The Wake of Hurricane Rita The Wake of Hurricane Rita: Rita
by Mike "Mish" Shedlock
Whiskey & Gunpowder
Illinois, USA
September, 29, 2005
Mike Shedlock examines The Wake of Hurricane Rita -- and how, while deaths were thankfully very low, there was still more damage done than you might thing. Greg's Note: Everyone breathed a sigh of relief when Rita hit. Was the damage really that minimal? Mish provides a few pictures to look at. Mish also takes a look at consumer sentiment and natural gas prices in the wake of Rita. The answers do not seem to be all that pretty and there was even more damage than meets the naked eye. Unfortunately, the full effects of Rita and Katrina have not yet been felt. There is another storm brewing and that one is financial. It will affect what everyone has to pay to heat their homes this winter. Read more to find out. Please e-mail any responses to the following article to your somnambulant managing editor: greg@whiskeyandgunpowder.com Rita WHEN HURRICANE RITA hit the Texas coastline at Beaumont/Port Arthur, as a Category 3 hurricane, everyone breathed a sigh of relief. In terms of lives lost, it certainly would be hard to fare better than we did. However, the Pollyanna viewpoint that there was minimal damage is just plain wrong. At sea, Rita blasted her way through the Gulf of Mexico offshore oilfields as a Category 5 tempest doing mammoth damage to numerous rigs that will affect oil and natural gas production for quite some time. In addition, some coastal refineries were heavily damaged, and that comes on top of refineries already crippled by Katrina. Here are before and after pictures of Chevron's Typhoon platform in the Gulf platform, with thanks to Resource Investor: 
According to the Department of Energy, damage to some of the refineries in Port Arthur, Texas, and Lake Charles, La., and the lack of electrical power supply to others is preventing their immediate return to service. Combined with the 5% of refinery capacity near the New Orleans area that was still out following Hurricane Katrina, as much as 15% of U.S. refinery capacity could be out for at least another couple of weeks.
As of Wednesday, Sept. 28, there are four refineries still shut down in the New Orleans area following Hurricane Katrina, seven shut down in the Port Arthur and Lake Charles areas, and three shut down or attempting to restart in the Houston/Texas City/Galveston refining area, amounting to a total of over 3.5 million barrels per day that is currently offline. This accounts for over 1.5 million barrels per day of gasoline, over 800,000 barrels per day of distillate fuel, and over 400,000 barrels per day of jet fuel that is not being produced as long as these refineries remain shut down. A daily status report of hurricane impacts on the U.S. oil and natural gas markets can be found here. The Wake of Hurricane Katrina: DOE Report The following highlights are from a Department of Energy PDF as of Sept. 28, 2005 (3:00 p.m. EDT):
· 945,506 customers are without electric power in Texas, Louisiana, Arkansas, and Mississippi. This includes new customer outages due to Hurricane Rita as well as outages remaining from Hurricane Katrina
· As a result of damage from Hurricane Katrina and precautionary actions in advance of Hurricane Rita, shut-in oil production in the Gulf is currently at 1,511,715 barrels of oil per day...Shut-in gas production is at 8.027 billion cubic feet per day
· The shut-in gas production is equivalent to 80.27% of the normal daily gas production in the Gulf, which is currently approximately 10 billion cubic feet per day
· Evacuations are equivalent to 72.4% of 819 manned platforms and 47.76% of 134 rigs currently operating in the Gulf
· There are reports that as many as 18 GOM rigs and 40 platforms may be missing, damaged, and/or detached from their moorings. Russ Winter did a nice summary about Rita for The Wall Street Examiner in an article entitled "Postscript on the Rita 'Dodged Bullet.'" Following is a list of damage estimates compiled by Mr. Winter: Citgo, Lake Charles (324,300): three weeks
Total, Port Arthur (233,500): a month
Valero, Port Arthur (255,000): 2-4 weeks
COP, Westlake, (239,400): 2 weeks
Motiva, Port Arthur (285,000), wind damage, no power, no date given
Exxon's Beaumont plant (348,500) appeared to have no significant damage and was awaiting power. GOM shut-ins account for about 28% of total U.S. oil output and 14% of total U.S. natural gas output. The Wake of Hurricane Katrina: Houston Chronicle Report The Houston Chronicle is reporting a "Close Call on Natural Gas for Winter":
