Economic Consequences of Hurricanes Hitting Houston

What a couple of weeks. It all started with a tropical depression that began to form in the Atlantic in mid-August, and after it had run its course and dissipated into a scattering of rain showers off the eastern coast of Canada, Katrina had become the costliest natural disaster to ever hit the United States. Within just a few weeks, and well before residents of the U.S. Gulf Coast had a chance to start putting back the pieces of their shattered lives, another potentially more ominous storm, Rita, began its course along a near-identical path.

So what did we all learn from this? There is a natural tendancy to play Monday morning quarterback, especially in the aftermath of such a huge disaster and unfortunately, this leads critics to look at an entire response, identify cracks and magnify them to the point that when the fix is proposed, a disproportionate amount of resources are allocated toward crack repair instead of fortification of the entire structure. There is no doubt that the economy of New Orleans has taken a huge hit given its importance in energy, shipping and tourism, but the question remains: how wisely will the relief dollars be spent?

The importance of this point cannot be overstated - now that Rita passed without delivering the knockout blow to Houston that was initially predicted, officials everywhere are playing the same old "out of sight, out of mind" game, and not thinking about the required what-ifs to move forward. The fact remains that the more significant economic issues are being given the same regard as a hot potato.

Let's compare the two cities for a moment. New Orleans has a metropolitan population base of about 1.35 million residents. Shipping is clearly the biggest industry, as the port of New Orleans is in fact one of the world's busiest seaports. In contrast, Houston's metropolitan population base is approximately 5.2 million people, and beyond the fact that Houston's port is just as prominent as New Orleans, it's economy is much more diversified:

Houston's energy industry is a world powerhouse (particularly oil), but biomedical research, aeronautics and the ship channel are also large parts of the city's industrial base. The city is the largest petrochemical manufacturing area in the world, including for synthetic rubber, insecticides and fertilizers. The area is also the world's leading center for building oilfield equipment...

Houston is second to New York City in Fortune 500 headquarters.

Indeed, there is a vast amount of knowledge capital concentrated in an area that is particularly susceptible to natural disasters such as hurricanes. Nowhere was this more vividly put on display than the unprecedented traffic jams that formed when the Mayor and Governor put out the evacuation notice for all Houstonians. What would have happened if that 100-year storm hit Houston, and more directly, how would that have affected the economy of Houston, the United States, and the world?

More than anything this shows that officials within the private and public sector really have to start addressing the issue of human concentration in large cities, especially in coastal regions. In fact, this takes us right back to basics of the proposition we have been trumpeting since our inception: organizations, whether they are cities, or corporations need to really start looking at how they can better decentralize their operations and adopt simple, yet effective strategies such as telework to address this mounting economic storm.

Schools Incorporating Business Continuity Strategies

Recently, there’s been tremendous emphasis placed on tightening risk management standards at schools across Ontario. The recent Safety Audit Survey sent by the Ministry of Education provides evidence of this trend. Given the degree to which publicly-funded school boards are making these front burner policy issues, it seems natural they apply standards that not only safeguard people, but the underlying assets, and systems.

The financial services industry and government provide a window to how this is being approached, as these sectors have worked diligently to create strategies countering the effects of downtime associated with disruptive events such as blackouts, ice storms, or even basement floods. Although schools have not been an initial focus, security experts, insurers and risk professionals have started identifying them as places that are becoming more susceptible to a spate of naturally-occurring and anthropogenic phenomena. Schools are unique and therefore, for a risk plan to be effective, it should address vulnerabilities compromising the continuity of school operations.

Taking a wider view of risk at schools makes good business sense - it not only ensures the primary mission of the school is fulfilled, but it can minimize downtime, better manage the school’s risk profile and even save lives. The impact of disruptive events can:

- Interrupt the continuity of student instruction
- Disrupt the provision of services
- Damage physical assets including buildings, artifacts, and labs

Byproducts of event-related disruptions can occur too. These include an impact on computer systems (tied to student/alumni records), supply chain partners, food services and productivity. The financial impact imposed can also be substantial. Boards regularly invest funds to upgrade facilities and amenities - large-scale events can destroy them in a moment. Regardless of size, disruptive events impact a board’s bottom line and this can result in monetary losses and legal liability.

This article by Tony Gill, Managing Director of Gill Advisors Inc., was recently published in the Ontario School Boards' Insurance Exchange newsletter, ORACLE, available in pdf format.

