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| How the Gulf Oil Spill Affects the Economy |
| Written by James Chan |
| Sunday, 02 May 2010 05:12 |
 On April 20, an explosion from a British Petroleum (BP) exploratory oil rig off the Gulf Coast caused an extremely serious oil spill. Experts are already saying that it may exceed the amount of oil leaked during the Exxon Valdez spill. Time Magazine terms it, “an unchecked gush of crude oil from beneath the bottom of the ocean into the water — and no one can say for sure when it will finally stop.” Obviously, it has far-reaching environmental consequences and is almost certain to greatly disrupt the ecosystem off the Gulf Coast. However, it also has negative implications for our general economy. Here’s a few ways how we are hurt by this spill: First, obviously, there are the direct effects of the loss of oil. An estimated 5,000 barrels of oil (~210,000 gallons) are leaking out daily, meaning that at a rate of $3 per gallon, we are losing almost half a million dollars daily. If the Gulf spill exceeds the Exxon Valdez spill of 11 million barrels, that’s at least $33 million dollars lost in direct oil revenue. However, the cleanup costs associated with the oil spill far outweighs the loss of oil revenue. BP is already spending around $6 million a day in cleanup efforts, and estimate that the eventual total cost of cleanup will be around $8 billion. In fact, over the past week, BP shares have tumbled 12% in reaction to the oil spill, a clear sign that cleanup costs are severely impacting one of the largest energy companies in the world. However, there are also several long-term effects of the oil spill. For instance, it can drive short and long term crude oil prices upward. According to this article, “the spill could have a short-term impact on supply if it interfered with oil deliveries to Gulf coast refineries, and a longer-term impact if it led to new restrictions on offshore drilling.” The long-term impact is especially concerning. With oil prices expected to increase as the recovery moves along, the US will soon need to find alternative sources of energy and more oil sources, including safe offshore drilling. Knowing this, President Obama agreed to loosen some restrictions to offshore drilling a little more than a month ago. The recent spill will lead to renewed calls for bans on offshore drilling, which would limit the supply of oil for the future. Also, the threat the oil spills poses to local sea wildlife will drastically impact the seafood and tourism industries of local economies. The spill is rapidly approaching the Louisiana coast, whose economy largely depends on those very two industries. There have already been reports out of the Mississippi River Delta that fishermen are expecting a decimation of their catches, potentially devastating the fishing economy in Louisiana and the river delta area (about $2.5 billion in losses for Louisiana alone is expected). Also, the oil spill will discourage visitors from visiting, causing a double setback for the state that it could ill afford given current economic conditions. Where to move forward from here? Fingers will (and have started to) be pointed around, and many will be blamed. This oil spill represents the still-very-real dangers of drilling offshore. To prevent similar occurrences from happening again, stricter regulations will be needed for drilling rig design and construction, and better failsafes to prevent leaks designed. However, one thing is clear: the failure to do the above has cost the world not just environmentally, but also economically. The message here: drill responsibly.
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Comments
Are you talking about crude oil or gasoline? Gasoline are refined from crude oil and the last time I checked, crude oil is at about $86 USD per barrel.
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