On April 20th one year ago, the BP Deepwater Horizon exploded. During the past years, we have heard from the environmentalists as well as the representative of big oil on their positions on the defacto moratorium that has stopped deep water drilling in the Gulf of Mexico.
But caught in the middle of this energy tug of war are the Americans who call the Gulf home. We always talk about the U.S. economy as one entity. But in reality, the U.S. economy is a jigsaw puzzle of local economies.
Dr. Joseph Mason, the MasonHermann Moyse, Jr./Louisiana Bankers Association Endowed Professor of Banking at Louisiana State University and Senior Fellow at The Wharton School, has researched several reports on the economic cost of the Gulf Moratorium. I decided to ask him based on his latest research if things are getting better.
LL: You have produced several research reports on the economic impact of the BP Oil spill and the unofficial moratorium. What new information can you tell us with your latest report?
JM: Unfortunately, little has changed in the Gulf region since my initial study on the “The Economic Cost of the Gulf Moratorium” in July 2010. Economic activity is still moribund and the outlook for exploration and development remains subdued. Each day, more exploration and development activity in the Gulf is lost.
Job losses previously estimated on the basis of a six-month moratorium on deep water drilling and exploration have increased from 8,000 regionally and 12,000 nationally to 13,000 regionally and 19,000 nationally.
Lost wages of $500 million regionally and $700 million nationally are now $800 million regionally and $1.1 billion nationally. Lost tax revenues estimated to be $100 million on the state and local level and $200 million on the national level now amount to $155 million and $350 million, respectively.
The lost development and drilling progress in the mora-, and perma-, torium have already created a lag in production. The concept can be thought of simply in the context of shutting down a construction project or production line—when you start it back up you don’t make up for lost progress, you just continue where you left off.
Moreover, if you constrain the production line to work slower than before and don’t replace the machinery when it wears out, production will decline further, perhaps to much lower rates. That is already happening in the Gulf and recent recovery projections illustrate that dynamic.
But even those projections do not contain the effects of additional restrictive policies. President Obama’s FY2012 comprehensive budget proposal includes an estimated $37 billion of punitive tax policies for U.S. oil and gas firms.
Repealing tax breaks for hiring domestic workers when unemployment is hovering at ten percent just doesn’t make sense. And double-taxing foreign revenues of domestic oil and gas firms puts them at a severe disadvantage competing against state-run heavily-subsidized oil and gas companies in such countries as China, Russia and Venezuela.
LL: How many jobs have been impacted by this unofficial moratorium?
JM: I have not yet quantified the total job losses from the de facto shallow water moratorium. We are already, however, pushing above the Administration's estimate of 20,000 jobs nationally for the deep water de facto and de jure moratoria. Every day we delay, more jobs are lost.
LL: Looking at the onshore state and local economies which are dependent on oil production, how would you classify those economies?
JM: Ohio, Louisiana, Mississippi and Alabama were not severely affected until the moratorium. Texas is being held together by onshore energy activity.
The Fed’s August 2010 Beige Book noted that factories, farms and mines, nationally, were all seeing “continued gains in demand and sales,” while housing sales—and the related construction industry—slowed. But in the Atlanta district, “Fewer … manufacturers noted increases in new orders, and more said that orders were lower.” In the Dallas district, the Fed reported directly “the deep water drilling moratorium [was expected to] impact revenues.”
Illinois and California have substantial refining capacity that is directly affected by drilling and production activity.
LL: A halt like this has ripple effects which impact not only the upstream and downstream industries but also the retail stores, education services and healthcare assistance. Have you been able to quantify that impact?
JM: My initial study on the effects of the moratorium broke out job losses by sector. There, although the largest effect was in positions directly related to exploration and drilling, the next largest sector was health care and social services, followed by retail trade and then real estate. The same relationships would be expected to be maintained in the ongoing de facto moratorium, and also expansionary policies such as opening up the Outer Continental Shelf to exploration and development .
LL: President Obama over the weekend supported Brazil's off shore oil drilling. Why not here? How much money and jobs could be injected into the US economy if the administration allowed such drilling?
JM: I agree. Brazil is characterizing the industry and their reserves as their "economic miracle." Where is ours? Certainly not "green" or so-called "renewable" energy, as much of those revenue go overseas to the manufacturers of those technologies.
Moreover, we need to think hard about energy efficiency before jumping headlong into new technologies.
Last, when we do jump we need to make sure that all elements of the technology are prices so that we do not leave new unpriced sources of pollution — economic externalities — potentially worse than those of carbon and quite possibly capable of producing catastrophes far greater than the Deepwater Horizon blowout or even the recent Japanese nuclear disasters.
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A Senior Talent Producer at CNBC, and author of "Thriving in the New Economy:Lessons from Today's Top Business Minds."