Visit www.campuscontinuity.com for more information about business continuity solutions for educational facilities.

Business Continuity Awareness Week

The Business Continuity Institute is sponsoring Business Continuity Awareness Week from September 18-24, 2005.

The organisers of the North America BCAW have collectively developed a package of useful information to help you use the week to promote or enhance your business continuity management program within your organization and with your business partners.

Our article, "Connecting Real Estate Strategy to Business Continuity" [pdf] is included in the materials provided free to the business public to increase awareness of business leaders, not just during Business Continuity Awareness Week, but for the future.

Business Continuity Awareness Week is endorsed by the Association of Contingency Planners, the Business Continuity Institute, the Canadian Centre for Emergency Preparedness, and the Disaster Recovery Information Exchange.

Connecting Real Estate Strategy to Business Continuity

This article was written for Business Continuity Awareness Week by Tony Gill, Managing Director of Gill Advisors Inc., which provides BCM solutions to public and private sector clients.

When an organization finally makes the commitment to put together a BCM plan, it should consider how a well thought-out facility strategy adds the finishing piece to a complete plan. Real estate assets – regardless of whether they are owned or leased – play a significant role simply because they constitute the “place” where all organizational operations occur. In fact, when planners begin introducing the facility piece into the BCM equation, a number of new issues begin revealing themselves like successive layers of an onion. The traditional link between BCM and real estate has always been associated with identifying backup or redundant sites where systems and staff can maintain critical operations should the primary site become non-operational. The degree to how incident-ready these locations are is described by whether they are identified as being hot, warm or cold sites. As BCM expands beyond the confines of the IT department and becomes a front-burner priority across the enterprise, the role of real estate changes accordingly.

When this happens, an entirely new range of issues need to be evaluated. Let’s begin by expanding on the issue of backup facilities. If an organization has more than one location - assume for illustrative purposes we’re talking about a regional network of branch offices - planners need to project how these facilities can be used beyond the roles they play under normal circumstances. This begins when BCM planners identify the critical functions that have the lowest threshold for being non-operational (often described as downtime) and prioritize them from most critical to least critical. Should a disruptive event force the closure of one facility, some of the critical operations identified at the outset can be carried on at a backup location. If this happens, planners might deem certain assets within their portfolios as being suitable for backup. Typically, the sequence of events after a disruptive incident would be as follows: primary site becomes non-operational; key personnel moved to secondary location; non-critical employees at backup site are told to make way for key individuals.

If backup sites become a viable strategy, the next question is what factors constitute an acceptable backup site. In this case, the familiar “location, location, location” mantra becomes just as applicable to BCM as it always has in real estate. Geographic proximity to hazards (e.g. flood planes, seismically sensitive zones with weak soil characteristics), backup power sources (sometimes even on separate power grids), as well as the availability of redundant communications infrastructure (including terrestrial, wireless or satellite based telephony) are just a sampling of some of the factors that should be analyzed when determining suitability.

Depending on resources, an organization may also want to consider establishing an emergency operations center (EOC) that can provide a command post for incident managers to use in the event of a disruptive incident. Again, this could be a stand-alone facility on or off site, or it can be as simple as a room set aside within a backup location. If such backup solutions are cost prohibitive, alternate solutions can be provided by external third parties. Such organizations can provide backup space in remote locations whose facilities are often configured to immediately “plug and play.”

If planners commit to evaluate the suitability of backup locations, they should do the same for primary locations. If the area is prone to earthquakes, hurricanes, or floods, good planners should ask themselves how well the facility is capable of allowing occupants to “shelter in place”, a strategy describing how structural integrity of a building contributes to creating internal safe areas where occupants can move without being exposed to hazards on the outside. If your organization is considering upgrading its facilities to better align with safety standards, some areas to consider include evaluating the types of building materials used within a facility (e.g. is reinforced concrete, or steel frames used?), the type of and amount of glass within a particular structure, as well as the physical proximity of the building to roads and parking lots. Such facilities should also have internal safety features such as modern sprinklering and alarm systems. Together these functions will make for a secure primary facility.

Beyond structural considerations, is there anything else planners do to make their facilities better withstand disruptive events? In the context of power, much can in fact be done. Events such as the 2003 Northeastern Blackout that left some 50 million people in the dark and imposed an economic cost of more than $1 billion on New York City alone vividly exposed the contributing role power hungry buildings played in the blackout. When the lights went out, there were many organizations who despite being able to shift to backup power sources, discovered within a short time that many of these sources were limited (such as diesel fuel that powered backup generators). The ability of a facility to better insulate itself from the effects of blackout can significantly be enhanced with the adoption of smart building technologies that can reduce their dependence on traditional sources of power by using a range of smart building technologies including occupancy sensors, as well as solar power that can be used to fuel up backup generators.

