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People who thought of New Orleans only as a mecca of jazz and jambalaya are about to get a lesson in the unheralded commercial prominence of the Big Easy.
In the wake of Hurricane Katrina, oil rigs are idled. Major highways and bridges have collapsed like so many concrete dominos. And a celebrated city, now submerged, lies abandoned by its residents and isolated from the economic mainstream.
In coming weeks, the economic fallout will ripple across the country. Is it enough to tip the United States into recession? Probably not. But consumers will curse Katrina every time they gas up, and some major exporters already are puzzling over how they'll reach customers if Louisiana ports remain idle for a significant period.
With global oil supplies already stretched, energy is the immediate worry. The gulf's treasure-trove is its roughly 4,000 offshore oil-and-gas operations, connected to land by 33,000 miles of pipelines. Together, they account for more than one-quarter of total U.S. oil production. Louisiana's Offshore Oil Platform, known as the LOOP, also is a major entry point for foreign oil.
Katrina wreaked havoc with that delicate network, prompting the evacuation of thousands of energy workers from more than half of the gulf's nearly 1,000 manned platforms and rigs, the Minerals Management Service said.
The result: 91% of crude oil production from gulf rigs has been halted; 83% of the region's natural-gas production is down. Before that can change, an extensive list of problems require attention: from refineries to pipelines, barge traffic, the shutdown of ports and roads for trucking fuel. The national impact of this localized disaster will be "significant and protracted," says Red Cavaney, president of the American Petroleum Institute.
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Todd Hornbeck will be at the center of the urgent efforts to restore order — and production — to the gulf's devastated oil and gas sector. On Tuesday, Hornbeck, CEO of Hornbeck Offshore Services, began moving his fleet of barges, tugs and deep-water supply vessels back into parts of the gulf hardest hit by the storm, surveying the damage and providing supplies required to restart offshore production.
"It's going to be a long, long-term recovery, and we haven't seen the worst yet from a human standpoint," Hornbeck said. "Anywhere in the supply chain that you have a bottleneck, it shuts the (rest of the) chain down. Even if we are, as an industry, able to get rigs up and running — and put product into the pipeline — that doesn't mean the pipelines are secure enough to get product through. And even if we can get it into the pipelines, it doesn't mean we have enough pumping stations to get it to the refineries. And, then, even at the refineries, there may not be adequate electricity or feed-stock ... this situation will bring to light how fragile this system is."
Midwest refiners who depend on gulf supplies could soon start feeling a pinch. "The longer this goes on and the more difficult this is to unwind, you will see other elements in the (economic) landscape affected," he says.
Port Bottlenecks
It's not just the energy business that's been caught by Katrina's catastrophe. More than 6,000 vessels annually transit New Orleans on their way up or down the Mississippi River. The gulf ports are major gateways for exports of wheat and soybean and imports of steel, rubber and coffee.
"It's going to be a long, long-term recovery, and we haven't seen the worst yet from a human standpoint."
-Todd Hornbeck, CEO, Hornbeck Offshore Services
New Orleans is especially vital to U.S. agricultural manufacturers who ship large quantities of grain and soybeans to Mexico, the Caribbean and South America. So far this year, 59% of the 29.7 million metric tons of U.S. raw grain exports traveled through gulf ports.
"Those ports are very important to the U.S. economy," says John Jamian, acting administrator for the Department of Transportation's Maritime Administration.
Ranked by cargo volume, the Port of New Orleans, inundated by Katrina, is the fifth-largest port in the USA. The nearby Port of South Louisiana ranks first, with 198 million short tons in 2003, the most recent figures available. Three other Louisiana ports are ranked in the top 12, according to the U.S. Army Corps of Engineers.
Without workers or power, the two major Louisiana ports and nearby ports in Mississippi and Alabama have "ground to a halt," Jamian says. It's not clear when they will be back in operation.
For now, most of the big farm product exporters — such as ADM, Cargill and Bunge — are busy trying to get in touch with their employees in the affected region. None reported extensive damage to their grain elevators or other area facilities.
