On-going Disaster in the Gulf

Posted on February 9, 2011 by George Scaggs in Articles

While the BP-Horizon oil spill and the Obama Administration’s subsequent 6-month moratorium on deepwater drilling in the Gulf of Mexico is common knowledge, the fact that the federal government has turned the tragic accident into an on-going economic calamity seems to be drawing scant attention.

Though the drilling moratorium was “officially” lifted over three months ago, it has merely been replaced with an on-going de-facto ban, but the full scope and damaging consequences of the federal government’s reactions to the gulf spill go well beyond deepwater drilling.

While the moratorium was limited to deepwater rigs, the work stoppage in the gulf was not. Due to new regulations and ever evolving permit processes, many shallow-water oil and gas drilling operations have been effectively shut-down as well. Mind you, there is no evidence that the rigs being prevented from operating are anything but safe.

During the 6-month hiatus, though most companies decided to ride out the situation, (believing the work stoppage was for a fixed period of time) no less than five of the 33 deepwater rigs that were in operation at the time of the spill moved to foreign shores to fulfill their intended purpose.

Now rig owners, the contractors who lease them and tens of thousands of workers find themselves subject to an indefinite waiting game as the federal bureaucracy generally mulls about. As rigs continue to sit idle, pressure is mounting for contractors to void existing leases and an increasing number of jobs are under threat.

Indeed, just this month, Marathon Oil terminated its contract on the Noble Corp’s Jim Day rig that arrived in the gulf in September. Similarly, deepwater rigs built by Pride International and the Maersk Group which were intended to set-up operations in the gulf have been re-directed elsewhere.

Less oil drilling in the gulf means less oil production in the gulf. In addition to drilling rigs sitting dormant, many of the hundreds of production platforms operating in the gulf have also been affected. From there, the ripple of economic death extends out to equipment, transportation, fuel and food suppliers, and other businesses that support the region’s oil industry and its workers.

The frustrations of Gulf Coast residents affected by the federal government’s actions were on full display earlier this month(seen here and here)  as Oil Spill Czar, Kenneth Fineburg held a series of town hall meetings in Mississippi and Louisiana coastal communities. Many local businesses who were harmed by the oil spill are still suffering due to the government shut-down of the oil and gas industry in the gulf.

With no recovery in sight for our nation’s private-sector job market and government revenues (at all levels) consequently stagnating if not declining, it is troubling to find the federal government in the business of killing private-sector jobs in wholesale fashion, many of them good middle-class jobs.

Though it has been estimated that some 20,000 jobs have been lost due to the federal government’s actions, Lee Hunt, President of the International Association of Drilling Contractors (IADC), contends that job losses are only a part of the overall economic impact resulting from the continued ban.

The massive deepwater rigs that operate in the gulf generate around $500,000 per day in revenue, though numerous owners have reduced daily rates by as much as $200,000 to keep companies in place while the shut-down continues. Additionally, Hunt estimates that, “companies spend approximately another half million a day for consumables, transportation, maintenance operations and other costs” per rig.

All told, Hunt conservatively estimates that, there is a direct “$30 million a day negative impact to the economy” due to the deepwater shut-down alone. However, he said that considering factors including lower dividend payments, stock prices, lost wages and investment dollars, “the total enterprise loss is incalculable.”

Texas Railroad Commissioner Elizabeth Ames Jones, who is one among three commissioners over-seeing Texas energy policy, agrees, commenting, “People should be up in arms, it’s not as though we (America) can afford this much longer.”

So, where are the Democratic Party and Big Media on this development? The self-proclaimed champions of the “little guy” have fallen strangely silent considering the dramatic impact on jobs and prosperity in the Gulf Coast region.

When thousands of jobs are lost due to corporate lay-offs, it is the stuff of headlines. When the jobs of local and state bureaucrats are threatened unless they receive federal “stimulus” funding, a hue and cry goes out across the land. But when the government kills private-sector jobs, the sufferings of average Americans are suddenly of no import whatsoever.

Indeed, though local news outlets thoroughly covered Fineburg’s recent visit to the region, one would be hard pressed to find any national coverage of the controversial meetings which took place. A direct contrast compared to media coverage when the ire of Gulf Coast residents was directed at BP.

Official sources are projecting a 13% decrease in domestic oil production in 2011 and most industry executives now predict that it will take several years before production in the Gulf of Mexico returns to 2009 levels. Hunt predicts that by the end of 2011, only 4-10 deepwater rigs in the gulf will have returned to full operation. Troubling developments considering America’s already over-whelming dependence on foreign oil.

The shutdown in the gulf will also have a direct impact on the size of the federal government’s deficit. Though leftist politicos inside the beltway routinely demonize the oil industry, in truth, Washington reaps huge windfalls from the industry in the form of royalties and excise taxes.

In sum, there are two rather troubling realities which are completely at odds with the present course being pursued by an over-zealous federal government and the intrusive “Green” movement that sets the tone for much of today’s government policy.

First, energy produced from oil and gas is literally the fuel for the world’s major economies. As unpalatable as it must be for greenies, economic prosperity throughout the world depends on oil and gas.

Secondly, much of government’s revenue come from the exploration, production and usage of these hydrocarbons.

Whether the continuing disaster in the Gulf of Mexico is due to deliberate government fiat or just gross bureaucratic incompetence, the results are the same.  Americans should be outraged over such tyrannical acts and Congress should act immediately to end the Obama administration’s over-reach into this vital American industry.

Tags: barack obama, bp, deepwater drilling, drilling moratorium, iadc, kenneth fineburg