There are other strategies that can be employed that may initially seem disconnected to fundamental BCM principles but in fact play a key role in the larger equation. Consider telework for instance. Increasingly, more organizations are looking to better manage overhead and boost employee morale and productivity by adopting teleworking into their corporate culture. Telework programs are set up to allow an employee to work remotely at least a certain percentage of the time. In turn, this not only can reduce real estate costs (face it, if space is required less often, less space is needed), but also helps manage the risks of having highly skilled workers in a single location.

The take-away from all this is simply that a well-considered BCM plan will always be carefully aligned to an organization’s real estate strategy. After evaluating assets within a portfolio, a wholesale restructuring of facilities and their uses may need to be undertaken, a process that might require acquisition and disposition of space and/or buildings. From an administrative standpoint, it’s a good idea to consider harmonizing lease terms and create ways to manage all facilities from a central platform. Taken together, these factors point to the inevitable expansion of a Facilities Manager’s role and this requires a greater understanding of basic BCM principles. As more information is absorbed, he/she becomes a more strategic contributor to the BCM process.

Economic Costs of Katrina

There is spreculation that the reconstruction of New Orleans will not just be a fix, but an entirely new rebuild consisting of massive relocation programs. This morning, I read about the possibility of building a Tennessee Valley Authority-like agency tentatively called the Gulf Coast Regional Redevelopment Authority that will start with an initial infusion of $150 Billion.

How does one begin to measure the economic costs of the storm? I came across these figures in this morning's Wall Street Journal (source material from: Risk Management Solutions, Environmental Protection Agency, Insurance Information Institute, Mortgage Bankers Association):

• 90,000 square miles covered by federal disaster declaration (about the size of the United Kingdom)
• 555 water systems in Mississippi, 469 in Louisiana and 73 in Alabama affected
• $125 billion or more in economic losses
• $25 billion or more in insured property losses (compared with $20.1 billion after Sept. 11 attacks)
• $40-$60 billion in private insured losses
• 160,000 or more homes ruined in Louisiana
• 360,000 mortgages, valued at $48 billion, affected

This is just a start, and we expect these numbers to be revised to include unforeseen costs in the future.

Patriot Day - Remembering September 11

In the United States, Patriot Day occurs on September 11 of each year, designated in memory of those who died in the September 11, 2001 attacks. However, the name does not seem to have caught on in the American vernacular; most people still refer to the day as "September 11" or some variation thereof.

U.S. House Joint Resolution 71 was approved by a vote of 407-0 on October 25, 2001. It requested that the President designate September 11 of each year as "Patriot Day." President George W. Bush signed the resolution into law on December 18, 2001 (as Public Law 107-89). As such, it is not an official public holiday, but rather a discretionary day of remembrance.

September 11 — A Memorial honors the victims of 9/11.

Winds of Change has an extensive roundup of discussion in the blogs and worthwhile links here and here.

9/11. Of course you remember where you were. That day was a summons, a call; many answered it, in many different ways. Our team is here because of it. In all probability, so are you.

There's a spectacular aerial photograph taken on Sept. 23, 2001 over the World Trade Center site from an altitude of 3,300 feet.

*NOTE* The following link is to a directory holding the image. Because the image is so large (14MB @ 9372 x 9372 pixels) clicking the image could freeze your browser. I recommend saving the image by right-clicking only if you have a high-speed internet connection, and then opening it with a program on your computer that handles .jpg images.

High-Res Aerial Photo of Manhattan shortly after 9/11/2001

The September 11 Digital Archive, charged with saving the histories of September 11, 2001 has created a new presentation showing Views of Ground Zero at approximately 9:00 AM on September 11, 2001.

For the fourth anniversary of the 9/11 attacks, we have selected photographs and stories from Ground Zero in New York, and overlaid them on an interactive map. Clicking on blue markers (photos) or red markers (stories) shows details from the September 11 Digital Archive.

John M. Ford presents 110 Stories, an allusion to the height of the World Trade Center, which is both a poem and an audio video matching sound bites to video clips evoking memories of September 11.