Bunge's primary export terminal and soybean processing plant in Destrehan, La., sustained "cosmetic damage" and is shut down awaiting the reopening of river traffic, says spokesman Stewart Lindsay.
Barges are such an inexpensive form of transportation that nothing competes with them for grain, steel or anything else that is heavy and doesn't quickly spoil. A single barge carries as much as 15 rail cars or 60 trucks at a cost one-tenth that of trucking.
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If New Orleans remains out of action for a prolonged period, shippers will start hunting for alternatives. With nearby Pascagoula, Miss., and Mobile, Ala. out of action, Leon Walker, director of the Port of Pensacola, says he's busy fielding calls from companies inquiring about moving their goods through his facility. Pensacola, too, has been closed since the storm. But Walker expects to be back in business by Friday or Saturday. His 2,500 feet of berthing space can accommodate simultaneously five of the industry's large deep-draft vessels.
Still, New Orleans isn't economically crucial to everyone. Wal-Mart, for example, ships almost nothing through the city, relying instead on ports such as Los Angeles and Tacoma, Wash., says spokesman William Wertz.
In the first official assessment of Katrina's economic punch, Anthony Santomero, president of the Federal Reserve Bank of Philadelphia, said the hurricane's aftermath would take a toll on both the local and national economy. But the economy still should expand this year 3.5% to 4.0%, he added.
"The U.S. economy has proved to be surprisingly capable of absorbing such shocks, and after a short period the effects of Katrina are likely to slow but not stall the forward progress of the national economy," Santomero said in a speech. "I am hopeful that the damage done to the national economy will be neither substantial nor very long-lived."
Effects on Consumers
The effects of Katrina are likely to be felt by consumers nationwide — in more ways than just gas prices. In recent years, many U.S. companies have organized their operations around a "just-in-time" system that assembles components as soon as they arrive in a factory rather than relying on stockpiles of parts.
"One of the features that's allowed just-in-time to work has been a smooth logistics system. ... Disruption to that is going to put stress on firms that don't have inventories in place," says John Robertson, senior economist of the Federal Reserve Bank of Atlanta.
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Products that arrived at gulf ports and were typically trucked through the region will now take longer to deliver. Instead of cutting across the region, truckers — who moved more than 68% of the nation's freight last year — may skirt the waterlogged bayou, says Bob Costello, chief economist of the American Trucking Association. That could slow delivery of auto parts to southern car factories and of Texan Gary Oldham's supplies of organic cotton, which are transformed into T-shirts in North Carolina textile plants.
"I'm certain freight costs are going to go up," says Oldham, the head of SOS From Texas.
Major goods trucked out of Louisiana along I-10, one of the nation's primary east-west arteries, include chemicals, pulp, paper, wood and machinery, says Costello. From Mississippi, textiles, furniture, machinery, autos and plastics. All of that will be slowed because of damaged plants and transportation bottlenecks. "Things are going to be slow and re-routed," says Jack Plunkett, CEO of Plunkett Research, a Houston-based transportation research firm.
Reggie Dupre, CEO of Dupre Transport of Lafayette, La., spent much of Wednesday trying to locate and house his firm's uprooted New Orleans employees. The 25-year-old trucking company employs 700, including about 90 in the storm-battered city.
Dupre expects to lose 10% of his business immediately because his New Orleans operations are effectively out of business.
His trucks carry petroleum products, chemicals, paper and other products throughout the Southeast. He expects "significant" delays in delivering goods as his drivers switch to more northerly routes because of damage to I-10.
Major railroads were just getting a handle on damage to their systems on Wednesday. CSX, which normally moves roughly 36 trains in and out of New Orleans each day, said Wednesday it has restored some, but not all, service in the region. A key, 110-mile link to Mobile remained out of action.
