flood damage from Harvey is likely to reach into the tens of billions and the storm is expected to cause the region’s economy to shrink, at least in the near term.
Harvey is soaking refineries along the Gulf Coast, leading to higher prices at the pump. Gasoline futures were up nearly 4 percent on Monday afternoon after rising 7 percent in premarket trading.
The storm could also put a kink in the shipment of consumer goods.
Harvey, which hit the coast as a Category 4 hurricane, will likely affect the South Texas economy for months. Mark Zandi, chief economist at Moody’s Analytics, predicted that the region’s economic output will be cut about 1 percent, or $7 billion to $8 billion. It will recover, he said, helped by money from insurance payments and government aid to rebuild.
Here’s a look at the effects on key industries:
REFINING
Prices are expected to spike over the next week or more as about 10 refineries representing more than 15 percent of the nation’s refining capacity are shut down.
Nearly 3 billion barrels of the 18 billion U.S. daily refining capacity has been knocked out. Most of the shut-downs have been precautionary, with only a few reports of minor flooding.
But the slow-moving nature of the storm means it could cause shutdowns to linger and leave more-lasting damage, said Goldman Sachs analyst Damien Courvalin. Another 850,000 barrels per day of capacity remains under threat, he said.
Exxon Mobil closed its huge Baytown refinery, which lies along the Houston Ship Channel, 25 miles east of the city. The plant can handle up to 584,000 barrels of oil per day. It turns that into gasoline and chemicals used in everything from shrink wrap to car tires.
Several other refineries closed, including a Royal Dutch Shell plant along the ship channel, and several in Corpus Christi, Texas, that are operated by Valero Energy, Citgo and Flint Hills Resources.
Gas stations in Houston are running dry. Rick Joswick, an analyst with S&P Global Platts’ PIRA Energy, said it remains to be seen whether distribution terminals were damaged, which could crimp supplies beyond Houston.
OIL AND GAS
Oil companies have removed workers from about 100 platforms in the Gulf of Mexico since late last week. About 19 percent of oil production in the Gulf has been stopped, but that is down from nearly 25 percent on Saturday, according to the U.S. Bureau of Safety and Environmental Enforcement. The Gulf accounts for about one-fifth of U.S. oil production..
SHIPPING
All major ports in the Houston and Corpus Christi areas remained closed Monday and might not open for several days until the week.
That would affect barge shipments of gasoline to the
East Coast—if refineries have resumed operating. Several large container ships that were headed to Houston anchored off Mexico or Louisiana to wait out the storm. The port of Houston also handles export shipments of grain.
The ports can’t reopen until the U.S. Coast Guard and ship pilots are confident that shipping channels are clear and not obstructed by silt washed into bays by the heavy rain. Silting has been reported near the ports of Freeport and Houston, according to S&P Global Platts.
TRAVEL
Houston’s two big airports are expected to remain closed to all but relief flights until later this week, as runways were flooded and nearby roadways were under water.
More than 1,600 flights on Monday were canceled, the bulk of them at Bush Intercontinental Airport and Hobby Airport, according to tracking service FlightAware.com.
The Federal Aviation Administration said Bush Intercontinental was expected to reopen Thursday and Hobby on Wednesday. Those targets might be optimistic. Bill Begley, a spokesman for the airports, said they would not reopen until officials are certain they’re safe, “and I don’t even want to put a deadline on that.”
Exceptions have been made for flights carrying people who were trapped at the airports when the storm hit.
INSURANCE
Property damage from Harvey will likely be counted in the tens of billions of dollars. Damage from flooding will far outstrip wind damage, said analysts for Risk Management Solutions, which makes forecasts for insurance companies.
Don Griffin, a vice president at the Property Casualty Insurers Association of
America, said insurance companies are well capitalized and prepared to withstand the cost of wind claims from Harvey but the federal program may need to borrow more money from the taxpayers.
That is more bad news for homeowners, whose regular policies typically don’t cover flooding. It also could add to the federal flood insurance program’s huge financial problems, which are caused by premiums falling short of covering the cost of claims.
BANKING
Many businesses in the Houston area are flooded, including banks.
“In areas without power, it is back to a cash-only economy in terms of securing food, medical supplies and other necessities,” said Greg McBride, chief financial analyst at Bankrate.com.
Many banks and credit unions will set up mobile branches to let customers get cash or apply for loans, he said.