Katrina - a survey of the economic and geopolitical impact

http://www.dailykos.com/story/2005/9/1/72027/03173#here

The only solution is to diversify. There is no one solution. When we first started using oil, people thought it was going to end all of our environmental problems because horse manure was littering the roads and all the disease and awfull smells that it caused. Now we have a different problem (#1 oil is an non-renewable resource, #2 the environmental effects are even worse). If we go to a hydrogen economy, we'll have problems that we can't even think of. That's why we nee to diversify, energy efficiency definitely plays a role in this (not energy efficiency is the same thing as energy conservation), renewables and non-renewables will also hae a role.

The big problem is that we drive cars everywhere. That will probably have to end.

Ghostbusters (1984) via IMDB:

Dr. Peter Venkman: This city is headed for a disaster of biblical proportions.
Mayor: What do you mean, "biblical"?
Dr Ray Stantz: What he means is Old Testament, Mr. Mayor, real wrath-of-God type stuff.
Dr. Peter Venkman: Exactly.
Dr Ray Stantz: Fire and brimstone coming down from the skies. Rivers and seas boiling.
Dr. Egon Spengler: Forty years of darkness. Earthquakes, volcanoes... Winston Zeddemore: The dead rising from the grave.
Dr. Peter Venkman: Human sacrifice, dogs and cats living together - mass hysteria.

and you know when President Bush is pleading for oil companies not to gouge and people to conserve energy - the shit has hit the fan. Reuters:

Bush expresses 'zero tolerance' of price gouging in interview as prices spike above $3 a gallon. September 1, 2005: 8:04 AM EDT

WASHINGTON (Reuters) - President Bush warned against price-gouging of gasoline Thursday in the aftermath of Hurricane Katrina and said looters should be treated with zero tolerance.

"I think there ought to be zero tolerance of people breaking the law during an emergency such as this, whether it be looting, or price-gouging at the gasoline pump or taking advantage of charitable giving, or insurance fraud," Bush said in an interview on ABC's "Good Morning America."

Gasoline sellers have been fast to raise prices in the wake of the storm. Prices have risen above $3 a gallon and in some places higher because of a sudden drop in oil supplies.

Bush said Americans should conserve more gasoline in response to the crisis and said he expected Saudi Arabia to do "everything they can" to provide more oil. He said eight refineries are down in the Gulf and "it's going to take a while" to get them going again.

"I would hope Americans conserve if given a choice," he said.

emphasis mine. fear also mine.

I missed the first half of Oil Storm, but I guess now we are up to the point in real life so I guess there's no need to go back...

I think this is a key point that the media have started to pick-up on - that oil supplies are tenuous at best at meeting current levels of demand. I have heard this repeatedly, but they seem to assume that once the higher prices create the incentive to increase investment that the situation will ultimately balance out. This is the crucial point that we need to take issue with. Supply is not going to increase much and indeed in the long term, it will fall.

I'm still waiting for the energy conservation call. I heard that the EPA has loosened standards on refining gas that is less polluting. Why is that a better solution than asking people to conserve?

Thanks Prof G and Insider for pointing out the interconnections within the economy and oil energy sector.  This has been obvious to many posters at TOD.

I am incensed today that there is still not a message from the government to reduce consumtion in moderate ways.  Dave, Lou, MW and others in posts this week have said there is a lot of low hanging fruit that will ease oil supply.  This is also true of cement, steel, wiring, etc. that will be needed to re constitute the gulf area.

That our leaders do not recognize this is unacceptable.  There should be a national message to not waste energy this Holiday weekend.  A message that says "Here is how states and businesses cut back a little so that the remainder can be shifted to the gulf".  As Insider states there will be a continuous need for more energy and supplies in the GOM starting now than there was last month.  This greater need will easily absorb any reduction by the rest of the country.  

My point is we won't slip into recession by not consuming as normal up here in the north if the materials we were going to consume are now consumed by the GOM.  

By not telling everyone outside the affected area to consume less the stated message is that the economy will have to get larger - Consumption same in rest of U.S. but emergency repair ramp up in GOM.  Clearly this can not happen with the energy constraints caused by Katrina.

Will this message of shifting resources ever get stated by authorities?