Photo Journal - Five Days With Katrina

PROLOGUE:

On Sunday August 28 I woke up at 5 in the morning to go to my morning job at the Chateu Sonesta Hotel. The night before, we had been warned that Hurricane Katrina was preying her eyes upon us. In the history of New Orleans, there has NEVER been a direct hit by a hurricane. In everyone's mind, this hurricane would follow the same path that hundreds of past storms had done before. However, because of the size of the storm and ferocity which it tore through South Florida, the citizens of the The Big Easy prepared themselves as best they could... this is my tale of the events...

The link to this slideshow has been removed because the gallery has been taken down, probably due to exceeding bandwidth, after all the attention in the blogosphere and the CNN interview. Whenever the slideshow is hosted again, a new link will be posted.

Here's a new link to "Five Days With Katrina" the Alvaro Morales slideshow that is hosted again on the Kodak Gallery.

See also: Eye of the Storm, a photoblog at Dancing With Katrina dot blogspot dot com.

See also: Operation Eden, an extraordinary photoblog and journal telling the story of Hurricane Katrina from a very personal perspective.

Hurricane simulation predicted 61,290 dead

In the Associated Press photo above, President Bush talks with rescue swimmer Dustin Skarra during a briefing on damage from Hurricane Katrina in Mobile, Alabama, Sept. 2, 2005. Mr. Bush was hoping to boost the spirits of increasingly desperate storm victims and exhausted rescuers. At far right is Michael Chertoff, Secretary of Homeland Security, and to his right is the Director of FEMA, Michael Brown. (Photo: AP/The Mobile Register)

As Katrina roared into the Gulf of Mexico, emergency planners pored over maps and charts of a hurricane simulation that projected 61,290 dead and 384,257 injured or sick in a catastrophic flood that would leave swaths of southeast Louisiana uninhabitable for more than a year.

These planners were not involved in the frantic preparations for Katrina. By coincidence, they were working on a yearlong project to prepare federal and state officials for a Category 3 hurricane striking New Orleans.

Their fictitious storm eerily foreshadowed the havoc wrought by Category 4 Katrina a few days later, raising questions about whether government leaders did everything possible - as early as possible - to protect New Orleans residents from a well-documented threat.

After watching many of their predictions prove grimly accurate, "Hurricane Pam" planners now hope they were wrong about one detail - the death toll. The 61,290 estimate is six times what New Orleans Mayor C. Ray Nagin has warned people to expect.

"I pray to God we don't see those numbers," Michael Brown, director of the Federal Emergency Management Agency, told The Associated Press. "My gut is ... we don't. But we just don't know."

This according to an article by Associated Press writers Ron Fournier and Ted Bridis with contributions from Kent Prince, AP News Editor in New Orleans, providing details of planning underway when Hurricane Katrina struck.

Under FEMA's direction, federal and state officials began working on the $1 million Hurricane Pam project in July 2004, when 270 experts gathered in Baton Rouge, La., for an eight-day simulation. The so-called "tabletop" exercise focused planners on a mock hurricane that produced more than 20 inches of rain and 14 tornadoes. The drill included computer graphic simulations projected on large screens of the hurricane slamming directly into New Orleans - considered by federal experts to be nearly as big a risk as a terrorist attack on American soil or a massive earthquake in San Francisco.

"We designed this to be a worst-case but plausible storm," said Madhu Beriwal, chief executive of Innovative Emergency Management Inc. of Baton Rouge, hired by FEMA to conduct the exercise.

The experts completed their first draft report in December 2004.

A follow-up workshop on potential medical needs took place in Carville, La., on Aug. 23-24 of this year, bringing together 80 state and federal emergency planning officials as well as Beriwal's team.

They produced an update on dealing with the dead and injured, and submitted it to FEMA's headquarters in Washington on Sept. 3. By then, Katrina had hit and the Bush administration, state and city officials were under heavy criticism for a sluggish response.

The 2004 report was designed to be the first step toward producing a comprehensive hurricane response plan, jointly approved and implemented by federal, state and city officials. But a lack of funding prohibited planners from quickly following up on the 2004 simulation.

"Money was not available to do the follow-up," Brown said.

Continuously updated information can be found at NOLA.com's Hurricane Center, and at the CBS network's Katrina Disaster Blog, which has up-to-the-minute coverage, such as this report today:

September 9, 2005 at 10:24 a.m.
(CBS) — The Washington Post reported that most of the men in FEMA's top leadership positions came to their posts with "virtually no experience in handling disasters." The report scrutinized the experience of five out of the eight men in charge of the agency, "whose ranks of seasoned crisis managers have thinned dramatically since the Sept. 11, 2001, attacks."

