Article: Tropical Storm Isaac Eyes Gulf Coast - WSJ.com

Tropical Storm Isaac Eyes Gulf Coast - WSJ.com
http://online.wsj.com/article/SB10000872396390444914904577613753364404794.html

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Residents fill sand bags in St. Pete Beach, Fla., anticipating the arrival of Tropical Storm Isaac, which lashed the Florida Keys on Sunday.

Tropical Storm Isaac drenched the Florida Keys on Sunday and began tracking across the Gulf of Mexico where it is expected to gather strength before reaching the northern Gulf Coast early this week, almost seven years to the day that Hurricane Katrina made landfall in Louisiana.

The storm was below hurricane power when it hit Key West, but was projected to be at category-2 strength—sustained winds between 96 mph and 110 mph—when it strikes the coastline, the National Weather Service said. That would make Isaac the first hurricane to make landfall in the U.S. this year. A hurricane warning was in effect from Destin, Fla., on the state's northern coast, to just west of New Orleans.

Some 742 flights were cancelled Sunday in preparation for the storm, most of those to the Miami area, according to FlightAware, a flight data company. An additional 184 flights had been scrubbed for Monday.

Many energy producers with facilities in the Gulf Coast region scrambled to get their floating-platform and coastal-refinery crews out of the way of the approaching storm, which Sunday packed winds of about 60 mph.

Louisiana Governor Bobby Jindal declared a state of emergency Sunday and encouraged voluntary evacuations in low-lying areas prone to flooding. Parts of Plaquemines Parish—a lightly populated, low-lying area south of New Orleans—were ordered to evacuate. The Federal Emergency Management Agency has trucked in supplies such as water and meals to areas from the panhandle of Florida to Louisiana, a spokesman said.

In Tampa, as Republicans streamed in Sunday for the Republican National Convention, rain began to fall intermittently and convention organizers continued to make weather-related adjustments to the program. But as Isaac's projected path shifted, the city was expected to be spared the worst of the storm.

In the Florida Keys, which was expected to receive 4 to 7 inches of rain, the damage was limited. Kate Miano, owner of The Gardens Hotel in Key West, said her 18-room hotel was undamaged and never lost power. She spent much of Sunday making lasagna for her remaining guests, in case restaurants are closed. On Saturday, the hotel was at capacity with 36 guests, but that had fallen to 18 by Sunday afternoon.

Throughout the Gulf Coast, people and businesses were preparing for a hurricane. Verne Rhodes cut short a trip to the Midwest to drive home to Gulf Breeze, Fla. After hearing about Isaac last week, Mr. Rhodes and his wife drove their trailer back from a trip to Traverse City, Mich., He and his wife spent much of the weekend putting on shutters and stocking up on food, water and batteries. "It's not unusual for us anymore," said Mr. Rhodes, 73 years old, a retired engineer, whose roof was damaged in 2005 by Hurricane Dennis.

Isaac Heads Toward Florida and Cuba

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People rode a taxi amid strong winds in Havana Sunday.

As of midday Sunday, nearly a quarter of the Gulf's production of oil and more than 8% of its natural gas output had been shut down, according to U.S. regulators. These included many off-shore platforms that extract oil and gas from below the seafloor, as well as large refineries in Louisiana and Mississippi.

BP PLC, the Gulf's largest producer of crude, said it was shutting down all its deep-water oil production in the region, citing the storm's westward shift and a "growing consensus that the tropical storm will strengthen into a category one or two hurricane before making landfall in coming days." Rivals Chevron Corp., Anadarko Petroleum Corp. and BHP Billiton were also evacuating facilities.

In recent years, such a storm in the Gulf of Mexico's offshore oil patch would have triggered a spike in energy markets. But the region's share of total U.S. oil and gas production has shrunk thanks to the boom in onshore production triggered by hydraulic fracturing of shale formations. Analysts with Simmons & Co. estimate that the Gulf yields about 20% of the crude produced in the lower-48 states, down from 29% in 2005, when hurricanes Katrina and Rita wrought havoc with energy infrastructure and led to a spike in fuel prices.

The ultimate impact of the storm on gasoline prices might depend, however, on whether coastal refineries sustain damage. About 19% of the country's refining capacity lies in Louisiana and Mississippi.

Still, the economic damage from storms is usually muted, said Steve Cochrane, an economist at Moody's Analytics. While storms disrupt commerce and damage property, much of the lost business can be made up in the following days and damage to residences and public infrastructure is usually made up by insurance payments and federal support. "Except for the extraordinary—such as Katrina—the economic impact of most storms does not amount to much," Mr. Cochrane said.

Even though market reaction was tepid on Friday, the westward shift of the storm was making some observers predict more uncertainty in oil markets starting Monday.

"When people come in tomorrow, it's likely the price of oil is going to rise just on uncertainty. Prices will rise significantly faster, or fall, depending on whether the storm does any damage or not. It's a volatile story until you know how it plays out," said Jason Schenker, president of energy consultancy Prestige Economics in Austin, Texas.

—Alison Sider and Ben Lefebvre contributed to this article

Write to Conor Dougherty at conor.dougherty@wsj.com

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