Saturday, June 5, 2010

Obama's deep water drilling shutdown will cost the coast hundreds of millions

This can't be sugarcoated, and some of the impacts could be permanent.  In what is clearly an example where somebody didn't think through the consequences of their actions, The Obama regime's shutdown of all deep water drilling and exploration activities is going to have dire and long-lasting impacts on the Gulf Coast's oil & gas industry, particularly the portion served by Louisiana.

A report released yesterday by the Louisiana Mid-Continent Oil & Gas Association (PDF) documents the potential economic disaster:

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

These are the same 33 platforms that were inspected by Ken Salazar's crack team of investigators in the weeks after the regime had its WTF moment and realized it had a problem with the oil leak.  All 33 passed inspection, with only minor problems noted.

Deep water drilling rigs are enormously expensive, highly specialized vessels. Quite simply put, there aren't very many of them in the world and the capability they provide is in high demand world-wide. Idling them doesn't mean that this equipment returns to shore to wait until the ban is lifted. Owners such as TransOcean will lease them to other companies and begin exploration activities in other parts of the world. If the U.S. deep water ban is lifted in say, six months, the 33 rigs being affected would probably not be available to resume operations. The long term impacts of this are crushing, not only to Louisiana, but to the U.S. energy sector as a whole.

Hundreds of millions in private sector revenue are at stake. Tens of millions of state and local tax revenues are at stake. Thousands of jobs are at stake. And the potential long term impact could be curtailed domestic energy production for years to come, driving up energy costs, lowering production and rippling throughout the U.S.

The 2010 economic recovery is fragile and thin. Despite the slow-motion anguish of the Deepwater Horizon incident, this is not the time to be shutting off such an important stream of economic growth. As discussed here, oil and gas production in the Gulf has been a historically safe enterprise.  Three decades of production, thousands of rigs each year, and only a handful of serious incidents.  Shutting down deep water exploration is the policy equivalent of shutting down commercial air travel because of a handful of plane crashes.

Think through the consequences of your actions,  Mr. President.  Lift the ban.


Anonymous said...

As they say in the White House, never waste a good crisis. This one will get his energy bill through without people even looking at it. In the mean time, he looks like a knight in shining armor by shutting down evil oil.

Jobs are not a concern with this administration, nor have they ever been except the trumped up numbers they keep churning out.