Summary
The BP Deepwater Horizon drilling rig, situated about 50 miles off the coast of southern Louisiana, exploded on April 20, 2010, resulting in 11 deaths, 17 injuries, and one of the worst environmental disasters in U.S. history. In response, the Secretary of the Interior exercised his authority to suspend certain deepwater drilling activities. Given uncertainty about the adequacy of existing safety regulations, the moratorium provided time to determine whether and how deepwater drilling could continue in a safe and environmentally-sound manner. The current moratorium is in effect until November 30, 2010. This report estimates the economic consequences of this moratorium in the five Gulf Coast states.
Evidence on employment, unemployment and unemployment insurance (UI) claims in the parishes most affected by the deepwater drilling moratorium indicates that there have not been large increases in unemployment or decreases in employment in these parishes. These data do not indicate that there has been no employment impact associated with the drilling moratorium, but they do suggest that any losses have not been large to date, since significant losses would have shown up in the employment, unemployment and UI claim activity data.
Based on conversations with a number of rig operators along with other publicly-available information, we estimate that during the six-month period of the moratorium average employment of rig workers in the Gulf of Mexico fell by about 2,000. Total spending by drilling operators is estimated to decline $1.8 billion over the six-month period. This direct reduction in spending by the rigs impacts employment in the industries that supply the Gulf drilling industry and then in all other industries affected by declines in consumer and business spending. To capture all of these related employment changes, we apply a multiplier to the direct reduction in spending in order to estimate the total decline in Gulf Coast employment as a result of the moratorium.
We estimate that the six-month moratorium may temporarily result in up to 8,000 to 12,000 fewer jobs in the Gulf Coast. These jobs would not be permanently lost as a result of the moratorium; most would return following the resumption of deepwater drilling in the Gulf of Mexico.
For reasons described in the report, we expect this impact to be more heavily concentrated in smaller businesses than in the larger companies operating in the Gulf Coast. These estimates are lower than estimates from earlier studies. There are several reasons for the difference, but a primary reason is that many deepwater drilling operators and contractors have retained most of their employees. Earlier studies assumed that all employees would be let go.
The other primary economic consequence of the moratorium is delayed oil production. Consistent with other studies, we estimate that the moratorium will reduce Gulf of Mexico oil production by about 31,000 barrels per day in the fourth quarter of 2010 and by roughly 82,000 barrels per day in 2011. These are small reductions compared to world production, and are occurring at a time when both crude oil and product inventories and global spare oil production capacity are at high levels, hence they are not expected to have a discernable effect on the price of oil.