The People of America's Oil and Natural Gas Indusry

The Drilling Freeze and the Gulf Coast

Jane Van Ryan

Jane Van Ryan
Posted June 4, 2010

The response to the administration's decision to disrupt deepwater offshore drilling in the Gulf is beginning to hurt the economies of coastal communities--the same communities that are losing income from fishing and tourism due to the spill.

On May 27, President Obama instituted a six-month moratorium on all drilling in water depths greater than 500 feet and stopped work on 33 Gulf deepwater exploration rigs, except under special circumstances.

Several organizations have offered estimates of the drilling moratorium's impact on consumers, the U.S. oil and natural industry, and the nation's energy security:

  • Adam Sieminski of Deutsche Bank predicted that U.S. oil production could fall by 160,000 barrels of oil per day by next year. (Financial Times)
  • Bernstein Research said delays from the moratorium and rising costs stemming from new safety regulations are likely to raise the marginal cost of deepwater production by about 10 percent. (Financial Times)
  • Paul Cheng of Barclays Capital warned that the higher costs could eliminate small independent companies who compete for drilling projects against the majors. (Financial Times) He also predicted an 11 percent drop in deepwater oil production. (Houston Chronicle)
  • The Houston Chronicle reports that two large oil-services companies are relocating workers from the Gulf of Mexico to onshore North America drill sites and Brazil.
  • The National Ocean Industries Association (NOIA) predicts that relocation is just part of the pain to be suffered by energy workers. Burt Adams, NOIA's chairman, said in a statement, "the [president's] order will be felt by the families of tens of thousands of offshore workers who will be unemployed."

API's assessment of the moratorium projects the loss of up to 130,000 barrels of oil per day by 2011 and as much as 500,000 barrels per day between 2013 and 2017, making the United States more dependent on oil from other countries.

API's calculations also show the moratorium could put 46,200 jobs at risk in the short-term and as many as 120,000 jobs over the long-term. These figures do not reflect the delays expected in shallow-water energy development as a result of new permitting requirements.

There's no doubt that people all over America are concerned and frustrated by the oil spill. But any effort to take punitive actions against oil companies is likely to hurt other businesses, workers and families along the Gulf coast instead.