Indirect Oil Spill Costs Continue to Rise
Louisiana Governor Bobby Jindal and Senator David Vitter sent letters to President Barack Obama on June 2 encouraging him to reconsider a May 27 executive order that put a six-month moratorium on deepwater drilling. The administration initiated the temporary ban in an effort to avoid a repeat of the Deepwater Horizon disaster and to provide time for an investigation into the matter.
Although the administration needs and deserves time to accomplish both of these rather daunting tasks, Louisiana’s politicians fear that the moratorium will merely serve to further harm a state already reeling from the devastating effects of the oil spill. The moratorium will close the 33 rigs operating in the Gulf of Mexico, 22 of them around Louisiana. According to Jindal’s letter to the president, Louisiana stands to lose 3,000-6,000 jobs over the next few weeks, and more than 10,000 jobs within the next few months should the moratorium remain in effect.
Louisiana clearly won’t be the only state set to feel the economic impact; after all, the Gulf of Mexico provides a full 30% of U.S. crude oil production and thus reverberations of the ban are bound to be felt throughout the country. Various analysts have predicted the economic costs of the moratorium to the U.S. (Estimates provided by Bloomberg sources):
–$10 million per month, per rig in lost wages
–$10 billion in imported oil through 2011
–$150 million in lost royalty payments toward the government
In addition to these dollar estimates, concerns have arisen about even further increased dependence on foreign oil. Companies with now idle rigs off the Gulf are reconsidering their drilling location; many may move to locations off the coasts of China, Nigeria or Brazil in order to maintain profits. Some analysts have pointed out that once they’re moved it could take far longer than six months for the rigs to return, due to travel time combined with the length of new contracts.
However, just because the costs are high does not mean they’re not worth paying. At this point, it’s unclear whether the six month moratorium will serve its purpose and justify these hefty costs—but a disaster of this magnitude means that business cannot continue as usual. The continually rising costs of the Deepwater Horizon disaster serve to further highlight heavy dependency on oil, the vulnerability of our system to shocks, and our remaining dependency on foreign sources. As we’ve argued before, the U.S. won’t be free of this dependency until we invest more fully in alternative sources
