With more than 1 million customers in Louisiana and Mississippi having lost power, Hurricane Ida is sure to take a toll on the energy, chemical and shipping industries that have major hubs along the Gulf Coast. But the impact on the overall U.S. economy will likely be modest so long as damage estimates don’t rise sharply and refinery shutdowns are not prolonged, economists say.
The hurricane is expected to inflict a less severe financial impact than Hurricane Katrina did 16 years ago, thanks to a lower storm surge and New Orleans’ improved levee system. Analysts at Boenning & Scattergood, a financial consultancy, noted that Ida’s wind-field is smaller than Katrina, which likely narrows the area of catastrophic damage. The analysts estimated that losses for the insurance industry will hit around $10 billion, far less than the $90 billion-plus in insured losses from Katrina.
Oil prices barely moved Monday as oil companies and refiners assessed any damage from the storm. The price on the New York Mercantile Exchange was flat at $68.74 per barrel. Gasoline futures rose 1.2%.
Still, Ida, which tied for the fifth-strongest hurricane ever to hit the mainland, left so many customers without electricity that any prolonged power outage could have repercussions, at least temporarily, for the oil, natural gas and chemical companies that have major operations along the gulf. The longer power remains out, the longer those companies will struggle to restart their operations.
The hurricane downed a major transmission tower in Jefferson Parish along the Mississippi River, sending wires into the river, causing widespread outages and halting river traffic, said Joe Valiente, director of emergency management for the parish. Those lines supplied power to the New Orleans area.
Valiente told NPR that the entire power grids collapsed in about 10 parishes and that it could take six weeks to fully restore power.
On a national scale, Mark Zandi, chief economist at Moody’s Analytics, said the disruptions caused by Ida will likely lead him to downgrade his forecast for annual U.S. economic growth in the current July-September quarter by a few tenths of a percentage point. But that economic loss, Zandi said, could be reversed in the final quarter of the year as a result of the rebuilding from the hurricane’s damage that will likely follow.
Analysts at Citi Investment Research agreed that any drag on growth will likely be offset by subsequent reconstruction. They cautioned, though, that “inflationary effects may be more persistent as demand for building materials, autos and workers will confront already existing shortages.”
Zandi said he expects the nation’s gross domestic product — its total output of goods and services — to grow at a 6.5% annual rate in the second half of this year, matching the average growth of the first six months. Still, apart from the impact of Ida, Zandi noted that the highly contagious delta variant of the coronavirus poses risks to the economic outlook, depending on how much it leads Americans to slow their spending on travel, restaurant meals or other forms of spending.
“The key channel for Ida to impact the broader economy is through energy prices,” Zandi said. “We will have to see how much damage occurred to production in the Gulf and how long that production will stay offline.”
A brief spike in gasoline prices could result, Zandi said, because of the production shutdowns.
“The worst-case scenario is Ida might add 10 cents to 20 cents to the price of a gallon of gas through September,” he said. But he suggested that the increase in pump prices might last for only a few weeks.
Chemicals and plastics companies located in the region also shut down, but analysts at Citi said the U.S. chemical industry can withstand summer storms better provided there is no sustained flooding that inflicts damage on electrical stations.
Brian Bethune, an economist at Boston College, cautioned that the gas price increases could be more severe depending on how long the production shutdowns last and whether other regions have alternative supplies. He noted that after the hack of the Colonial Pipeline earlier this year, some states saw prices rise sharply as service stations ran out of gas.
S&P Global Platts said Sunday that government statistics show that 95% of oil and gas production in the Gulf Coast region was shut down as Ida made landfall. In addition, Platts said that nearly 4.4 million barrels per day of operating refinery capacity in the path of Ida, primarily in Louisiana, had been taken offline before the hurricane blew ashore Sunday afternoon.
“Many plants have been hardened against hurricanes, but disruptions in operations are still very likely due to flooding, power outages and personnel dislocations,” Platts analysts said.