In the wake of Hurricane Katrina, oil rigs are idled. Major highways and bridges have collapsed like so many concrete dominos. And a celebrated city, now submerged, lies abandoned by its residents and isolated from the economic mainstream.
In coming weeks, the economic fallout will ripple across the country. Is it enough to tip the United States into recession? Probably not. But consumers will curse Katrina every time they gas up, and some major exporters already are puzzling over how they'll reach customers if Louisiana ports remain idle for a significant period.
With global oil supplies already stretched, energy is the immediate worry. The gulf's treasure-trove is its roughly 4,000 offshore oil-and-gas operations, connected to land by 33,000 miles of pipelines. Together, they account for more than one-quarter of total U.S. oil production. Louisiana's Offshore Oil Platform, known as the LOOP, also is a major entry point for foreign oil.
Katrina wreaked havoc with that delicate network, prompting the evacuation of thousands of energy workers from more than half of the gulf's nearly 1,000 manned platforms and rigs, the Minerals Management Service said.
The result: 91% of crude oil production from gulf rigs has been halted; 83% of the region's natural-gas production is down. Before that can change, an extensive list of problems require attention: from refineries to pipelines, barge traffic, the shutdown of ports and roads for trucking fuel. The national impact of this localized disaster will be "significant and protracted," says Red Cavaney, president of the American Petroleum Institute.
Government Guide
· Find Low Gas Prices
·Save Energy at Home
Todd Hornbeck will be at the center of the urgent efforts to restore order — and production — to the gulf's devastated oil and gas sector. On Tuesday, Hornbeck, CEO of Hornbeck Offshore Services, began moving his fleet of barges, tugs and deep-water supply vessels back into parts of the gulf hardest hit by the storm, surveying the damage and providing supplies required to restart offshore production.
"It's going to be a long, long-term recovery, and we haven't seen the worst yet from a human standpoint," Hornbeck said. "Anywhere in the supply chain that you have a bottleneck, it shuts the (rest of the) chain down. Even if we are, as an industry, able to get rigs up and running — and put product into the pipeline — that doesn't mean the pipelines are secure enough to get product through. And even if we can get it into the pipelines, it doesn't mean we have enough pumping stations to get it to the refineries. And, then, even at the refineries, there may not be adequate electricity or feed-stock ... this situation will bring to light how fragile this system is."
Midwest refiners who depend on gulf supplies could soon start feeling a pinch. "The longer this goes on and the more difficult this is to unwind, you will see other elements in the (economic) landscape affected," he says.
Port Bottlenecks
It's not just the energy business that's been caught by Katrina's catastrophe. More than 6,000 vessels annually transit New Orleans on their way up or down the Mississippi River. The gulf ports are major gateways for exports of wheat and soybean and imports of steel, rubber and coffee.
"It's going to be a long, long-term recovery, and we haven't seen the worst yet from a human standpoint."
-Todd Hornbeck, CEO, Hornbeck Offshore Services
New Orleans is especially vital to U.S. agricultural manufacturers who ship large quantities of grain and soybeans to Mexico, the Caribbean and South America. So far this year, 59% of the 29.7 million metric tons of U.S. raw grain exports traveled through gulf ports.
"Those ports are very important to the U.S. economy," says John Jamian, acting administrator for the Department of Transportation's Maritime Administration.
Ranked by cargo volume, the Port of New Orleans, inundated by Katrina, is the fifth-largest port in the USA. The nearby Port of South Louisiana ranks first, with 198 million short tons in 2003, the most recent figures available. Three other Louisiana ports are ranked in the top 12, according to the U.S. Army Corps of Engineers.
Without workers or power, the two major Louisiana ports and nearby ports in Mississippi and Alabama have "ground to a halt," Jamian says. It's not clear when they will be back in operation.
For now, most of the big farm product exporters — such as ADM, Cargill and Bunge — are busy trying to get in touch with their employees in the affected region. None reported extensive damage to their grain elevators or other area facilities.
