Gustav Causes Billions in Damage

Hurricane Gustav will likely cause billions of dollars in damage as it completes its path through the Gulf region. But the financial impact appears to be a lot less worse than many feared.

"Clearly, this is not a repeat of Katrina, which is a fortunate thing," said Bob Hartwig, president of the Insurance Information Institute, which represents the industry. "Katrina was the most expensive insurance disaster in world history with $41 billion in insured losses, plus another $18 billion in flood insurance losses."

Hartwig said that, between Gustav's path and the improvements to infrastructure since Katrina three years ago, "we would not expect anything remotely close this time around."

The biggest concern for the economy is oil production.

The Gulf is home to about 1,000 oil platforms and rigs, almost all of which were abandoned as Gustav approached during the weekend. The region accounts for about a quarter of U.S. oil production and 15 percent of its natural gas production. Refineries along the coast produce more than a third of the nation's fuel.

During hurricanes Katrina and Rita in 2005, the industry sustained massive losses, and consumers across the country saw a run-up to then-record gas prices.

"But there have been many changes to the offshore energy infrastructure since then, including modernized rigs, rigs that are secured in a better way, and the burying of underwater pipelines," Hartwig said. "It's not likely that we would see the same type of losses this time around."

Oil prices fell more than $4 a barrel in electronic trading Monday as investors became convinced of less damage to the oil and natural gas infrastructure.

Risk modeling firm EQECAT estimated that initial onshore insured losses from Gustav could range from $6 billion to $10 billion, primarily in Louisiana, and that oil and natural gas capacity could be cut by 5 percent for the next year.

"This, as tragic as this is, is a sigh of relief," said Tom Larsen, a senior vice president with the company. Only a few days ago, EQECAT was looking at "a little more ominous" estimates of $20 billion to $30 billion in losses.

Oil and Gas Estimates

Larsen warned that the estimates could still change as experts learn more about the storm.

"There are tremendous things that we don't know that we're working like crazy to learn," Larsen said. "It's still pretty fresh."

For the oil companies, Larsen said, the biggest risk is old platforms collapsing on underwater pipelines or underwater landslides breaking the pipes.

On land, most of the damage will come where the winds have torn off home and office roofs.

Another firm, Risk Management Solutions, places damages between $4 billion and $10 billion.

Charles T. Maxwell, senior energy analyst for Weeden and Co., said the hurricane's impact "will be very slight" and that a two- or three-day shutdown of oil production won't make too much of a difference.

"There will not be major damages to the refineries," Maxwell said. "The hurricane [hit] an area of oil and gas activity that is better prepared and equipped."

During Katrina, nine oil rigs went down, Maxwell said. This time, he expects fewer.

In preparation for the storm, the oil and gas companies shut down virtually all production. The region accounts for 1.3 million barrels of crude oil production on a normal day. But Mineral Management Service said no oil was produced Monday and 95 percent of the gas operations were also shut down.

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