Katrina's Impact: More Than Pain at the Pump

ByBRYAN ROBINSON

Sept. 1, 2005 — -- Hurricane Katrina's devastation of the Gulf Coast will be felt in more ways than higher gas and oil prices, analysts say.

Concerns over the damage caused by Katrina to oil platforms, refineries and pipelines along the Gulf Coast have driven energy prices to record highs in recent days. Ninety percent of U.S. oil production along the Gulf Coast was shut down in Katrina's wake, causing crude oil futures to briefly reach $70 a barrel and wholesale gasoline costs to spike to near-record levels of $2.90 a gallon. That led to gas station prices rising to almost $4 a gallon in some U.S. markets.

Some analysts predict the gas prices will only continue to rise in the short term and will stay high through the start of the winter.

"In the Northern tier, we're going to see prices rise 65 cents a gallon from Friday's levels, potentially by this weekend," said Peter Beutel, president of Cameron Hanover, an energy risk-management firm. "In the South, we can see prices rise by as much as $1.10 by the weekend."

However, consumers may feel pain in places other than the pump. Katrina has interrupted exports through the Port of South Louisiana -- the largest in the United States and the fifth-largest in the world. The Mississippi River is the cheapest route for products destined for overseas and imported items. More than half the grain the United States exports leaves from Mississippi Gulf ports hit by Katrina.

Katrina reportedly ruined cotton fields in parts of Mississippi and Alabama and sugar cane in Louisiana, and the price of cotton rose Tuesday on the futures market. As authorities determine the other crops and other materials ruined by Katrina -- and how the hurricane will affect the amount and quality of the crops yielded -- experts say prices on some produce items may rise along with gas and oil.

"It's the same as during those times when you hear about a major hurricane hitting Florida and you see the price of oranges go up," said Kenneth B. Medlock III, research fellow in energy studies at Rice University's Baker Institute for Public Policy in Houston. "You could see the prices of crops in the regions affected by Katrina go up since the amount and quality of production would be affected."

Still, with ports in the Gulf Coast region disabled -- at least temporarily -- companies will have to use alternate routes for imports and exports.

Chiquita Brands International Inc. announced that its port facilities in Gulfport, Miss., were damaged by Katrina and that it planned to redirect its imports to ports in Freeport, Texas; Port Everglades, Fla.; and other places. In 2004, Chiquita said, Gulfport handled approximately one-quarter of the company's banana imports from Central America.

Alternate routes could lead to snarled waterway traffic in some areas. The longer, more expensive routes would affect the price of the products. Shippers could be forced to rely on rail or truck transportation in some cases -- a more expensive option, especially with rising fuel costs, experts say, and a potential factor in determining prices.

"Goods need to get from one place to another and the way goods are shipped is one indirect way consumers may be affected by Katrina," said Medlock. "Also with high fuel prices -- and we use fuel for everything, in all aspects of life -- you may see consumers curb their use, their consumer spending, and that will negatively affect the economy."

One factor contributing to the jump in gasoline prices following Katrina's landfall was system failure of two of the largest petroleum product pipelines serving the Southeast and Eastern United States. The 5,500-mile-long Colonial Pipeline and the 3,100-mile-long Plantation Pipeline were knocked out of commission by power disruptions at key points along their lines. These two pipelines carry more than 2.7 million barrels of petroleum products to markets up and down the East Coast every day.

The government announced Wednesday it would release an unspecified amount of oil from its strategic petroleum reserves to give Gulf Coast refineries a temporary supply of crude oil to compensate for the interrupted shipments from tankers and offshore oil platforms.

However, some experts believe, this will not stem rising gas and oil prices. There is still uncertainty over the extent of damage in the region and how long it will take to recover. Some devastated parts of Louisiana had oil refineries that refined crude oil from the Gulf of Mexico.

"Our biggest problem at this moment is not so much the supply of crude oil as it is the supply of refined products coming through refineries," Beutel said. "We have eight refineries down, three of them we've only been able to do a flyover. Some of them are flooded, and you can only get there by raft."

Authorities say it could take many months -- perhaps years -- for parts of Louisiana, such as New Orleans, and businesses in neighboring Gulf Coast states to recover.

"In the Biloxi area, there were concentrations of casinos, and many of those casinos were built on the water, and they were just laid to waste," said Bernard Weinstein, professor of applied economics and director of the Center for Economic Development and Research at the University of North Texas. "It may take a long time for a major part of the local economy to recover."

Weinstein believes federal disaster aid and donations that could come to the region to help with rebuilding and recovery could eventually create new jobs.

"Besides the federal disaster aid, you may have millions of private insurance dollars and millions in philanthropic donations -- much like you saw in the aftermath of 9/11 in New York -- going to the Gulf Coast region and that may result in an economic boost," he said.

Still, many victims of Katrina must hope for mercy from Mother Nature. Hurricane season does not end until November and another hurricane could extinguish any hope of recovery.

"What's scary to me is that it's still early in the hurricane season and another hurricane would devastate the region," said Medlock. "And it wouldn't have to be a Category 4. That could have a widespread effect on the economy."

ABC News' Daniel Arnall and ABC News Radio contributed to this report.

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