mr. zilla goes to town

Thursday, September 01, 2005

Ms Z and I spent a couple of days in the Big Easy in the summer of 2003. We had effortlessly tall fruity drinks, found some half-decent Bourbon Street jazz, roamed a few bone yards, and stayed in a lovely hotel in the French Quarter with a swimming pool for a courtyard.

That hotel now has the Gulf of Mexico for a courtyard.

Worryingly for us all, while it might just be possible to drop $200 billion (and counting) on a Mesopotamian misadventure and get away with it by printing a few more pictures of presidents, it looks like Katrina has just sucker punched the US economy. These details gleaned primarily from BOPnews:

Today’s shut-in [offline] oil production is 1,371,814 BOPD. This shut-in oil production is equivalent to 91.45% of the daily oil production in the GOM [Gulf Of Mexico], which is currently approximately 1.5 million BOPD.

Best-Case Scenarios: Oil at $70 to $75 a barrel for a couple of weeks; gasoline prices over $3.00 for a couple of months; and the economy takes a small hit (between 0.5% and 1.0% on growth in the third and fourth quarters).

Worst-Case Scenario: Oil at $100 a barrel for a month; gasoline prices at $3.50 a gallon for a few months; and the economy closer to a recession by the fourth quarter. In such a scenario, oil prices would spike to $100 a barrel for a month before falling gradually to around $70 per barrel by the end of the year.

One of the well-thumbed books in the house that I read as a teenager was one of Tom Clancy’s earlier works, Red Storm Rising. The story begins with Islamic terrorists destroying one of the Soviet Union’s critical oil refineries, after which the politburo assesses that their only viable strategic option is to seize the oil refineries and reserves of the middle east. If the US faces similar turmoil to this, we can only speculate that they too might send a force to occupy crucial middle-eastern real estate. Oh wait… never mind. President Chavez in Venezuela better mind his P’s and Q’s though.

The consequences of Katrina go much further than oil refining though:

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 region affected by the storm accounts for just a little over 1% of the U.S. workforce. But about $150 billion, or 20%, of U.S. exports and imports in oil, steel, plywood, grains and other goods pass through gulf ports annually. Industries will have trouble finding alternatives, because New Orleans' port is one of the nation's deepest, and other ports, railroads and shippers were already near capacity, estimates.

According to the U.S. Coast Guard, the lower Mississippi from Baton Rouge to the Gulf of Mexico remained shut to all vessels Tuesday, with no estimate on how long it might take to clear the river.



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