This Hurricane's Implications Are Major
by Ben P, Wed Aug 31, 2005 at 01:55:53 AM EDT
First, let me begin by quoting the always useful Stratfor (I can't subscribe, because its too expensive, but for those who can afford the $400 a year subscription price tag, it is an essential source on world politics and the global economy) theorizing about what a "worse case scenario" would entail (and, as has in fact unfolded or still is unfolding). I apologize in advance for the length of this citation, but I truly believe the information it provides is vital and is simply not being reported widely enough:
Courtesy of Information Clearing House:A Category 5 hurricane, the most severe type measured, Katrina has been reported heading directly toward the city of New Orleans. This would be a human catastrophe, since New Orleans sits in a bowl below sea level. However, Katrina is not only moving on New Orleans. It also is moving on the Port of Southern Louisiana. Were it to strike directly and furiously, Katrina would not only take a massive human toll, but also an enormous geopolitical one. The Port of Southern Louisiana is the fifth-largest port in the world in terms of tonnage, and the largest port in the United States. The only global ports larger are Singapore, Rotterdam, Shanghai and Hong Kong. It is bigger than Houston, Chiba and Nagoya, Antwerp and New York/New Jersey. It is a key link in U.S. imports and exports and critical to the global economy. The Port of Southern Louisiana stretches up and down the Mississippi River for about 50 miles, running north and south of New Orleans from St. James to St. Charles Parish. It is the key port for the export of grains to the rest of the world -- corn, soybeans, wheat and animal feed. Midwestern farmers and global consumers depend on those exports. The United States imports crude oil, petrochemicals, steel, fertilizers and ores through the port. Fifteen percent of all U.S. exports by value go through the port. Nearly half of the exports go to Europe. The Port of Southern Louisiana is a river port. It depends on the navigability of the Mississippi River. The Mississippi is notorious for changing its course, and in southern Louisiana -- indeed along much of its length -- levees both protect the land from its water and maintain its course and navigability. Dredging and other maintenance are constant and necessary to maintain its navigability. It is fragile. If New Orleans is hit, the Port of Southern Louisiana, by definition, also will be hit. No one can predict the precise course of the storm or its consequences. However, if we speculate on worse-case scenarios the following consequences jump out: The port might become in whole or part unusable if levees burst. If the damage to the river and port facilities could not be repaired within 30 days when the U.S. harvests are at their peak, the effect on global agricultural prices could be substantial. There is a large refinery at Belle Chasse. It is the only refinery that is seriously threatened by the storm, but if it were to be inundated, 250,000 barrels per day would go off line. Moreover, the threat of environmental danger would be substantial. About 2 percent of world crude production and roughly 25 percent of U.S.-produced crude comes from the Gulf of Mexico and already is affected by Katrina. Platforms in the path of Katrina have been evacuated but others continue pumping. If this follows normal patterns, most production will be back on line within hours or days. However, if a Category 5 hurricane (of which there have only been three others in history) has a different effect, the damage could be longer lasting. Depending on the effect on the Port of Southern Louisiana, the ability to ship could be affected. A narrow, two-lane highway that handles approximately 10,000 vehicles a day, is used for transport of cargo and petroleum products and provides port access for thousands of employees is threatened with closure. A closure of as long as two weeks could rapidly push gasoline prices higher. At a time when oil prices are in the mid-60-dollar range and starting to hurt, the hurricane has an obvious effect. However, it must be borne in mind that the Mississippi remains a key American shipping route, particularly for the export and import of a variety of primary commodities from grain to oil, as well as steel and rubber. Andrew Jackson fought hard to keep the British from taking New Orleans because he knew it was the main artery for U.S. trade with the world. He was right and its role has not changed since then. This is not a prediction. We do not know the path of the storm and we cannot predict its effects. It is a warning that if a Category 5 hurricane hits the Port of Southern Louisiana and causes the damage that is merely at the outer reach of the probable, the effect on the global system will be substantial.
Now, of course, Katrina was "only" a category 4 hurricane, but since New Orleans's levee system is (was) at best prepared to handle a category 3, the point is mute right now. Needless to say, the world's 5th largest port - which is a key entrepot in the incredibly stressed world energy market, to boot - has been rendered inoperative. It is anybody's guess when - if - ever it will function again, considering that conservative estimates suggest the city will be uninhabitable for at least a month and most likely longer. New Orleans as the world has known it will never exist again.
