The damage from Hurricane Katrina has been worse than expected, initial assessments showed yesterday, prompting a new rise in oil prices to record levels and raising concerns about the cost of insurance in the Gulf of Mexico.
Industry sources said that one big underwriter had already stopped providing business-interruption insurance in the Gulf and others warned that rising storm losses would lead to premiums so high that insuring platforms could become uneconomic.
Damage assessments on Tuesday suggested that it could take a week to restart refineries hit by the hurricane at a time when supplies already are tight.
Initial reports point to sustained outages at several refineries in Louisiana and Mississippi. Nine refineries in the two states are shut, reducing capacity by 1.774m barrels of crude oil a day, about 9 per cent of the US's total capacity.
For the entire summer, refinery outages have spooked the oil markets. The refining situation is incredibly tight - they are operating near 100% capacity. As a result, there is no possibility that other refineries could pick-up the slack.
According to the Minerals Management Service, almost the entire Louisiana oil infrastructure is shutdown:
Today's shut-in oil production is 1,427,969 BOPD. This shut-in oil production is equivalent to 95.20% of the daily oil production in the GOM, which is currently approximately 1.5 million BOPD.
Today's shut-in gas production is 8.798 BCFPD. This shut-in gas production is equivalent to 87.99% of the daily gas production in the GOM, which is currently approximately 10 BCFPD.
The cumulative shut-in oil production for the period 8/26/05-8/30/05 is 4,635,751 bbls, which is equivalent to 0.847% of the yearly production of oil in the GOM (approximately 547.5 million barrels).
The cumulative shut-in gas production for the period 8/26/05-8/30/05 is 25.441 BCF, which is equivalent to 0.697% of the yearly production of gas in the GOM (approximately 3.65 TCF).
According to the Financial Times, about 9% of total US refining capacity is shut-down.
In addition, all the ports from New Orleans to Baton Rouge are closed:
The U.S. Coast Guard said Tuesday that all ports on the Mississippi River from Baton Rouge, La., to the Gulf of Mexico remain shut to ship traffic following Hurricane Katrina. Ports along the Intercoastal Waterway from New Orleans to Panama City, Fla., also were down a day after the storm ripped through.
The vast dock and storage facilities along the lower Mississippi handle more cargo by volume than any other port in the United States.
Other key ports along the Gulf Coast still shut by the storm include Biloxi, Gulfport and Pascagoula, Miss., among the hardest-hit by the storm.
In short, this is the beginning of the complete damage assessment. It looks terrible. Expect to see the effects ripple through the economy for the remainder of the year.
FT Link