The Tropical storm ravaging its way across the Gulf of Mexico is gearing up to strengthen into a full scale Hurricane over the next 24-hours with many fearing it could inflict similar devastation to that of Hurricane Katrina back in 2005.
Residents of low-lying coastal regions from Florida to South-eastern Louisiana were ordered to evacuate ahead of predicted storm surges and heavy rain. It is predicted that Isaac will not be as powerful as Katrina, which made landfall as a Category 3 hurricane with 125mph winds and devastated the city of New Orleans killing 1,833 people. The US authorities are taking no chances.
So far Isaac has killed at least 24 people in Haiti and the Dominican Republic and the storm wrought significant flooding and damage in the Caribbean.
New Orleans Mayor Mitch Landrieu said; “It is quite ironic that we have a hurricane threatening us on the seventh anniversary of Katrina,” he said. But he added that as of Monday afternoon, “There is nothing this storm will bring us that we are not capable of handling.” The city has had $10 billion worth of improvements made to its flood defences since 2005 and many are quietly confident that the city will emerge from Isaac unscathed.
Katrina left a legacy of devastation and its economic impact on the US was also high. It is estimated that the total economic impact in Louisiana and Mississippi exceeded $110 billion, earning the title of the most expensive hurricane ever in US history.
Many investors and traders will be keeping a close eye on the progress of Isaac as its destructive potential will have an impact on the global economy. Like Katrina, Isaac is moving through the heart of the Gulf of Mexico’s oil and natural gas production areas, Katrina affected 20% of US oil production. 113 offshore oil and gas platforms were destroyed and 457 pipelines were damaged causing oil, petrol and natural gas prices to skyrocket.
Gulf of Mexico oil production was reduced by about 1.4 million barrels per day as a result of Hurricane Katrina, equivalent to about 91% of daily oil production. Additionally, over 8 billion cubic feet per day of natural gas production was shut in, equivalent to 83% of daily Gulf of Mexico natural gas production.
Seven years later as Isaac strengthens into Hurricane force and bears down on the Gulf Coast, the Gulf of Mexico currently accounts for about 23% of oil production and 7% of natural gas output according to the US Department of energy. Furthermore, roughly 30% of natural gas processing plant capacity and 44% of US refining capacity is located along the US Gulf Coast.
So far 8.6% of daily oil output and 1.6% of natural gas production has been shut down due to Isaac moving through the Gulf of Mexico causing prices of the commodities to rise. The hurricanes impact should be limited this time as after Katrina many of the old rig platforms were replaced or hardened to withstand a category 4 or 5 hurricane.
If Isaac proves to be particular devastating after reaching landfall then we can expect commodity based currencies to feel the impact especially the USA’s closest neighbor Canada. Petrol, oil and gas prices are also going to rise in response to the length of time the Gulf of Mexico remains in shutdown.
Hopefully Isaac will pass through without causing too much damage. However if the storm does increase in strength to more than the estimated category 2 hurricane then widespread damage is almost a certainty with the Hurricanes impact being felt across the world when it comes to commodity prices.
Comments are closed.