Because veterans such as U.S. hurricane specialist Eric Tolbert and World Trade Center disaster managers Laurence W. Zensinger and Bruce P. Baughman have left FEMA since 2003, a "brain drain" of sorts has set in for the agency.

Due to the rapid turnover, three of the five chiefs for natural-disaster FEMA operations are simply "acting" chiefs, the Post reported.

Instapundit Glenn Reynolds comments on CRONYISM AT FEMA and systemic problems with disaster preparedness.

Google and its Role in Katrina Relief

Google Hurricane Katrina Resources has come to the rescue of many people searching for missing loved ones through a modified version of its ubiquitous search engine. The latest online tool powered by Google is this service that lets users determine water depth values in the flooded areas of New Orleans.

Leave it to Google to use one of the biggest news stories in recent memory to serve notice to the world that not only are they right in the thick of things to provide help to those who need it, but that they are indeed a force to be reckoned with. Make no mistake about it: Google is everywhere. This is interesting, because a week or so ago I was about to blog the emergence of Google and not only how their innovations lend to the notion of decentralized workplaces, but that they are also poised to become the new Microsoft.

I heard a piece on NPR recently that discussed this very notion. One of the main guests during this segment was Ben Elgin from BusinessWeek who carefully pieced together the elements of what could be called nothing short of a world domination strategy. Google has moved beyond search engines into a number of new and exciting spaces that represent huge growth areas on the net. A sampling of these includes Google Earth, Blogger, Google Desktop, Gmail and Google Talk. The recent launch of Google Talk, the newest entrant in the red-hot instant messaging space says much about the company’s confidence.

What makes Google Talk particularly interesting is that there really is nothing proprietary about the technology, as the service is being introduced not on the basis of technology, but more on the its being launched under a very powerful brand. It’s no wonder that analysts have described this as Google’s first pure muscle play. Google’s flurry of recent activity is just a pre-cursor to what lies ahead. In the middle of August, Google quietly acquired Android, a Silicon Valley-based company thought to be focused on the development of mobile phone software. From a piece Ben Elgin recently posted on BusinessWeek Online:

In what could be a key move in its nascent wireless strategy, Google (GOOG ) has quietly acquired startup Android Inc., BusinessWeek Online has learned. The 22-month-old startup, based in Palo Alto, Calif., brings to Google a wealth of talent, including co-founder Andy Rubin, who previously started mobile-device maker Danger Inc.

Android has operated under a cloak of secrecy, so little is known about its work. Rubin & Co. have sparingly described the outfit as making software for mobile phones, providing little more detail than that. One source familiar with the company says Android had at one point been working on a software operating system for cell phones.

This acquisition has led many to believe that Google could in fact play a big role in pushing for smarter mobile devices that could deploy a mobile version of Google within handhelds. The implications of this could be mind-boggling.

Mr. Elgin had also mentioned that Google has been hiring lots of folks to build operating systems, and this includes several key people who worked on Microsoft’s .NET initiative, as well as people who worked in developing the Mozilla browser – the main competitor to Microsoft Explorer. Combine that with the rumors that have Google buying up a ton of dark fiber routes (something that might suggest Google may want to build their own internet backbone), and you start to see the makings of something potentially quite large. Could it be that Google is positioning itself to actually be the next Microsoft? The mere fact that they are hiring a bunch of OS guys suggests that Google might very well be developing an operating system for the internet at a very powerful level, and much the way Microsoft did for PCs.

There's certainly more to say about this, but I'll just gather my thoughts before posting again, and ultimately tying it all back to Workplace Continuity.

The Political Storm After Katrina Begins

It was about this time last Monday Katrina made landfall and caused unimaginable horror. A week after the world has had time to digest the storm's aftermath a fierce political storm in brewing in Washington and Baton Rouge. Today's New York Times reports that the administration has already put together a strategy that might minimize political damage:

Under the command of President Bush's two senior political advisers, the White House rolled out a plan this weekend to contain the political damage from the administration's response to Hurricane Katrina.

It orchestrated visits by cabinet members to the region, leading up to an extraordinary return visit by Mr. Bush planned for Monday, directed administration officials not to respond to attacks from Democrats on the relief efforts, and sought to move the blame for the slow response to Louisiana state officials, according to Republicans familiar with the White House plan.

