Hurricane Gustav, projected to reach the Gulf of Mexico by Sunday, may reveal whether insurers have done enough to limit risks of covering...
Hurricane Gustav, projected to reach the Gulf of Mexico by Sunday, may reveal whether insurers have done enough to limit risks of covering offshore oil rigs in the wake of hurricanes Katrina and Rita. It will also test telecommunications companies and manufacturing plants in the region.
American International Group (AIG), Zurich Financial Services and Liberty Mutual were among insurers that raised prices fivefold and capped losses after the two hurricanes caused record offshore claims estimated at $8 billion in 2005.
Meanwhile, Nissan North America said Friday that it’s making preparations at its Canton, Miss., assembly plant.
The plant, which is located about 210 miles north of New Orleans and produces the Altima sedan along with pickups, minivans and sport-utility vehicles, was slightly damaged by Hurricane Katrina, company spokesman Fred Standish said.
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“We were down for about 2 ½ days with Katrina, then up and operating,” he said. “We learned a lot from that experience and are setting up accordingly.”
Telecoms faced criticism and a regulatory push after Hurricane Katrina took out networks.
Sprint Nextel spokeswoman Stephanie Vinge-Walsh said the company’s emergency response team, with trucks that can act as cell towers, was “caravaning down, military-style,” to the Gulf Coast on Friday.
Verizon Wireless has spent $137 million in the past year on enhancing its network in the Gulf Coast area, including doubling its capacity at regional switching centers to handle a barrage of calls when disaster strikes.
AT&T, the main landline-phone company in the region and the nation’s largest wireless carrier, has also added capacity, among a raft of preparations and upgrades to its Gulf Coast infrastructure over several years.
It has replaced cables that are vulnerable to flooding with waterproof ones. Optical fiber has replaced copper wiring, which can short out when wet.
Oil production halted
Energy companies shut down more offshore production Friday.
The federal Minerals Management Service, which manages offshore leases, said nearly 7 percent of the Gulf’s daily oil production of 1.3 million barrels, or 86,000, had been turned off. Nearly 2 percent of the daily natural-gas production of 7.4 billion cubic feet, or 136 million cubic feet, has been stopped.
Six fixed production platforms had been shut down following evacuations. Seventeen drilling rigs, which are mobile and explore for petroleum, also had been evacuated and shut down, the MMS said.
The agency said 717 staffed production platforms and 121 drilling rigs are currently operating in the Gulf.
About 35,000 people work in the Gulf, staffing offshore rigs and production facilities, among other tasks, according to the MMS.
The area is home to more than 5,000 oil platforms and provides one-fifth of U.S. oil production.
Insurers are betting on a better outcome this time.
“We won’t know if the changes we made are valid until they’re tested by another storm,” said Christopher Pluchino, vice president at the Liberty Mutual unit that sells coverage for the platforms. “We tend to stay glued to the Weather Channel this time of year.”
Katrina and Rita destroyed 113 platforms and damaged 457 pipelines, according to a 2006 report from the U.S. Minerals Management Service. They forced oil companies to redrill thousands of wells, said Frank Costa, president of AIG’s rig-insurance division.
Curtailing their losses
Insurers are trying to curtail their losses this time by putting limits for the first time on how much they’ll pay out for storm damage over the course of the entire hurricane season. They’re also re-pricing coverage based on studies of what kinds of oil-drilling equipment held up best when Katrina and Rita struck.
Insurers typically now limit coverage to $500 million in storm losses for all of a company’s offshore assets over the six- month season, Pluchino said. Just one of the largest platforms can cost more than $1 billion.
Including expenses shouldered by the oil-drilling companies, the storms caused as much as $30 billion in damage before they ever made landfall on the Gulf Coast, said Paolo Bazzurro, director of engineering analysis for AIR Worldwide, the Boston- based catastrophe modeling firm that advises insurers.
With insurers paring risk in the Gulf, “the percentage that’s insured now compared to before Katrina is lower than it used to be,” Bazzurro said.
Crude oil was little changed Friday amid speculation that energy producers are better prepared to face a hurricane than when Katrina struck in 2005. Oil fell 13 cents to settle at $115.46 a barrel on the New York Mercantile Exchange.
“The oil and gas infrastructure around the Gulf is much more robust than it was in 2005,” said Adam Sieminski, Deutsche Bank’s chief energy economist. “Platforms have been jacked up and refineries have improved flood defenses.”