Gustav’s Effect on Business – Just the Beginning?
September 1, 2008 by admin · Leave a Comment
Damage forecasts for hurricane Gustav could make the latest storm one of the top ten costliest in US history. Eqecat, Inc., an industry leader in risk modeling, estimates insurance payouts of up to $10 billion. That’s less than a quarter of Katrina’s cost and less than half of 1992′s hurricane Andrew, but that might be small consolation to the insurance firms and to the people suffering the destruction of their property.
Eqecat’s estimate closely matches the Federal government’s own projections, of approximately $8 billion worth of damage.
What has forecasters particularly worried is the fact that this is still just the beginning of the hurricane season. It’s anybody’s guess how much more devastation can occur by the end of autumn, when the seas are finally expected to quiet down.
An area of particular economic concern is the Gulf of Mexico. The offshore rigs and refineries located on the coast of the gulf account for 25% of US domestic production, or 1.3 million barrels a day. The industry suffered considerable damage from Katrina in 2005, and as a result, millions have been spent upgrading the equipment to weather the storms better. Gustav is set to be the ultimate test of all the experts’ efforts. If the equipment doesn’t hold, there is potential for a high jump back up in the price of gas.
Production has already been affected, since all the offshore rigs in Gustav’s path have been evacuated, and will remain that way for a week or so. The same is true of the refineries on the coast. 40% of America’s oil refineries are located on the shores of the Gulf of Mexico, so this one week “vacation” will already make a dint in the nation’s oil supply. With all these critical facilities in this one area, and no new refineries having been built in over 30 years, the industry is particularly susceptible to hurricane damage. Capacity has not even been fully restored in the three years since Katrina plowed through the area, and it seems like Gustav will end up being just one more factor in oil prices’ seemingly inexorable climb. Experts are predicting a national spike perhaps reaching a record $4.40 per gallon of regular gasoline due to the latest storm. This comes immediately after consumers were able to take a few gasps of air as prices dropped over the past two weeks.
For now, we simply have to keep our fingers crossed that the solutions put in place after Katrina were the right ones and were implemented properly.