I am not confidant that will ever be said.  It would call into question the enormous resources being squandered in the Middle East for the war on Terror.  The U.S. has gotten itself in a box where it can't stop consuming on any front.  We must stop consuming somewhere on a National level or the law of supply and demand will make the choices for us.

I am still waiting for a leader to step up and LEAD!

Your excellent anonymous source writes that "awareness of Peak Oil has just begun debate within media
circles." True of the US - but `back home' in Europe, false consciousness still rules.

The most recent example: today's `Frankfurter Allgemeine Zeitung' - Germany's leading highbrow daily  - has a major (page 1) editorial entitled `The Price of Oil'. And who's ultimately to blame for the spike, apart from Hurricane Katrina? Well, it's the state-owned and private oil companies which "during the 80s and 90s invested too little in new production facilities and refineries." Of course.

Needless to say the editorialist goes on to assure us that "[t]he tense market has nothing to do with the finiteness of oil reserves. Despite growing consumption, proven oil reserves have also increased in recent years." ("Mit der Endlichkeit der Ölreserven hat die gepannte Marktlage nichts zu tun. Die nachgewiesenen Ölreserven sind auch in den vergangen Jahren trotz des wachsenden Verbrauchs gestiegen.")

My guess is that as peak oil begins to hit, the more `peaking mantras' of this broken-record variety we are likely to come across in the media.

We'll be back to the horse and cart and these guys will still be banging on about the growth in `proven reserves'. Jesus wept.

With no sarcasm or ill will intended whatsoever, I can summarize the anonymous comments by saying: "Really bad stuff happened.  What does it mean?  Someone find me an economist!"

I'm completely serious about this.  Economics is the study of the allocation of scarce resources.  Various energy sources have suddenly become a heck of a lot more scarce than they were a week ago.

As a very short first pass, let me point out that in any market shock timing is critical; you can't talk seriously about the current energy situation without being hyper-aware of the time frame in the discussion.  The other often overlooked factor is market psychology, which certainly includes, but is by no means limited to, things like the phenomenon of people topping off gas tanks and making the collective situation worse.

We're in a classic market shock, in that no one predicted this would happen more than a few days before it struck, so no one had a chance to prepare to any appreciably extent.

Back to time frames, with a focus on gasoline:

We have the immediate short run, which I think of as the next few days, but no more than a week.  During this time I expect, as I believe Dave mentioned in another topic, for there to be spot shortages (as we're already seeing in some SE US cities) and quickly adjusting prices.

In the short run, starting in about a week and stretching to a month, we'll see prices settle in at a new level, likely in the high $3/gallon to low $4 range.  The chances are good that shortages will be minimal, with no need for overt rationing (as oppsed to the price-induced rationing caused by the market doing its thing).  The market will have "sorted itself out" as economists like to say.

The medium term, a month to perhaps six or seven months (basically until the spring 2006 cyclical oil price rise), will likely be marked by a major mental readjustment for US consumers.  Some will scream for gov't to "do something", some will actively seek and use ways to reduce their gasoline consumption (early adopters of the new mindset, so to speak), and some will keep fillin' the ol' SUV and driving too much and accelerating too hard, stuck in denial.  This staged response will slow down conservation efforts, but it will also prevent chaos--you don't want every SUV owner in the country to try to trade in their vehicle for a hybrid at the same time.

We'll also see real economic impacts in the medium term; reduced consumer spending overall, greatly reduced spending on transient entertainment items (trips to the movies and theme parks; buying video games and DVDs might actually go up as people shift even more to home-based activities), reduced resale value on low-MPG vehicles, etc.  Essentially, this will be the whole economy starting to reconfigure itself to accomodate higher energy prices.

Finally, the medium term is when we'll see some of that refinery and oil production capacity in the NOLA area coming back online.  This should ease prices a bit, but my guess is not much.

The long run begins with late spring 2006.  This is when people have had a chance to internalize the months-long experience and start making longer-term plans.  I expect that the car market will be very interesting, to say the least, by then, as many more people will be trading in old low-MPG vehicles for new(er), more efficient cars.

But we'll also see things like shifts in the size and location of new home construction, changes in gov't policies (hey, I can hope, can't I?), and a general but marked increase in the level of mainstream awareness about energy and efficiency issues.

