The temporal regional economic impacts of a hurricane disaster on oil refinery operations: A flexNIEMO approach

Introduction Many economic impact estimates have relied on input-output (IO) models. Spatially disaggregated IO models permit decision makers and analysts to apply IO techniques to estimate local effects. Applied to the greater Los Angeles area, the Southern California Planning Model (SCPM) estimates impacts at the level of traffic analysis zones. The 2001 version of the National Interstate Economic Model (NIEMO) is a multiregional IO model that involves the 50 states and the District of Columbia. NIEMO has both supply- and demand-side capability. While there are some debates about using supply-side models, in principle, the loss of exports is best modeled via the demand-side version of NIEMO whereas the loss of imports is better modeled via the supply-side version. Markets will eventually make substitutions via market price changes after major disruptions, but these adjustments are not captured by IO models, and these models may significantly overestimate long-term impacts. In response to this substantial limitation associated with IO methods, we suggest a transformative approach that internalizes the adjustment process in the IO system itself. Post-event information about concurrent demand and value-added changes contributes to identifying technological (production function) changes after a major disaster event. Comparing such results to the economic impact estimates from a baseline NIEMO exercise demonstrates how the detailed impacts of the many post-event substitutions and adaptations occur. Table 10.1, based on the data of the U.S. Bureau of Economic Analysis, suggests real gross state product (GSP) for the United States, the Southeast, and Louisiana. Louisiana experienced an economic decline of 1.5% in 2004–2005, largely as a result of Hurricanes Katrina and Rita. With the exceptions of Louisiana and Alaska, the GSP of all the other states grew. The mining sector, including oil and gas production, was most negatively impacted with respect to GSP. The mining sector in Louisiana is relatively minor aside from oil and gas production. Three states (Texas, Louisiana, and New Mexico) in Petroleum Administration for Defense District III (PADD III), which includes the Gulf of Mexico, ranked first, second, and seventh with respect to the U.S. Oil and Gas Extraction industry (Park, 2009; U.S. Bureau of Economic Analysis, 2012). The aggregation of mining activities into this sector is not likely to affect the accuracy of the results.