The effort is being directed by Mr. Bush's chief political adviser, Karl Rove, and his communications director, Dan Bartlett. It began late last week after Congressional Republicans called White House officials to register alarm about what they saw as a feeble response by Mr. Bush to the hurricane, according to Republican Congressional aides.

While the partisan blame game erupts, another tempest in a teapot is becoming clear - the role of FEMA not only in the context of this tragedy, but also in terms of its overall effectiveness. From today's Globe and Mail:

But the central villain of the piece, in the judgment of almost everybody here, is the Federal Emergency Management Agency, which heads up the disaster response.

FEMA was created in 1979 by former president Jimmy Carter, but in 2003 it was folded into the new Department of Homeland Security.

Since then, FEMA's many critics say, the overriding federal emphasis on countering terrorism has seen the organization's bureaucracy mushroom, while weakening its ties to state emergency programs and slashing its spending on disaster preparation.

Hey, wait a second, FEMA...Homeland Security...that passage has a familiar ring to it. I know I've heard it somewhere before. Oh yes, now I remember, it was from a piece we did on gillblog last summer after Hurricane Charley. Click here if you'd like to give it a read - it seems particularly relevant in light of the political storm quickly gathering on the horizon.

Katrina's Impact Analysis Issues

The casinos that once operated on floating barges in Mississippi and now litter the landscape of what was once a pristine gulf coast are a stirring metaphor to how "The House" - in the past always being assured of winning - would one day lose. The magnitude of the loss is now beyond comprehension, given the economic contribution casinos make to Mississippi's fragile coffers. Somehow the industry will have to rebuild. Another high stakes riverboat gambler that finally took a hit when the odds went the other way was the U.S. Government.

Gambling, as most of us know is all about playing percentages and probabilities. The average patron in a casino will sometime go with long odds in the hope that maybe, just maybe the numbers will work in his favor and he'll hit the jackpot. Bigger players - national governments included - tend to take the safe, low risk approach. Therefore, when planners talked about the probability of a Category 4 storm hitting New Orleans AND levee systems being breached, planners were told that the numbers were too small to take serious action.

In fact last night Lieutenant General Carl Strock, Commander and Chief of the U.S. Army Corps of Engineers, mentioned in an interview on CNN that the probabilities they were dealing with were a 99.5% chance against such a sequence of events occurring. In other words, there was only a .5% chance of occurrance. Like any good gambler, the government played the sure bet and didn't commit the funds required to fortify the levees, chosing instead to allocate them elsewhere, thereby staying within the limitations of a budget.

Of course the only part I didn't hear from Lietenant Strock was if government officials adequately matched these probabilities against the impact of what would happen if that particular 0.5% event were to occur. It is one thing to dismiss a low probability of occurance if the impact is rather benign and maybe results in a couple of days of downtime, quite another if the impact results in the absolute shutdown of a major city for a period of months. In other words, probability and impact assessment go hand in hand; yet the common tendency in policy making on this level is to focus more on current costs than on future risks.

It's all hindsight now, and frankly the process used to evaluate whether to move forward with the project or not still seems logical. More than anything, however, this is a tragic example that vividly shows the types of issues that are considered when doing any kind of impact analysis. It also shows that no model can ever remain stagnant without being periodically updated. The fact that higher water temperatures in the Gulf of Mexico are leading to a marked increase in the occurance of catastrophic hurricanes, makes it necessary to revise those statistical probabilities that underpin a particular course of action.

If there's a couple if little lessons to learn here, they're simple: never underestimate the importance of conducting a thorough impact analysis as a critical component of a well-rounded business continuity plan; and always make sure those plans are continually updated.

Updates of Hurricane Katrina impact analysis are here and here.

Hurricane Katrina Aftermath Satellite Images

Click here to go to the NOAA Website where there is an interactive base map with links to high resolution satellite imagery showing the aftermath of the hurricane wind and flood damage.

Katrina's Link to Increasing Fuel Prices

Just like everywhere else where gas prices have shot up over the past couple of months, I drive around and wait for my moments to pounce. It was a fairly predictable game until this morning. You see, until then, I knew that if I chose my moment, I could probably get away with paying around 93 cents per liter (I live in Toronto), thus avoiding the spikes that would see the price sometimes rise to about $1.03. That ended this morning when I paid $1.26. That's a 25% price hike in one night. I know that this is the whole supply and demand thing, but there has to also be a bit of a Katrina effect.