"Winter is coming, and most of the natural gas wells in the Gulf of Mexico remain shut in. Industry officials say gas supplies will be adequate to heat Americans' homes through the colder months. "But at what cost? "'Based on everything we see right now, coming off of Katrina and Rita, we should be fine this winter,' Natural Gas Supply Association chairman Joseph Blount said Tuesday. "Consumers, however, won't be happy. "Even before Rita pushed natural gas prices to new highs, Guy Caruso, head of the Energy Information Administration, was estimating home heating bills this winter could jump as much as 70% in some parts of the Midwest. "Lawmakers on Capitol Hill are hurriedly responding to the latest energy crunch sparked by the hurricane duo by writing a new energy bill. "House Energy and Commerce Committee Chairman Joe Barton (R-Texas) today will push a provision to encourage construction of a natural gas pipeline across Alaska and bring new supplies to the lower 48 states. Resources Committee Chairman Richard Pombo (R-Calif.) will sponsor a measure that would allow states to authorize oil and natural gas drilling off their coasts. "Neither provision will help consumers this winter... "To date, hurricanes Katrina and Rita have deprived the markets of nearly 5% of the annual gas production that would have otherwise come from the Gulf. "Although natural gas is used year-round to generate electricity, demand is greatest in the winter months. "To meet that seasonal demand, the industry must build inventories before the severe cold hits... "As of Sept. 16, 2.8 trillion cubic feet of gas was in storage, the Energy Information Administration reported. "That's up about 3% from the five-year average, although down about 3% from the same time last year. "Industrial customers with the ability to switch from use of natural gas to heating oil have largely done so... "Residential customers typically don't have the luxury of switching. Their demand depends on the weather. "Forecasters are predicting a warmer-than-normal winter, although cooler than last year. Overall, the natural gas association estimates residential gas demand will be up more than 7% from last year."
Following is a chart of natural gas prices for the January 2006 contract, as of Sept. 29: 
On Wednesday, we looked at rising "Credit Card Delinquencies." Here is a small snip:
"The American Bankers Association reported Wednesday that the percentage of credit card accounts 30 or more days past due climbed to an all-time high of 4.81% in the April-to-June period. It could grow in the months ahead, experts said." Those figures were pre-Katrina and pre-Rita. Not only do we have continued high prices for gasoline, we have record high prices for natural gas as well. If the experts are correct and Midwest heating bills rise 70% this winter, there is sure going to be a lot more economic stress than we see right now. Consumer sentiment is already falling thru the floor, and that is before any of those heating bills have hit. Here is a chart of consumer sentiment to ponder, with thanks to Jesse: 
Mish, is this a weather-related outlier or are consumers finally ready to toss in the towel? Good question, but I think that sticky gas prices; rising interest rates (11 consecutive rate hikes and more threatened); falling real wages; two hurricanes, with possibly more to come; rising foreclosures; rising delinquencies; and looking ahead to even 30% hikes in winter heating bills, let alone the 70% that is projected are likely to be the brick that broke the consumers' back. The recession of 2006 is coming up.
Regards,
Mike Shedlock ~ "Mish" Sign Up for Whiskey & Gunpowder
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Greg's business note: My frequent correspondents may have noticed that I no longer respond to e-mails sent to my flowered, quaint mailbox of greg@whiskeyandgunpowder.com. Don't think that I click delete when you knock on my outlook door...in fact, the whims of ghoulish overreaching lawyers have barred me from talking directly to you, dear friend.
BUT - please keep sending me your thoughts, complaints, desires...I will read them and assiduously employ their thrust toward the eternal path of Whiskey perfection. I will also forward them to Byron, Jim, Mish, and the rest of our cadre. Thanks for the support. More on the Hurricanes Here: 09/28/2005 - Thoughts on the Davis-Bacon Act
By Mike Shedlock
Mish takes a look at the Davis-Bacon Act and the history behind it, and also takes a look at some of the articles critical of President Bush suspending the act in the wake of Hurricane Katrina. Is Bush to be blamed for taking advantage of hurricane victims, as Sen. Edward Kennedy and others suggest, or was Bush justified in doing so under the "national emergency" clause? Mish takes a look at both sides 09/19/2005 - Greed and Obfuscation in America's Atlantis
By Jim Amrhein
Jim writes about New Orleans, which has for years been nicknamed "the city that care forgot," owing to its mix of both opulent glamour and extreme decadence. How morbidly appropriate a moniker now, given the systemic failure at all levels to deal with Katrina's wrath. The most obvious question, of course, is this: Why wasn't New Orleans better prepared for the disaster everyone knew was coming someday? 09/14/2005 - Thoughts on Savings, Part II
By Mike Shedlock
Following is the second half of a two-part discussion about savings. In this follow-up, Mish takes a look at Ben Bernanke's viewpoint that there is a glut of savings and the problem is not that the United States is spending too much, but that the rest of the world is not consuming enough. This part will also take a look at the growing national debt and the impact of Katrina and offer some final comments on the cash flow of consumers. | 
