Energy Diplomacy
Energy and lessons from Hurricanes Harvey, Irma: Expert
- 'There are lessons to be learned from hurricanes, but they have no impact on energy sector investment': Sabanci expert

Hurricanes Harvey and Irma, which unleashed tragedy causing fatalities and massive property damage, will have no impact on energy sector investments, according to Prof. Dr. Carmine Difiglio, director of Sabanci University's Istanbul International Center for Energy and Climate on Friday.

"These hurricanes will have no impact on energy-sector investment. While the hurricanes were a great tragedy causing fatalities and property damage, they proved the resilience of the Gulf Coast energy infrastructure, especially compared to what happened after the 2005 and 2008 hurricanes," Difiglio, who is also the former Deputy Assistant Secretary for Policy Analysis at the U.S. Department of Energy and Head of Technology Policy at the International Energy Agency (IEA), told Anadolu Agency.

He noted that Hurricanes Katrina and Rita in 2005 necessitated an emergency IEA release to supply the U.S. with additional gasoline and diesel fuel.

"While there was no emergency release in 2008, Hurricanes Gustav and Ike were equally disruptive. The IEA recently said that '…the rise of the Gulf Coast as a major energy hub means that, in some respects, it can be compared to the Strait of Hormuz in that normal operations are too important to fail.' As the IEA says, the Gulf Coast energy hub is too important to fail, but the evidence from Hurricane Harvey is encouraging," he explained.

He said that Hurricanes Harvey and Irma had opposite effects on the oil market.

Difiglio stressed that Hurricane Harvey struck the Gulf Coast where many offshore and onshore oil wells are located, and where half of the U.S. refining capacity, half of the U.S. crude oil stocks and 40 percent of the U.S.' gasoline and diesel fuel stocks originate from.

"Consequently, Hurricane Harvey disrupted the U.S. crude oil and petroleum products production. While Hurricane Harvey also suppressed fuel demand in the Gulf Coast region, the main effect of Hurricane Irma on the oil market was to suppress fuel demand in Florida," Difiglio said and added that reduced fuel demand in these states partly offset the disruption to motor fuel production.

Difiglio said that more importantly, motor fuel stocks and shorter refinery closures helped to avoid the sharp fuel price spikes caused by similar hurricanes in 2005 and 2008.

Considering the importance of the Gulf for domestic oil production, Difiglio said the effects of both hurricanes will greatly diminish in the coming weeks as Gulf Coast refineries and ports come back online and fuel demand patterns return to normal.

"I expect that the global oil market will be tightening a bit supporting the recent price gains. The IEA recently revised their global oil demand growth upward and OPEC has announced that they [with Russia] will maintain production quotas," he said. "While the recent price gains should persist, it is difficult for prices to raise a great deal more. A significant oil price increase would be met by an immediate spike in U.S. oil production," he added.

Difiglio said that U.S. investors and producers respond very quickly to a contango oil market (where investors can lock in the higher price they would receive for new production).

"This dynamic will fade in importance if the international oil market becomes a lot tighter and global inventories are reduced to normal levels. Until this happens, the ability of the U.S. tight-oil producers to respond quickly to higher prices will likely prevent oil prices from settling above $60 per barrel," he asserted.

In response to the question of oil prices going forward, he said that market expectations of around $45 to $55 in 2018 are in line with his expectations and those of most oil analysts, but he warned that unforeseen events can change that outlook.

- Lessons from hurricanes

Difiglio's cited climate change as the main culprit behind the increasing amount of hurricanes in developing countries. "One lesson is the likelihood that climate change is causing extreme weather events to occur more frequently. This is just one more reason why we need to fight climate change by lowering our emissions of greenhouse gases. All countries have to do their part," he said.

According to the professor, early warning and planning are very important as was evident in the state of Florida.

However, Houston was in a more difficult position since Harvey developed very quickly from a minor tropical event into a powerful hurricane giving the city little warning, he explained.

"It was well remembered that 100 people died during the evacuation of New Orleans prior to Hurricane Katrina. The Houston Mayor concluded that evacuating upwards of 8 million people from the affected area, on such short notice, was not a good idea. The subsequent emergency response, including many self-organized volunteers, was commendable and explained why there were not many more fatalities from the devastating floods," he said.

Difiglio advised that careful evaluation is made as a result of rapid urban development especially as, in many countries, there is more and more development along coastal areas.

He asserted that this greater coastal development puts more people and property at risk from hurricanes and tsunamis. He further explained that the development often makes the urban areas more prone to flooding by reducing the ability of the land to absorb water or run off the heavy rains.

"In each disaster-prone area, investments should be considered in flood control infrastructure (berms, reservoirs, etc.) to manage “500-year” floods that seem to happen a lot more than once every 500 years," he stressed

Difiglio said that building codes are especially important if skyscrapers are going to survive hurricane force winds.

"Development plans are necessary to avoid building new housing in flood plains. Subsidizing flood insurance is a good thing to help people avoid financial disaster. However, at the same time, it encourages development in flood-prone areas by shifting the cost onto everyone else," he said.

Hurricanes Harvey and Irma are forecast to cost the U.S. $290 billion, according to the weather services company AccuWeather.

The damage from Irma is estimated to be around $100 billion -- 0.5 percent of U.S. GDP of $19 trillion.

Harvey is expected to cost $190 billion, or 1 percent of GDP, AccuWeather reported last Monday.

By Murat Temizer

Anadolu Agency

energy@aa.com.tr

22 Sep,2017
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