I don't know much about New Orleans environs at this point, but needless to say much of New Orleans suburbia and the small towns in low lying southern Lousiana are experiencing conditions not dissimilar.
And I haven't even got to the Mississippi coast. Which I will now do. The center of the hurricane actually hit this area, which was part of the reason people thought New Orleans had experienced a "near miss" yesterday. While this area does not have a city the size of New Orleans, it does have a number of small cities which have also been virtually destroyed. For example, Gulfport, which has a population of 71,000. Right now, news reports are saying that as much of 90% of Gulfport has been destroyed by flooding and wind damage. Likewise, the city of Biloxi - 50,000 - was hard hit. So far, we know at least 30 people died there when an apartment building collapsed. As is the case in New Orleans, we really don't know how bad the human and material toll is, but rumors are now circulating that the death toll is "at least" several hundred and quite likely in the 1000s. While Gulfport and Biloxi are not ports on the magnitude of New Orleans, they nevertheless are significant ports located at a key point in the global economy, connecting the Mississippi River to the massive Gulf of Mexico oil and gas fields. And needless to say, these ports aren't going to be operating for the foreseeable future. In other words, the very points that would be counted on to pick up the slack for New Orleans are also inoperable in the near future as well.
And on to Alabama. While Alabama was not hit as badly as Louisiana or Mississippi, it did experience significant damage, with close to a million residents losing power and the port city of Mobile being innudated under 10 feet of water. While only 2 death have been so far reported in Alabama, the infrastructural damage is considerable. In particular, the city of Mobile and its port are likely severely damaged and probably inoperable at least in the near future.
And I haven't even talked about the damage to the oil and gas infrastructure in the Gulf of Mexico, which almost certainly will be significantly disrupted in the near future, and probably longer. Reports are now coming in that the initial effect underestimated the damage done. Indeed, to give a hint of what lies in store, an oil company executive discovered during a reconnaisance flight one of his rigs seventeen miles from its original location. I don't think regular readers of this blog will need much help figuring out what the implications of this could be. Indeed, tonight in Seattle, I spied gas stations selling 87 unleaded for $3 - this is the first time in my life I have ever seen this in the United States. Now, Seattle - and Washington state more generally - tend to be on the high side in terms of nationwide gas prices, but from what I saw on my trip to Pennsylvania and Virginia this summer, this isn't far off what the rest of the country is experiencing with probably worse in store. And I'm not even mentioning natural gas.
Here is some useful information on the potential implications, based (again I stress) on only what we know so far from the libertarian Lew Rockwell Institute's blog:The Louisiana Offshore Oil Port is closed. It is the only terminal in the US capable of receiving very large oil tankers, such as those used to ship Saudi or Venezuelan crude to the US. Much of the US Gulf of Mexico crude output is probably shut in right now, and will likely remain shut in for some time to come. Shipping will also be disrupted for a while, too. Refining is also concentrated on the Gulf coast. If a large enough number of refineries are closed -- and stay closed -- gasoline prices will skyrocket.
If that is not bad enough, the Henry Hub in Louisiana is closed too. It is the main -- I think possibly the only -- point where US Gulf natural gas flows into the continental US natural gas network. The folks at the New York Mercantile Exchange are having an emergency meeting about this (the Henry Hub is the price point for NY natgas futures). A lengthy closure will cause problems for traded natural gas.
And could cause a major crisis for natural gas in the US as soon as this week if it closed too long. With all the focus on oil, no one has paid much attention to the fact that natural gas production in North America has been declining for the last several years and, aside from the deepwater Gulf of Mexico, the Alaska North Slope and the McKenzie Delta (the gas from Alaksa and northern Canada will likely not its way south before 2010), there is not enough gas out there to meet rising demand (especially for power generation). Americans are heavily dependent on the Gulf for natgas and oil, and lengthy outages or severe damage to capacity will only tighten the squeeze on energy markets.
Anyway, here is a fairly useful summary from The NY Times about what we know for sure so far. But as I suggest above conditions in the region are currently so catastrophic that we probably won't know the full toll for some time to come.
Let me conclude by saying this: this is a world-historic event that at least in the context of American society is going to be seen as the second most important (one off) event behind 9/11 of the first decade of the new millenium by future historians. While the Asian Tsunami of last December was surely more devastating in terms of human life, I think that in economic terms, Hurricane Katrina is more significant because of some of the reasons I site above. But make no mistake. This is not just an "average" news story.