Economic effects of Hurricane Katrina
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This article documents a current event. Information may change rapidly as the event progresses. |
Hurricane Katrina has already had significant economic effects, which are expected to continue.
Experts anticipated Katrina to be the costliest natural disaster in U.S. history. Some early predictions in damages exceeded $100 billion, not accounting for potential catastrophic damage inland due to flooding (which would increase the total even more), or damage to the economy caused by potential interruption of oil supply, and exports of commodities such as grain. Other predictions placed the minimum insured damage at around $12.5 billion (the insured figure is normally doubled to account for uninsured damages in the final cost). Before the hurricane the region supported about one million non-farm jobs, 600,000 of them in New Orleans.
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Unemployment
Hundreds of thousands of residents of southern Louisiana and Mississippi including nearly everyone who lived in New Orleans, are now unemployed. No paychecks are being cashed and no money is being spent in the city, thus no taxes are being collected in the city. The lack of revenue will limit the resources of the affected communities and states for years to come. It should be noted that this region was already one of the poorest in America and had one of the highest unemployment rates.
Oil industry
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 % 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.
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 Shell Oil Company 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 % 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 % submerged [6].
The Louisiana Offshore Oil Port, which imports 11% of US oil consumption, closed on August 27, and Shell reports a reduction in production of 420,000 barrels per day (770 L/s) [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 ($0.44/L) 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 (3,500 L/s), 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, ulf 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].
Gulfport, Mississippi serves as a major ocean shipping port for the southern United States. Currently the port is considered to be inoperable, and will be for up to one year. Chiquita, Dole, Crowley, Gearbulk, P&O, and others had significant operations in Gulfport. On a short-term basis these companies will move necessary operations to unaffected ports.
Gambling industry
Katrina forced casinos along the Mississippi Gulf Coast to close and evacuate. The Hard Rock Hotel & Casino was scheduled to open the first week of September, but will be closed indefinitely due to structural damage. The Beau Rivage was severely damaged by water that reached the third floor, but seems to have suffered the least damage of the beachfront casinos. Grand Casino Biloxi had its mammoth gaming barge blown across U.S. 90. Treasure Bay's pirate ship was washed ashore. The President Casino was washed across U.S. 90 and landed on top of a Holiday Inn, nearly a mile (2 km) from the casino's berth. In Gulfport, The western Grand Casino Gulfport barge, containing Kid's Quest, washed across U.S. 90 and was left blocking the highway. The Copa Casino barge was pushed onto land next to the Grand Casino Gulfport's parking garage [12]. Casino Magic and Isle of Capri in Biloxi both suffered heavy damage to their gaming barges, likely beyond repair. Damage to the Palace Casino, Imperial Palace and Boomtown Casino on the Back Bay are yet unknown, as crews haven't been able to reach them. At least 14,000 people are employed at Gulf Coast casinos.
Harrah's New Orleans, Grand Casino Biloxi, and Grand Casino Gulfport are closed indefinitely. On September 21, 2005, a portion of the Grand Casino Gulfport that had collapsed across Highway 90 was demolished [13].
Police officers were reported, by Superintendant Eddie Compass, to be "urinating and defecating" in the basement of Harrah's New Orleans.
Mississippi will lose about US$500,000 in tax revenue for each day that the Biloxi-area riverboat casinos are closed, and about $140,000 per day for the South River region casinos. As a comparison, in 2004, Mississippi earned $2.7 billion in casino revenues, third behind Nevada and New Jersey ($10.3 billion and $4.8 billion, respectively). Responding to gambling industry concerns, the Mississippi Legislature approved a measure in early October 2005 permitting land-based casinos located within 800 feet of the shoreline [14] [15].
Agriculture and forestry
According to the United States Department of Agriculture (USDA), the national impact of Hurricane Katrina on Gulf Coast crops was minimal, with most of the damage borne by minor producers of major crops (corn, soybeans, and cotton) [16]. The main impact of the storm on agriculture is likely to involve ocean shipping and exports. In 2004, 22 % of U.S. wheat exports, 71 % of corn exports, and 65 % of soybean exports passed through Gulf ports. However, major grain shipping usually does not occur until later in the fall, when ports may again be operational [17].
In addition to the 47 Mississippi counties covered by the Presidential primary natural disaster designation, on September 9 the USDA declared an additional 31 counties as primary agricultural disaster areas. This makes farmers and other agricultural producers eligible for low interest emergency loans to cover losses. The remaining four Mississippi counties are classified as "contiguous" and are also eligible for assistance [18].
Forestry constitutes a major industry in South Mississippi, accounting for 10 % of all jobs in the state [19]. According to the Mississippi Forestry Commission, Hurricane Katrina caused significant damage to 1.3 million acres (5,300 km²) of forestland in the State. The greatest damage occurred from the coastal counties northward to Laurel with heavy damage to pine forests in Hancock, Harrison, and Pearl River counties.
An estimated 14.6 million cords (52,900,000 m³) of paperwood and 3.2 billion board feet (7,600,000 m³) of sawtimber were destroyed. The estimated economic impact of this loss was $1.3 billion. Additionally, there was an estimated $1.1 billion in damage to urban trees in 181 Mississippi communities [20].
Bankruptcies
Although the after effects of the Hurricane Katrina are expected to cause further economic misery for the poor residents of New Orleans and other affected areas, Jim Sensenbrenner, Republican chairman of the House Judiciary Committee, has refused to allow victims of the hurricane to enjoy any exception to the recent Bankruptcy Reform, a recent bill passed with widespread support of the banking industry that aims to curb abuse of bankruptcy protection by repeat filers and those who are able to repay debts reasonably. "If someone in Katrina is down and out, and has no possibility of being able to repay 40 % or more of their debts, then the new bankruptcy law doesn't apply," Sensenbrenner said [21].
