The human consequences and market impact of Harvey
What are the human and economic consequences of the hurricane and floods that have devastated Houston, the United States’ fourth-largest city? Gideon Rachman discusses the situation with David J Lynch in Houston and Gregory Meyer in New York.
Presented by Gideon Rachman. Produced by Martin Stabe and Lauren Leatherby
Hello and welcome to this edition of World Weekly from the Financial Times. I'm Gideon Rachman. This week, we're looking at the political, economic, and human consequences of the hurricane and floods that have devastated Houston, America's fourth largest city. Joining me on the line from Texas is our correspondent, David Lynch. And on the line from New York is Greg Meyer, a US Markets reporter. David joins us now on a mobile phone. So I apologise for the sound quality.
And David, could you give us a sense of what the situation is like now on the ground? The hurricane hit over the weekend. It's now five days in we're on the Thursday. Suddenly watching from a distance, it looks like things are not really stabilised yet. They're still getting worse. Is that how it feels?
Well it's a little bit site dependent. Part of the challenge of getting your arms around this flooding situation here is just how massive Houston is. It's probably 50 miles east to west and 50 miles North to South of an area, that's dotted with places that are submerged. And then a few blocks away it's absolutely normal. It's this beautiful day here. You wouldn't know anything was amiss.
So it really depends on where you are. And where the situation is still quite dangerous and could deteriorate is the areas around to local reservoirs that have now become overtaxed and authorities are beginning to release water deliberately from the reservoirs to avoid a worse situation. And that release into an already water logged area is causing water to rise and thus threatening some folks that thought they might have been through the worst.
What's the extent of the human cost at the moment? I mean, we have memories of the horrors of Hurricane Katrina, where I think thousands died. Here it seems to be a little bit better managed, but still widespread devastation.
Yes. I think in some ways the Katrina lens is a bit misleading. Certainly, from my sense of what I've seen in the past few days, I think the response seems much better organised. I made it yesterday downtown to the George R. Brown Convention Centre, which as of yesterday, was housing more than 10,000 evacuees. And if you recall from Katrina, the Superdome became a place of last resort, of last refuge for thousands of folks. And it was utter chaos.
There were reports of violence and it was just a horrifying scene. The George R. Brown Convention Centre yesterday, I have to say, was remarkably well organised. There were cops everywhere. There were row of chairs neatly arrayed. There were lines for things like aid from FEMA and to fill out various forms, three enormous halls on one level with cots arrayed from the Red Cross in neat order.
And as you can imagine, the folks who were there are traumatised and not necessarily thrilled to be cooling their heels in a shelter. But relative to the sort of scenes that we all have in mind from New Orleans, it was really sort of surprisingly well managed.
Do we yet have any idea how long it will take to get the city back together again? And presumably, some people have just lost their homes. There's nothing to be done about it.
Well, the short answer to your question is no. I don't think we have a good idea yet. I think nobody will really know until the waters recede more completely. And in some areas, that's starting to happen. I mean the situation is changing hour by hour and day to day. Roads that were blocked when I flew in Tuesday morning are now passable. But it's a bit of a crapshoot.
You take a route hoping to reach your destination, you find it's blocked. So you've got to reroute and go around it. So a journey that should take 20 minutes takes an hour and a half. So it requires some patience and improvisation for the folks who are here struggling. But I have to say it's also pretty impressive to see all the volunteer efforts.
I'm standing at a local high school that's just been inundated with everything you can think of. If you imagine, if you were tossed out of your house on an instant what would you need? Everything from socks and underwear to shampoo and towels and toilet paper and you name it. And it's all arrived here in the local high school from volunteers to distribute to the folks who are in various shelters. So that you know that's maybe a small silver lining to come out of this tragedy.
And just a couple of more general questions. How are people in the region feeling about Donald Trump's appearance in Texas? Did it go down well?
You know, I'll tell you from my interactions with folks on the ground here, politics seems to be the last thing that most people are focused on, honestly. I mean, in our business, we're sort of focused on a 24/7 it's an occupational hazard.
But I've run a number of people here who say look, we're not interested in talking about Republicans and Democrats today. We're just trying to help people. We're pulling together. And you know, journalists tend to be a jaundiced sort and we cast sceptical at comments like that. But that's what I'm seeing on the ground.