And in the very long run, we're all worm food.

I think a lot of people are too eager to assume this is an oil shock rather than a gasoline shock. With 1,000,000 additional people out of work, plus much higher gasoline prices, it is conceivable that US demand for oil will actually DECREASE in the short-term.

There was a very good analysis of Katrina and the economy at
http://badattitudes.com/MT/archives/002877.html#002877

One of the main points made was that the secondary and re-insurance market stands a good chance of complete collapse. Already reeling from last year's disasters, the industry may not have the assets to cover the losses associated with Katrina. Homeowners and businesses in the disaster area could find that their insurance is worthless. This, in turn, will lead to a wave of foreclosures. But the assets on which the note holders will foreclose no longer exists--the houses and businesses have been wiped out. In some cases, even the land upon which the building sat no longer exists. Worse still, insurers will be unwilling or even unable to underwrite new construction. No insurance means no mortgage, and that will make rebuilding impossible.

The normal backstop for all of this is the federal government. It is an open question whether the bond market will absorb the massive additional debt that will be needed to pay for this. And it's a safe bet that Bush and the Republican congress will not even consider raising taxes to help cover the costs. (Indeed, the top-priority item on the agenda of the next Congress is eliminating the Estate Tax.)

But that money has to come from somewhere. The economic impacts of Katrina will drag the economy down dramatically, thus cutting federal tax revenues even further and forcing the Treasury to issue yet more debt. It may well be an economic perfect storm.

greeny

The expansion of the SPR was included in the energy bill Bush just signed - hidden in plain sight...

To add to the misery index, the Bushco bankruptcy "reform" law kicks in today.  Once these displaced people have exhausted all their financial resources they're going to find out well and truly screwed they really are.

Ceteris paribus! That's why I love this site!

Naturally, we are dwelling on the domestic US situation. But what about fundamentals in the world oil market. For example

• Nigeria is completely unstable and production halts there are now routine.
• Ecuador -- see Nigeria
• Mexico has tipped this year, no longer an exporter
• The North Sea is depleting at a rapid pace
• Indonesia is foundering, no longer an exporter
• Saudi Arabia is maxed out for light sweet crude
• US production has just been reduced 1.3 mbd
• Vulnerability in Iraq is now higher after Katrina (see Saboteurs briefly shut down Iraq's oil exports (Aug 22) for example)

My point is that even with our overwhelming domestic problems, we are still dealing with a shaky world market. Afterall, oil prices have been rising for months and months anyway, despite what Ali bin Ibrahim Al-Naimi says.

Don't get me wrong -- I love the Saudi Arabian Minister of Petroleum and Mineral Resources. But American exposure to foreign disruptions has never been higher than now.

There are now appx 1.5MM people displaced by this, most likely. They will run through their financial resources quickly staying in hotels. Once the "better off" exhaust their bank and credit accounts, what happens?

I think this has the makings for a lot of trouble in Houston where many have fled. I think what is happening in GNO today, with the gunfire and madness is to be expected in Houston in one form or another as people slowly go broke without any income, and are faced with utter destitution. On top of that, government banking laws only want to confiscate their remaining property via the new bankruptcy act. It appears to me from the Superdome and now Astrodome security details that the main focus by the Feds is to keep them quiet and out of sight from the MSM. And also all in one place if possible.

I don't think they can file for Louisiana unemployment in Texas, or can they? And are any of them even thinking that far ahead?? Man, this is a nightmare...

One thing Katrina has exposed is the federal government's lack of financial flexibility due to its policies of deficit spending. Responsible Keynesian economics used to say that we balanced the budget at full employment, ran a surplus to take the steam out of inflationary booms, and ran deficits to stimulate the econoomy during recession. It went without saying that in times of war or national emergency all bets were off, but the idea was, that if the national debt were kept manageable during "normal" times, federal borrowing capacity would be there when we needed it.

However, we now run government finance under the assumption that government is the enemy of democracy and large deficits are a necessary and proper way to prevent government from spending money on intrusive or redistributive programs; proponents call this "starving the beast."

It would seem that under normal budget conditions the federal government would be there to help the states if unemployment insurance funds were temporarily overwhelmed by the Katrina disaster, and that federal funds could also be quickly appropriated for reconstruction. And maybe all that will be done in any case. It will just be more problematic than perhaps it should be.

