While energy analysts predict that drivers will see moderately higher gas prices in the immediate aftermath of Hurricane Ida, the increases will pale in comparison to the spike after Hurricane Katrina wreaked havoc on New Orleans and the surrounding areas in 2005.
Energy experts were hesitant to say for sure how much of an impact American drivers might face at the gas pump after Ida's landfall on Sunday, but early estimates suggested that it would be modest for most of the country.
“You can't run a refinery without power. Reliability of the grid will determine whether this is a transitory event for oil or not."
After Hurricane Katrina, gas prices jumped roughly 45 cents in six days, according to the AAA. They began to fall after that, but it still took nearly two months before returning to pre-Katrina levels. “Gas prices can spike overnight, and then it just takes a while for them to come down,” said Jeanette Casselano, a AAA spokeswoman.
Based on the strength of Hurricane Ida, Casselano suggested that drivers could see elevated prices for a few weeks. “In the coming days, we’ll likely see the national average increase 3 to 5 cents,” she said.
“In the past when we've had hurricanes blow over refineries, it’s been a week or two… but this was a Category 4 storm when it made landfall,” said Stewart Glickman, energy equity analyst at CFRA Research. “So, I do think gasoline prices are going to be moving up. It wouldn't shock me if they were up, on average, 10 cents a gallon,” he said.
“Inventories of gasoline are quite low, at the bottom of the five-year range,” said Peter McNally, global sector lead for industrials, materials and energy at Third Bridge. “The saving grace is that we’re at the tail end of the driving season.”
Oil market professionals said that a repeat of the chaos that roiled the energy market after Katrina was unlikely following Hurricane Ida’s sweep through Louisiana over the weekend, though. Analysts said that while crews were still trying to reach facilities to assess the damage, it appeared that the worst of the storm’s destruction occurred farther east than where much of the energy infrastructure is located.
The worst of the storm’s destruction occurred farther east than where much of the energy infrastructure is located.
And although energy production in the area has grown in aggregate since 2005, the rise of shale oil production means that American energy output is much more geographically diversified, McNally said. “Gulf production is higher than it was in 2005, but as a percentage of the total pie, it’s smaller.”
Oil companies also learned to be better prepared for big storms after Hurricane Katrina, said Patrick De Haan, head of petroleum analysis at GasBuddy.
“Katrina was the one thing that prepared us for Ida — the sheer magnitude of Katrina,” he said. “So many rigs that did sustain damage from Katrina have beefed up their moorings and their anchorings. If anything prepared oil rigs, it was Katrina.”
There are two main impediments to restarting production: a lack of power and a deluge of water. More than 1 million people have been left without power, and officials are warning that restoration could take several weeks. While industrial infrastructure like oil production and refining facilities are likely to be prioritized when repairs are made to the grid, much remains unknown about the damage the grid has sustained.
“You can't run a refinery without power. Reliability of the grid will determine whether this is a transitory event for oil or not,” Tom Kloza, global head of energy analysis for OPIS by IHSMarkit, wrote Sunday afternoon on Twitter.
The extreme amount of rainfall Ida was forecasted to bring is another point of concern, with analysts drawing parallels to the devastation Hurricane Harvey delivered in 2018 to the Houston area and the vast amount of energy infrastructure there. “The one thing that we can’t do is to figure out how to navigate 1 to 2 feet of rain,” De Haan said.
Climate scientists have suggested that the warmer waters of the Gulf of Mexico are producing storms more capable of unleashing torrential amounts of rain after making landfall.
There also were unknowns remaining Monday surrounding the potential impacts on refining and transportation capabilities. “Some of the nation’s largest refineries are now down. Those are going to be key,” De Haan said. “It’s not so much oil. This is less about oil and more about getting these refineries back.”
Analysts are also waiting to hear when part of the Colonial Pipeline that was shut down in advance of the storm goes back online. This scenario is very different from the ransomware incident that led to the critical fuel artery being offline for several days in May. “Unlike the hacking incident that had an open end date, we know the Colonial Pipeline is typically restored fairly quickly,” De Haan said.
The biggest risk to supply over the next few days stems from the prospect that drivers could panic-buy as they did when the pipeline shut down. “What we can't predict is if we do get any hoarding behavior,” McNally said.
Panic-buying and hoarding behavior were blamed for exacerbating the disruption that event created, particularly in the Southeast. Oil and gas experts pressed the message that overreaction could mean a longer, more expensive path back to normalcy.
“The more that hoarding worsens, the more of a problem it’s going to create in those areas,” De Haan said.