Folks at the moment are focused on much more basic question of survival and recovery and where are they going live and what are they going to eat, and how are they going to get through the next weeks and months. And Trump's visit was also well South of here, well West of here. No doubt deliberately to avoid interfering with the ongoing search and rescue. So I think that's a question for another day.
Yeah. Very understandably so. OK. Thank you very much to David Lynch in Houston. Now to assess the economic impacts of this, let's turn to Greg Meyer, Markets Reporter in New York. Greg, this hurricane, the flooding, apparently wreaking havoc with the US energy and chemical infrastructure. Just give us a sense of the damage.
Sure. So hurricane Harvey, now tropical depression Harvey after almost a week, made landfall on the Gulf of Mexico coast in Texas last weekend. That coast is really the heart of US hydrocarbon infrastructure. Almost half of US oil refining capacity is there. Gulf is full of offshore oil production platforms. Texas is the heart of the two biggest Shell oil production regions, the Eagle Ford which is closer to the Gulf Coast, and the Permian, further inland.
And as we've all been reading, record amounts of rain were dumped across the coast, more than four feet in some cases. So we've now got about 15% to 20% of US refining capacity knocked offline. As a result, that's that much less demand for crude and that much less petrol or gasoline, diesel, etc., being produced into the US and world markets.
And the gas supply to the East Coast of America is threatened as well, is it not?
It is. So the East Coast cities Atlanta, Washington D.C, and New York are heavily reliant on fuel supplies coming from the Gulf Coast that's shipped through a couple of pipelines. But mainly, one called the Colonial Pipeline that originates in Houston. Colonial today shut off its two principal lines for diesel jet fuel and gasoline. For two reasons, one, because I think because it's origin Houston was under water.
And also because with all these refineries getting knocked out, it wasn't getting enough fuel to ship. So at some point that will mean lower supplies heading for the Gulf Coast. And as matter of fact, today gasoline futures that are delivered into New York were surging. There seems to be a short squeeze with prices shooting up above $2 a gallon.
And is it actually going to affect supply in a way that kind of ordinary people will notice?
It could. I mean, the question is how long it will last. This comes against a backdrop of plentiful oil and gas supplies in the US for sure, thanks to the Shell drilling boom. And they're still, in terms of refined fuels like gasoline, there's been ample stock sitting around in tanks all summer.
So we're not running out of fuel, per se. But those stocks still only cover so many days of supply. And you still need to get it from one place to another. So yeah, we could potentially see shortages in places like Atlanta that are heavily dependent on shipments via the pipeline.
And of course, America, you mentioned the Shell revolution and so on, is now a major energy exporter. So is this a global event?
Yes. And I think that's one interesting perhaps new dimension of this storm versus previous catastrophic hurricanes in the Gulf Coast, such as Katrina and Rita. In 2005, the US was the world's largest importer of refined petroleum products. And in 13 short years, we've become the world's largest exporter of refined products. I'm sending it all around Latin America, Mexico, Chile, Brazil. I'm sending diesel to Europe.
And so, yes. The ports are shut or have been shut. Those exports have shut down. And we're seeing a scramble for cargoes of gasoline out of Europe. The FT reported today about it's sort of an armada of tankers being booked to move petrol from Europe to the Americas.
And so, is it going to be effect on global market prices? Are we already seeing that?
Yes. Yes. We are. I mean we're seeing refining margins in Europe shoot up. Interestingly, in the crude oil market, US crude oil prices have fallen fairly sharply. Understandably, because refiners are buying less, at least in the short term. Brent, the global benchmark based on production in the North Sea, has been relatively stable partly for reasons of its own.
But there's starting to be some speculation that with this dampened demand from the biggest refining centre in the world, that Brent could also start to come under pressure. So interestingly, potentially lower crude oil prices and higher product prices. Because we've got this huge bottleneck in the form of all these refinery shutdowns.
Finally Greg, I mean, how long do you expect this to last? I'll put it another way. If the weather does now ease off, how quickly is all this capacity going to come back?
Well that's the big question that everyone is asking. And I think we really won't know until the waters recede and engineers and oil company people can survey the damage. A lot of these refineries made adjustments to their infrastructure after Katrina and Rita. They raised up control rooms. They raised equipment. They built berms so that flooding would not do the kind of damage it did then. But it's really too soon to say. We could see some real volatility in prices in the weeks and weeks to come.
Thank you very much indeed, Greg. And thanks also to David Lynch in Texas. That's it for this week. Until next week, goodbye.