You used the words "responsible" and "government" in the same paragraph.

What a concept....

what's the update on refineries and oil rigs, LOOP.

greeny

We don't have any capacity in biodiesel, and will not in the near future. It may be a solution for later, but it just doesn't help anybody this month.

Re: On Levees, Hurricanes and Climate Change

I am going to tell a story of neglect and lack of leadership in this post. My point of departure is Intricate Flood Protection Long a Focus of Dispute by science reporter Andy Revkin from today's NY Times.

As Rick, Stuart Staniford and I have pointed out recently, we are in a particularly active hurricane seaon, which is only now about half over. Since 1995, hurricanes have been more frequent most likely due to a natural variability called the Atlantic Multidecadal Oscillation. Although hurricane frequency is not significantly correlated with climate change, hurricane intensity is. Look at Ross Gelspan's Katrina's real name from the Boston Globe. His site is http://www.heatisonline.org/. other posts here at TOD for more information.

There are two approaches to dealing with climate change. The first is too attack the root causes of anthropogenic (human-caused) warming by reducing the emissions of greenhouse gases (CO2, Methane) into the atmosphere. The second is mitigation. Accepting that a certain amount of warming is in the "pipeline" -- in fact, about 0.6C if we stop all emissions today -- mitigation involves taking sensible steps to prepare for extreme weather events e.g. droughts, floods, heat waves and intense hurricanes.

This brings us to the levees around New Orleans. As Revkin reports

Mr. Naomi [Army Corp of Engineers senior project manager] grew particularly frustrated this year as the Gulf Coast braced for what forecasters said would be an intense hurricane season and a nearly simultaneous $71 million cut was announced in the New Orleans district budget to guard against such storms....

In an interview last night, Mr. Naomi said the cuts had made it impossible to complete contracts for vital upgrades that were part of the long-term plan to renovate the system....

Weaknesses in the levee system were foreshadowed in a report in May on the hurricane protection plan for the region and the budget gap.

The district headquarters said, "The current funding shortfalls in fiscal year 2005 and fiscal year 2006 will prevent the Corps from addressing these pressing needs."

They also meant that there was far too little money to study thoroughly an upgrade of the protections from the existing standard, enough to hold back a hurricane at Category 3 on the five-step intensity scale, to a level to withstand floods and winds from a Category 5 storm.

I will not address the issues raised by the replacement of the Gulf Coast natural defenses to tropical storms (wetlands, mangroves) by human engineering control measures like levees and pumps. And I will only briefly point out that 1 meter is a reasonable estimate of the amount of sea level rise expected over the 21th century -- look at Confronting Climate Change in the Gulf Coast Region for a summary of the problems that need to be addressed now and in the future.

In conclusion, the US, abysmally led by George Junior, has failed to acknowledge climate change as a problem and so naturally they have failed to take any mitigation measures to prepare for it. In fact, funds were reduced for maintaining and enhancing the levees around New Orleans to prepare for more violent hurricanes in the future. I am not sure how the funding pipeline works here, but sufficient money was not available. Our political leaders learned absolutely nothing from the intense storm Ivan last year.

Stupidity, Cupidity or Criminal Negligence? What's the difference now? It doesn't matter now, the damage is done.

Donal

I think maybe their representatives will soon understand how very much it WAS in their best interest...

I don't think anything will change the current setup except a change in Presidential party. Even then, we will simply have a different shade of myopia, but maybe with a more domestic slant...

It is a rare thing that anyone bothers to attack my research. It doesn't happen much anymore execpt from those new to trying to debunk our research for the first time. I am much more used to the ad hominem attacks, such as I have seen here, that seem always to intensify the more From The Wilderness is proven correct. As far as your list wanting sourcing for my remark about the Saudis admitting they can't increase production, here you go.

http://www.howestreet.com/story.php?ArticleId=1500

And yes, I have proven that Bush and Cheney were directly behind and responsible for 9-11 with 1,000 verifiable footnotes. That view is rapidly gaining general acceptance because of the quality of documented evidence that so many people have suffered to bring to light.

Thanks at least for allowing me to respond and provide you with what you asked for.

Mike Ruppert
http://www.fromthewilderness.com