Energy supply faces major disruption
Analysts at one of the nation's leading oil industry consulting firms, Cambridge Energy Research Associates, warn that Hurricane Katrina's economic impact could be unprecedented, simply because every aspect of the oil and natural gas chain in the United States has been affected.
"Potentially, this could be one of the biggest energy-supply disruptions the world has seen," says Jim Burkhard, CERA's director of oil market analysis. Everything depends, of course, on how quickly producers, refiners, and pipelines are able to restore their operations in the Gulf of Mexico.
"I don't want to be a scaremonger, and much of the damage has yet to be assessed," Burkhard says, "but given the volumes at risk, the potential damage is on the higher end."
Before the hurricane, the Gulf of Mexico provided 28.5 percent of all U.S. oil production and 19.2 percent of the nation's output of natural gas. The federal government reports that 95 percent of those oil operations and 88 percent of the natural gas production are now completely shut in. The all-important Louisiana Offshore Oil Port, known as the LOOP, the facility through which 8.5 percent of U.S. oil imports flow, has reported "no apparent catastrophic damage." But it nonetheless stopped all operations Sunday to give its employees a chance to evacuate and has not been able to restart because of a lack of electricity.
Eight refineries were out of commission, and at least two of them—Chevron's facility in Pascagoula, Miss., and Exxon Mobil's plant in Chalmette, La.–remained inaccessible today, making immediate damage assessments impossible. Even when industry officials reach the facilities, there is no knowing when they will be able to announce restart dates, since most of the refineries rely on the devastated power grid, says Bob Slaughter, president of the National Petrochemical & Refiners Association.
"There's no electricity," he says. "You can't test the systems with no electricity."
Flooded electrical equipment at refineries may be beyond repair, and it could take weeks to swap out parts for new equipment. And the oil industry's problems go beyond repairing machinery, Burkhard notes.
"Think of the energy workers at those refineries," he says. "If their homes are destroyed or heavily damaged, logistically, where will the workers be housed? How will their needs be met if their living conditions are dramatically altered? We don't have any insight into that."