Bunge's primary export terminal and soybean processing plant in Destrehan, La., sustained "cosmetic damage" and is shut down awaiting the reopening of river traffic, says spokesman Stewart Lindsay.
Barges are such an inexpensive form of transportation that nothing competes with them for grain, steel or anything else that is heavy and doesn't quickly spoil. A single barge carries as much as 15 rail cars or 60 trucks at a cost one-tenth that of trucking.
Getty Images
Send Us Your Photos
How high are gas prices near you? Send in your gas photos and see what other users have snapped.
· Pictures at the Pump Blog
· See How to Submit Your Pictures
If New Orleans remains out of action for a prolonged period, shippers will start hunting for alternatives. With nearby Pascagoula, Miss., and Mobile, Ala. out of action, Leon Walker, director of the Port of Pensacola, says he's busy fielding calls from companies inquiring about moving their goods through his facility. Pensacola, too, has been closed since the storm. But Walker expects to be back in business by Friday or Saturday. His 2,500 feet of berthing space can accommodate simultaneously five of the industry's large deep-draft vessels.
Still, New Orleans isn't economically crucial to everyone. Wal-Mart, for example, ships almost nothing through the city, relying instead on ports such as Los Angeles and Tacoma, Wash., says spokesman William Wertz.
In the first official assessment of Katrina's economic punch, Anthony Santomero, president of the Federal Reserve Bank of Philadelphia, said the hurricane's aftermath would take a toll on both the local and national economy. But the economy still should expand this year 3.5% to 4.0%, he added.
"The U.S. economy has proved to be surprisingly capable of absorbing such shocks, and after a short period the effects of Katrina are likely to slow but not stall the forward progress of the national economy," Santomero said in a speech. "I am hopeful that the damage done to the national economy will be neither substantial nor very long-lived."
Effects on Consumers
The effects of Katrina are likely to be felt by consumers nationwide — in more ways than just gas prices. In recent years, many U.S. companies have organized their operations around a "just-in-time" system that assembles components as soon as they arrive in a factory rather than relying on stockpiles of parts.
"One of the features that's allowed just-in-time to work has been a smooth logistics system. ... Disruption to that is going to put stress on firms that don't have inventories in place," says John Robertson, senior economist of the Federal Reserve Bank of Atlanta.
How to Help
AP
Network for Good links you to organizations that help disaster victims.
· How You Can Help
Products that arrived at gulf ports and were typically trucked through the region will now take longer to deliver. Instead of cutting across the region, truckers — who moved more than 68% of the nation's freight last year — may skirt the waterlogged bayou, says Bob Costello, chief economist of the American Trucking Association. That could slow delivery of auto parts to southern car factories and of Texan Gary Oldham's supplies of organic cotton, which are transformed into T-shirts in North Carolina textile plants.
"I'm certain freight costs are going to go up," says Oldham, the head of SOS From Texas.
Major goods trucked out of Louisiana along I-10, one of the nation's primary east-west arteries, include chemicals, pulp, paper, wood and machinery, says Costello. From Mississippi, textiles, furniture, machinery, autos and plastics. All of that will be slowed because of damaged plants and transportation bottlenecks. "Things are going to be slow and re-routed," says Jack Plunkett, CEO of Plunkett Research, a Houston-based transportation research firm.
Reggie Dupre, CEO of Dupre Transport of Lafayette, La., spent much of Wednesday trying to locate and house his firm's uprooted New Orleans employees. The 25-year-old trucking company employs 700, including about 90 in the storm-battered city.
Dupre expects to lose 10% of his business immediately because his New Orleans operations are effectively out of business.
His trucks carry petroleum products, chemicals, paper and other products throughout the Southeast. He expects "significant" delays in delivering goods as his drivers switch to more northerly routes because of damage to I-10.
Major railroads were just getting a handle on damage to their systems on Wednesday. CSX, which normally moves roughly 36 trains in and out of New Orleans each day, said Wednesday it has restored some, but not all, service in the region. A key, 110-mile link to Mobile remained out of action.
