It may seem like stating the obvious, but it's impossible for the U.S. economy (and the world at large) to just shrug off a storm that took nearly 25% of the country's oil production and 10% of the refining capacity offline. While many operators have taken great strides in getting their facilities up and running, it's clear that some operations are badly damaged and won't be back to normal for weeks or months.
What all this means is still hazy at this point. Releases of oil and gasoline from the nation's strategic reserve will help, but that's more akin to the story of the little Dutch boy sticking his fingers into the dike to plug the leaks. So long as major production and refinery facilities stay out of commission, it seems hard to imagine that oil prices or gasoline prices could ease notably.
Hurricane Katrina will likely end up providing one interesting bit of information for the future, though. In the wake of the storm (and the resulting spike in energy prices), many countries have made public statements to the effect that they would try to increase energy production to compensate for that lost in the storm. Now, many people have felt that the current energy boom has been, in part, due to constrained production, while others have suggested that it's more of a speculation-fueled run-up. Well, one way or another, we're likely to find out. If other countries can boost their production to a level sufficient to compensate, it will cast the global energy picture in a new light.
Impacts on the U.S. energy sector
It is plainly obvious that Katrina has already had a major impact on the U.S. energy sector. Not only did the storm sharply curtail domestic energy production, but it also knocked out a chunk of refinery capacity, as well as shutting off several critical interstate energy pipelines.
So what does this mean for the near term?
I would say that it's fairly clear that unaffected energy companies should see some real benefits to their operations. Producers of natural gas like Ultra Petroleum
And these are simply two names that come immediately to mind for me -- other land-based producers will also benefit from the higher energy prices and strong ongoing demand. Given that we're heading into the winter, I would probably lean more toward gas producers than oil producers at this point, but I don't think I'd be in any rush to sell an oil producing company that I owned and liked.
It might also stand to reason that land-based drilling companies could see some benefits as well. Should it take longer than hoped to restore production facilities in the Gulf, there could be renewed pressure on state and federal officials to permit more intensive drilling of onshore fields. That could in turn spell even stronger demand for drilling rigs, especially good news for the likes of Nabors
Last but not least, I would expect this to potentially accelerate interest and demand in new energy infrastructure projects. Not only will many facilities need repair, but there could be a new push to build semi-redundant facilities in other parts of the country. If that comes to pass, it would be good news for the likes of Chicago Bridge & Iron
Energy is a global market, and the effects of Katrina have already stretched around the world in the form of higher prices. Should the effects linger (and that's beginning to look increasingly likely), several groups could be affected.
At this point, it would appear that the extent of damage to drilling rigs was relatively modest. Roughly 107 rigs were in the path of the storm (about 62 of which would have experienced hurricane-force winds), but thus far only 12 have been reported seriously damaged, including Transocean's
Much as in the case of U.S. onshore operators, foreign operators with little or no exposure to the Gulf should see some benefits from the higher prices. Though there is a wealth of foreign energy producers to choose from, I'd be inclined to stick with those capable of increasing production levels -- including the likes of Petrobras, Eni, and PetroChina.
Finally, high energy prices should continue to encourage greater investments in energy infrastructure projects around the world. Whether it's offshore platforms, pipelines, LNG terminals, or other facilities, high prices inevitably seem to lead to increased investments, and I don't believe this time will be any different.
The disruption to the U.S. energy market has already heightened interest in alternative energy plays. Whether the companies in question focus on solar power, uninterruptible power supplies, or fuel cells, many of these stocks have already spiked upward since the storm.
I would suggest, though, that these could be somewhat risky plays at this point. It's certainly true that many people got a major wake-up call as to how vulnerable our energy supplies really are (whether it's oil, gas, or electricity). But it's also true that many of these companies have products and solutions that are not yet technologically or economically viable, let alone competitive.
In the case of Ballard Power
That said, companies like Capstone Turbine, Syntroleum, and Energy Conversion Devices are all certainly more interesting if higher oil prices are here to stay. Remember, though, that this is a tricky sector to play, and there have been similar mass-upward movements in these stocks before and they've generally been followed by the stocks falling back down once the catalytic story fades away.
With all the devastation, it might appear callous to focus on what will become of those companies not directly affected by the storm. But this is how humanity has always managed to recover and move forward: You mourn, you help, and then you carry on.
A storm like Katrina goes a long way toward highlighting just how delicate the global market for energy is at this time. With demand unlikely to drop off in any meaningful way, there are still ample opportunities in the global energy sector for sharp-eyed investors.
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On this week's Motley Fool Radio Show, we're talking about the aftermath of Hurricane Katrina, and we want to hear from you. Do you have some wisdom to share? Maybe you've come up with a creative way to give? We want to know about it. And here's the catch -- we don't want to talk politics because, well, that's not our show. We do want to hear from you if you've gotten some non-political post-Hurricane Katrina insight on money, business, or life. The Fool Radio phones are always open at 866-NPR-FOOL. That's 866-677-3665.