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Wednesday, June 09, 2010

Obama’s Drilling Ban

The Obama administration appears intent on worsening the economic ills of the Gulf oil spill.

A June 9 Wall Street Journal editorial (“A Second Oil Disaster”) explains the problems with the President’s deep water drilling moratorium.

The following offers a distressing rundown on the numbers:

The offshore drilling industry is responsible for 200,000 jobs in the Gulf region alone. Deep water wells generate 80% of the Gulf's oil production and 45% of its natural gas, and those percentages are increasing. The Administration has not stopped current deep water production, and it says it will soon re-open in shallow waters. But its six-month ban halts work on 33 previously permitted deep water drilling rigs in the Gulf.

As Louisiana Governor Bobby Jindal explained in a recent letter to Mr. Obama, his state's Department of Economic Development estimates the deep water drilling ban will result in a loss of 3,000 to 6,000 Louisiana jobs in the next two to three weeks alone, and potentially 10,000 in the coming months. To put that in context, the entire U.S. economy created only 41,000 new private jobs in May.

The Louisiana Mid-Continent Oil and Gas Association estimates that for each platform idled by the work stoppage, up to 1,400 jobs are at risk. That's potentially $330 million in lost wages per month for all 33 platforms. That's money that won't be spent in local economies, or provide tax revenue to states that, in addition to post-recession struggles, now face oil clean-up costs. Consultants Wood Mackenzie estimate the moratorium will cost the federal government in 2011 some $120 million to $150 million in lost royalty payments and $300 million to $500 million in lost corporate taxes.

Over the longer haul, the Journal notes that the big risk is that the anti-oil lefties prevail, and slam the brakes on offshore drilling for years.

And then we have this report (“Salazar Unsure If Drilling Ban Might Be Extended”) from the June 9 Journal: “U.S. Interior Secretary Ken Salazar on Wednesday told lawmakers that a moratorium on new deepwater drilling in the Gulf of Mexico was a "pause" and not a stop, but he declined to offer assurances that the ban would last six months as advertised… Sen. Mary Landrieu (D., La.) said that if the moratorium ‘lasts very much longer than a few months, it could potentially wreak economic havoc on this region that exceeds the havoc wreaked by the rig itself.’ Asked at a Senate Energy and Natural Resources Committee hearing whether the moratorium might be extended, Mr. Salazar said that ‘I don't know.’”

Indeed, there seems to be a great deal about policy and the economy about which the Obama administration’s simply does not know.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

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