Will Harvey Make Houston’s Boom Go Bust?

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Floodwaters from Hurricane Harvey surround a fuel pump at an ExxonMobil gas station in Houston, Texas, on August 30, 2017. Photo: Luke Sharrett/Bloomberg via Getty Images

Harvey slammed Baytown, Texas, a coastal city that sits about 30 miles east of Houston, with a staggering 51.88 inches of rain through Tuesday. Homes flooded, roads washed out, and the roof of a storage tank sunk in at an ExxonMobile plant, causing damage and allegedly releasing chemical fumes.

The ExxonMobile refinery in Baytown also happens to be the nation’s second-largest, processing as much as 580,000 barrels of crude oil each day. It went offline Sunday, as did nearly every other major refinery, as Harvey slammed the Gulf Coast and cut a path across Texas and Louisiana, drenching areas with upwards of three feet of rain. All together, shutdowns have knocked out about 20 percent of U.S. refining capacity, which comes out to about 3.6 million barrels.

The extent of the damage to the storage tank and the rest of the ExxonMobile plant is unknown. The company assured Baytown residents its facility was safe and said it would investigate as soon as conditions allowed. Putting aside the tremendous environmental concerns that come with having America’s petrochemical hub in a hurricane hot zone, the shutdowns and damage to the refineries, chemical plants, and busy ports along the Gulf Coast could deal a severe blow to industry in Houston and beyond.

But how deep and long-lasting will Harvey’s economic impact be? Harvey will be one of — if not the — costliest natural disaster in U.S. history. One estimate puts the price tag at $190 billion, more than Hurricane Katrina and Superstorm Sandy combined. Harvey will almost certainly displace Ike as Texas’s most expensive storm, which caused a relatively cheap $37 billion in damage. Houston represents America’s fifth-largest economy, and before Harvey struck, Harris County — which includes Houston and the ravaged suburbs around it — was one of the fastest-growing population centers of the past decade. Texas’s economy is closely linked to the oil and gas industries, and despite a recent drop it remains on one of the strongest state economies in the U.S.

Floodwater surrounds homes in a residential neighborhood in the wake of Hurricane Harvey on August 29, 2017, in Houston, Texas. Photo: Marcus Yam/LA Times via Getty Images

Right now, it’s still unclear how long refineries and petrochemical plants will be out of commission. The Department of Energy says at least ten refineries are still down, six are trying to restart, and two have scaled back operations. In addition to the Baytown ExxonMobile plant, the nation’s largest refinery, the Saudi-owned Motiva, in Port Arthur, Texas, shuttered this week because of flooding, and may be sidelined for close to two weeks. Chevron Phillips shut down its plant outside Houston, and the flooded Arkema plant in Crosby suffered two explosions. The refinery outages in Texas and Louisiana have also disrupted pipeline operations, including one owned by Colonial Pipeline, which carries more than 3 million barrels of diesel and gas to New York daily.

There’s also the question of the Gulf ports. Houston is one of the country’s busiest ports, and its director told NPR that initial assessments indicate the facilities received “minimal damage.” But the ports in Lake Charles, Louisiana, and Beaumont, Texas, remain closed, and the port of Corpus Christi — closer to where Harvey made landfall as a Category 4 storm nearly a week ago — is still frozen after an oil-drilling ship broke lose of its mooring over the weekend.

For the rest of the country, this means Labor Day travel is going to be a bit pricier than expected. On Friday, gas prices hit their highest average of the year at $2.45 a gallon, according to AAA, and they’ll probably climb a bit higher in the coming weeks.

Fortunately, this is likely a short-term blip. The Department of Energy is releasing 500,000 barrels of crude oil to a Louisiana refinery, and it may make more releases down the road to prevent spikes in fuel prices. The refineries themselves are unlikely to be out of commission for long.

“They pretty well battened down the hatches,” Thomas Fomby, an economics professor at Southern Methodist University in Dallas, told Daily Intelligencer. “The major problem is getting people to operate the essential parts of the refineries — it’s not the refineries themselves. The refineries aren’t wiped off the map.”

“You may have higher gasoline prices for a month or two but after that it will come back to normal pretty quickly,” Fomby added.

Bill Gilmer, director of the Institute for Regional Forecasting at the University of Houston, said he expects the refineries and plants to be back online in a couple of weeks. “The big drivers of the economy are going to come out of this in pretty good shape,” Gilmer said. He explained that many of the shutdowns in Houston’s ship channel and at the plants were tied to public-safety concerns, not problems with the facilities themselves. Harvey’s forecast flooding would make it difficult for the employees who operate the equipment to get to work, and for, say, fire departments to respond if something went haywire at a chemical facility.

“It’s a slow process to restart them. It’s a dangerous process to restart them,” Gilmer cautioned. But restart they will, along with the rest of Houston’s robust white-collar economy. In addition to all the engineering and administrative jobs tied to the oil and gas industry, that includes everything from the region’s medical centers to the Johnson Space Station. All should bounce back relatively quickly once cleanup gets under way. “The big economic issues for Houston are really confined to workers and housing of people, and small businesses,” Gilmer said.

That’s especially true for the bars and restaurants and dry cleaners that support the larger economy. “It’s going to be 20 percent decline or so in retail,” Fomby estimated. “Buying and selling stuff in Houston when no one’s there at the cashier’s desk? You can’t get there to do any transactions.”

Even once the roads clear, parts of Texas and Louisiana will be grappling with the human toll of Harvey — at least 38 dead, and tens of thousands displaced — for months, and more likely years if Katrina and Sandy are any indication. But the regional economy could get a little kick as rebuilding begins.

“Ironically, we are now going to have this short-lived boom in economic activity here as everything tries to come back together,” Gilmer explained. “There’s a very predictable pattern. We’re going to sell a lot of automobiles over the next couple of months. The insurance money will flood in. If you’re Lowe’s or Home Depot, anybody that can sell wall board is going to be in terrific shape.”

Gilmer said it’s likely the retail spike will be sharp, but only last for about a quarter, based on what he’s observed studying similar events, such as Katrina and Ike. Yet Harvey is unique. “The scale of this is different. It’s unprecedented, that’s one side of it,” Gilmer said, “And this is going to affect a lot of people who aren’t insured.” Property damage is expected to cost upwards of $20 billion, and since more than three-quarters of Houstonians don’t have flood insurance, a huge chunk of repair costs will be out-of-pocket.

The federal government could add a little economic stimulus, but despite President Trump’s promise of fast relief, it probably won’t be immediate. The region is expected to receive a huge federal aid package, and funds allocated for rebuilding will likely require resiliency planning to guard against disasters. Fomby suggested that the region could wind up receiving a “specialized” form of the infrastructure funding the rest of the nation has been waiting for, with money allocated to shore up dams and bridges.

The full scale of Harvey’s wrath is still blurry: The city of Beaumont, Texas, is without clean water, and a bowling alley in Port Arthur remains a makeshift shelter. That, coupled with the historic nature of the storm, means even the short-term effects are still hard to gauge. Other shifts could affect the regional economy over time, such as slowing population growth in Harris County, or the oil and gas industries reevaluating their real estate in an increasingly volatile hurricane corridor. Or, maybe not.

“There’s a long history of these storms here,” Gilmer said. “If you look at the period of the latest oil boom between 2003 and 2014, Houston added 710,000 jobs over that period. That’s how many jobs there are in all of New Orleans, or Oklahoma City. We built a whole new metro area in the course of a decade.”

“And up until now,” Gilmer said of the storms and subsequent flooding, “that history hasn’t been much of deterrent to what’s happening here.”

Will Harvey Make Houston’s Boom Go Bust?