We've actually been warned about this type of thing before. Consider this from a piece just published in June:

"As evidenced by the increases in global inventory levels of crude oil, current oil output worldwide is more than adequate to meet existing demand. The real problem will come - exclusive of unanticipated and protracted distruptions in supply (read...Hurricane activity in the US Gulf of Mexico...) - later this year, when forecasted demand is projected to exceed the ability of worldwide refining cpabilities to process available crude into useable refined petroleum products."

And we are often reminded about the impact of short-term supply shortages - especially those that can arise in the Gulf of Mexico

Oil production, refinery and pipeline problems can temporarily contribute to higher prices. Last fall’s hurricanes in the Gulf of Mexico significantly curtailed oil production from offshore platforms as well as coastal refinery operations. About one-quarter of Gulf oil production remained out of service for an extended period and several Gulf Coast refineries had to curtail output because of hurricane-related effects as well as scheduled maintenance

Despite the evidence, and the warnings our natural tendency is to proceed thinking that the worst will never happen, and we should just move forward. The fact is, oil from the Gulf of Mexico is becoming a very important source that many energy officials feel represents a tangible way for the US to at least partially insulate itself from the supply-side uncertainties stemming from abroad. The region is recognized as an important area, and the current administration is banking on it:

Since 2001, the administration has continued incentive programs for deepwater areas of the Gulf and introduced new incentives for other areas. The most recent announced by Interior Secretary Gale Norton in January 2004..."The Gulf of Mexico delivers more oil and gas to the US market than any single domestic or foreign source, but many older, easier-to-reach fields have passed their peak. Exploration has shown more gas can be produced at deeper depths under existing shallow-water infrastructure; and oil can be produced at tremendous depths,"

This region is increasingly becoming the main artery of domestically produced oil,

The Gulf of Mexico is home to roughly a quarter of U.S. domestic oil and gas output, with a capacity to produce about 1.5 million barrels per day of crude and 12.3 billion cubic feet per day of gas.

but this morning we found that the two main piplines that supply product from Texas all the way up to the eastern seaboard have become disabled because power outages are disabling the system's pumping ability. In fact 80% of output has been disrupted, which means (if my math is correct), that overall supply has dropped by 20%. The connection to price hikes at the pump are complete, and the overall situation is worsened in some areas that develop a greater than average reliance on fuel

Some of the knottiest issues still to be resolved will be restoring electricity to Gulf Coast pipelines and refineries, which are also suffering from flooding that could very well have left critical electric motors submerged. It will be days before a full assessment of the damage can be done, industry officials and analysts said.

Meantime, wholesale gasoline suppliers have begun limiting the amount of fuel they sell to retailers in certain markets in order to make sure they do not take delivery of more fuel than they actually need.

Now, if I'm an oil supplier to the U.S. from an area that is insulated from the effects of hurricanes and other supply side shocks, no matter how dire the situation has become along the Gulf Coast, this is good news:

Canada's big oil producers enjoyed yet another surge on the Toronto Stock Exchange yesterday, in many cases breaking new record highs as the effects of Hurricane Katrina travel north....Of course, oil producers have become wildly profitable now, with the price of crude oil breaking one record after another. Oil closed yesterday in New York at US$68.94 a barrel, down US87 cents -- but that's the ninth consecutive day it has traded above US$65...At this price, Alberta's oilsands are cash machines and its vast oil reserves attract comparisons to that of Saudi Arabia. As a result, investment dollars are pouring in, making the shares of oil producers appear free from gravity.

Meanwhile back in the Gulf, the effort required for producers to restore some degree stability especially on their oil rigs is no small task, and can only fully be appreciated by looking at the logistics involved:

BP has already started to move small crews to some of its platforms. The crews will restart generators and inspect the facilities for damage prior to bringing them back on line.

On Monday, there were reports of several rigs that had gone adrift. The rigs are often equipped with electronic locator devices so the companies can locate and retrieve them when they come free of their moorings.

For as much as we have been discussing our reliance on fuel and connecting it to the long-term sustainability of our contemporary work culture on the blog, it is really quite scary when the pieces come together and some of the predictions come true. Only time will tell how long this takes, but in the short term at least, we can say goodbye to that little jig we've been playing at the pumps.

Concerns about gasoline price gouging and profiteering following natural disasters are prompting investigations and legislation.