Hurricane Laura May Cost $25 Billion, Rivaling Rita
Modeling Group Estimates Laura’s Economic Impact
As Hurricane Laura threatens catastrophic damage along the Gulf Coast, one hazard modeling group estimates an economic impact of $20 billion to $25 billion, potentially putting it in the same league as Hurricane Rita, which devastated the region in 2005.
Laura, which is expected to make landfall on the Louisiana-Texas border overnight Wednesday, poses a particular risk to the oil and gas industry along the Gulf Coast, which accounts for more than 45% of the nation’s oil refining capacity and 17% of its oil production. Some of the nation’s most important oil facilities are located directly in Laura’s path, including Motiva’s Port Arthur refinery, the largest in North America, said Chuck Watson, director of research and development at Enki Research, which models the potential damage from natural hazards.
“If the storm makes landfall in the current projected location, this is potentially going to flood those refineries, and that’s a $5 billion hit right there,” Watson said Wednesday.
- Hurricane Laura, a category 4 storm, threatens catastrophic storm surge on the Gulf Coast
- One modeling firm estimates an economic impact of $20 billion to $25 billion
- Some of the nation’s most important oil and gas facilities are in Laura’s path
Enki’s $20 billion to $25 billion estimate, which accounts for property damage as well as business closures and other economic loss, reflected Laura’s path as of Wednesday evening, though depending on timing, “$30 billion is within reach of Laura,” the company said in a blog post.
While Laura would be the sixth named storm to hit the continental U.S. in 2020—and the number of named storms for this point in the year is already at a record high—Laura is by far the most threatening.
Relative to other major Gulf Coast hurricanes in the recent past, it also clearly makes the radar. Rita’s 2005 damage is estimated at $25.2 billion in today’s dollars, while Ike, which hit in 2008, cost $36.9 billion, according to the National Oceanic and Atmospheric Administration (NOAA). In 2017, Harvey became the second-most expensive Atlantic hurricane since at least 1980, with an estimated cost of $131 billion.
Storm Surge and Insurance
The risk of storm surge is particularly worrisome for low-lying regions like the Gulf Coast, both because of the devastating effects it can have and because of the potential to be underinsured for it. Laura’s storm surge alone threatens more than 430,000 single- and multi-family homes that would cost more than $88 billion to replace, real estate data firm CoreLogic projected early Tuesday.
And while standard homeowner’s insurance covers wind damage from a hurricane, it typically does not include protection for flooding due to storm surge or other causes like wind-driven waters. For that, homeowners need to get separate flood insurance from FEMA’s National Flood Insurance Program (NFIP) or private insurers.
Only about 15% of homeowners nationally have flood insurance, according to Mark Friedlander, a spokesman for the Insurance Information Institute, and flood damage can be costly.
In fact, the average NFIP paid loss for homeowners hit by Harvey—a Category 4 hurricane that came ashore near Rockport, Texas—was almost $117,000, according to the III, an insurers’ trade association. Those who lacked flood insurance, had they had similar damage, would have had to incur those costs on their own, and very little of the loss was covered by FEMA’s emergency relief, Friedlander said.
“It just shows the magnitude of a major flood event,” he said.
Homeowners may not realize they are vulnerable to flooding. More than 40% of all NFIP flood insurance claims between 2014 and 2018 were outside of high-risk flood areas, according to FEMA.
Laura was a category 4 hurricane as of Wednesday afternoon with maximum sustained winds of 145 mph, according to NOAA. It was projected to approach the Upper Texas and southwest Louisiana coasts Wednesday evening and move inland overnight.
NOAA issued a hurricane warning for San Luis Pass, Texas to Intracoastal City, Louisiana, and warned of “unsurvivable storm surge” and destructive waves from Sea Rim State Park, Texas to Intracoastal City.
Offshore energy operators had evacuated almost half of the personnel manning platforms in the Gulf as of midday Wednesday, the U.S Department of Interior’s Bureau of Safety and Environmental Enforcement reported, and some rigs were being moved out of the storm’s path. Coastal facilities are particularly at risk due to salt water’s ability to ruin electrical infrastructure, Enki’s Watson said.
“You can flood a transformer, say, with freshwater, and generally speaking, you can dry it out and probably recover that equipment. You get saltwater in it, and now it’s a paperweight,” he said.
Watson’s projection incorporates models that predict the physics of storm surges, floods, wind, and rain and combines it with 3-D terrain elevation data, and economic data about human infrastructure that might be damaged. It also includes economic effects such as businesses being closed, he said.
But he cautioned that predictions are complicated by the COVID-19 crisis. For example, many people whose work might be interrupted by the hurricane are already unemployed.
“This year’s calculations are pretty squirrelly on a lot of levels because the economy is in a pretty strange situation,” he said.
AccuWeather President Joel Myers, also the founder, made his own estimate of Laura’s cost, saying total damage and economic loss may amount to $25 to $30 billion. Myers said he evaluated potential direct and indirect impacts, including damage to homes and businesses, job and wage losses, infrastructure damage, auxiliary business losses, medical expenses, and closures.
"The estimates also account for the costs of power outages to businesses and individuals and for economic losses because of highway closures and evacuations, as well as extraordinary government expenses for cleanup operations," Myers wrote in an email to The Balance. NOAA’s estimates on past storms, by comparison, include direct damage and business interruptions, but not indirect effects such as health care costs.
Unknown factors include how fast Laura will move once it reaches land (slower hurricanes do more damage) and where the eye of the storm will land, said Tom Jeffery, senior hazard scientist at CoreLogic. Storm surges to the right of the eye are heavier than those on the left, he said.
“It’s important for people to understand how these hazards work,” Jeffery said. “I think we have a tendency to minimize the effect until after it happens.”
U.S. Energy Information Administration. "Gulf of Mexico Fact Sheet." Accessed Aug. 26, 2020.
Enki Research. "#Laura Update 5 pm Wednesday." Accessed Aug. 26, 2020.
National Oceanic and Atmospheric Administration. "Billion-Dollar Weather and Climate Disasters: Events." Accessed Aug. 26, 2020.
CoreLogic. "Hurricane Laura." Accessed Aug. 26, 2020.
Insurance Information Institute. "Facts + Statistics: Flood Insurance." Accessed Aug. 26, 2020.
FEMA. "National Flood Insurance Program." Accessed Aug. 26, 2020.
National Oceanic and Atmospheric Administration. "Hurricane Laura Public Advisory." Accessed Aug. 26, 2020.
Bureau of Safety and Environmental Enforcement. "BSEE Monitors Gulf of Mexico Oil and Gas Activities in Response to Hurricane Laura." Accessed Aug. 26, 2020.