January 26, 2011
Ongoing Disaster in the GulfBy George Scaggs
While the BP Deepwater Horizon oil spill and the Obama administration's subsequent six-month moratorium on deep-water drilling in the Gulf of Mexico are common knowledge, the fact that the federal government has turned the tragic accident into an ongoing economic calamity seems to be drawing scant attention.
Though the drilling moratorium was officially lifted three months ago, it has been replaced with an ongoing de facto ban. But the full scope and damaging consequences of the federal government's reactions to the gulf spill go well beyond deep-water drilling.
While the moratorium was limited to deep-water 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 six-month hiatus, though most companies decided to ride out the situation (believing the work stoppage was for a fixed period of time), no fewer than five of the 33 deep-water rigs 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 mills 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, deep-water rigs built by Pride International and the Maersk Group which were intended to set up operations in the Gulf have been redirected 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 Feinberg held a series of town hall meetings in Mississippi and Louisiana coastal communities. Many local businesses harmed by the oil spill are still suffering due to the government shutdown 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, and many of them good middle-class jobs, in wholesale fashion.
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 about $500,000 per day in revenues, though numerous owners have reduced daily rates by as much as $200,000 to keep companies in place while the shutdown 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 deep-water shutdown 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 overseeing Texas energy policy, agrees, commenting that "[p]eople 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 layoffs, 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 Feinberg's recent visit to the region, one would be hard-pressed to find any national coverage of the controversial meetings which took place. This is a direct contrast to media coverage when the ire of Gulf Coast residents was directed at BP.
Official sources now project a 13% decrease is 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 four to ten deep-water rigs in the gulf will have returned to full operation. These are troubling developments, considering America's already overwhelming 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 overzealous 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 some, economic prosperity throughout the world depends on oil and gas.
Secondly, much of government's revenues 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. Congress should act immediately to end the Obama administration's overreach into this vital American industry.