Wednesday, June 16, 2010

More data that the deepwater moratorium is an economic disaster

It's bad enough that the Gulf Coast and the rest of the country are dealing with an unprecedented ecological disaster in the Macondo Deepwater Horizon oil spill.  But more and more data are emerging that the knee-jerk reaction of slapping a six-month moratorium will have a potentially more disastrous impact on the economy:

Specifically, estimates from Wood Mackenzie Research and Consulting show the six month moratorium will result in the following consequences:
  • The 33 drilling platforms which support some 1,400 workers, offshore and onshore will be forced to shut down
  • As many as 46,200 jobs could be idled by the moratorium
  • These are well-paying jobs – $5-10 million per month, per platform in lost wages
  • Long-term job losses as a result of the moratorium could reach 120,000 by 2014
  • The State of Louisiana estimates that the deep-water drilling suspension will result in a loss of 3,000-6,000 in-state jobs in the first 2-3 weeks and potentially more than 20,000 Louisiana jobs within the next 12-18 months

Wood MacKenzie, or "WoodMac" as it's known in the consulting industry, isn't some rightwing think tank or industry mouthpiece.  It's one of the most respected organizations in the world for providing insight, forecasting and cutting edge analysis in natural resources utilization.

Which is why this report from an industry group based in Lousiana deserves more credibility. Summarizing that report again:

Suspension of operations means roughly 33 floating drilling rigs – typically leased for hundreds of thousands of dollars per day – will be idled for six months or longer.

Impact: $250,000 to $500,000 per day, per rig – results in roughly $8,250,000 to $16,500,000 per day in costs for idle rigs.

Secondary impacts include:
• Supply boats – 2 boats per rig with day rates of $15,000/day per boat - $30,000/day for 33 rigs – nearly $1 million/day
• Impacts to other supplies and related support services (i.e., welders, divers, caterers, transportation, etc.)

Jobs –
• Each drilling platform averages 90 to 140 employees at any one time (2 shifts per day), and 180 to 280 for 2 2-week shifts
• Each E&P job supports 4 other positions
• Therefore, 800 to 1400 jobs per idle rig platform are at risk
• Wages for those jobs average $1,804/weekly; potential for lost wages is huge, over $5 to $10 million for 1 month – per platform.• Wages lost could be over $165 to $330 million/month for all 33 platforms

If you work through the math, the message is clear:  The moratorium is bad policy.  It is going to devastate a sector of the economy in a region that depends heavily on that sector.  The oil spill is wrecking commercial fishing and tourism.  Why is the regime going for the hat trick by wrecking the oil and gas industry?

Gimme some feedback in the comments.