Overview of the BP Macondo Catastrophe – Economic and Policy Implications


incident, several studies suggest the reduction in drilling and completion expenditures in the deepwater led to a temporary reduction in potential employment that ranged between 10,000 and 40,000 in the US Gulf States.7


It is therefore plausible to infer that if deepwater regulations become tougher and unworkable, this would lead to a fall in deepwater expenditures in the US Gulf and job losses would inevitably become permanent, ceteris paribus.


Additionally, a permanent shock to deepwater drilling operations in the US Gulf because of Macondo-induced ineffectual regulations and policy would have effects on US domestic oil and gas production and consequently, increase US dependence on foreign imports. It is estimated that the six-month moratorium could eventually lead to a decline in production of approximately 30 million barrels (about 5% of total Federal OCS crude oil production or 1.5% of total US crude oil production) in 2011.7


Interestingly, such a large reduction in cumulative


deepwater production may not necessarily affect the unemployment rate as significantly as it would affect personal income and gross state revenue in the US Gulf States.6


However, if a long-term dent in offshore drilling operations in the GOM leads to a significant change in deepwater production profile and hence an increase in US oil imports, petroleum prices may ultimately be affected. Of course, this also depends on OPEC countries lacking the capacity to fill the gap. Under such a scenario, the Gulf States’ economy, ceteris paribus, may be drastically affected. It has been suggested that unemployment rates in the US Gulf States tend to decline in response to increases in petroleum prices, subject to rising offshore petroleum production. Similarly, personal income tends to rise with positive price shocks in the region, but this is also subject to rising oil production.6


The only caveat is that if investment in deepwater is muscled out because of stiff regulations and ineffectual tax or fiscal policy, deepwater production would decline and the anticipated positive impact of any price


It is important to note that nearly every top 20 international oil and gas company considers deepwater operations an essential component of its strategic business development.


change on the Gulf States’ economy would be diminished. We must quickly add, however, that the likelihood of a decline in production in the US deep offshore leading to a significant rise in global oil prices is


1.


Baud RD, Peterson RH, Doyle C, Richardson GE, Deep Water Gulf of Mexico: America’s Emerging Frontier, OCS Report MMS 2000-022, New Orleans, LA: US Department of the Interior, Minerals Management Service, Gulf of Mexico OCS Region, 2000.


2. Iledare OO, Worldwide deepwater petroleum exploration and development prospectivity. Comparative analysis of efforts and outcomes, SPE Paper 125085, presented at: SPE Annual Technical Conference and Exhibition, New Orleans, LA,


4–7 October 2009.


3. International Energy Agency, World Energy Outlook 2008, Paris: International Energy Agency, 2008.


4. Iledare OO, Profitability of Deepwater Petroleum Leases: Empirical Evidence from the U.S. Gulf of Mexico OCS Region, SPE Paper 116602, presented at: SPE Annual Technical Conference and Exhibition, Denver, CO, 21–24 September 2008.


5. Infield Systems Limited, Global Perspectives Deep and Ultra-deepwater Market Update 2008/12,


EXPLORATION & PRODUCTION – VOLUME 9 ISSUE 1 6.


extremely low, unless output from key offshore provinces such as Brazil, Nigeria and Angola were equally affected.8


Conclusion


The growth in deepwater operations worldwide is an indication of the industry’s willingness to search for and develop oil and gas resources wherever access to the resources faces fewer restrictions. As the US government and the oil and gas industry respond to the Macondo catastrophe with guidelines and principles to ensure such a preventable accident does not recur, governments must recognise that there will be unintended consequences to any increased regulations and stiffer rules.


The cost of doing business in the GOM will increase as a result of any undue policy regulations. The competitive advantages of deepwater operations in the GOM gained as a result of three factors – stability of


If a long-term dent in offshore drilling operations in the Gulf of Mexico leads to a significant change in deepwater production profile and hence an increase in US oil imports, petroleum prices may ultimately be affected.


the operating environment, technical advancement and experienced operators – may be offset by these higher costs and increased time between discovery and production. These three factors make the region the custodian of deepwater technical knowledge and information and also reduce US vulnerability to oil imports. Stiffer regulations would alter the structure of the Gulf industry and operators with less capitalisation may be forced out of the region. The international companies may also redirect their E&P investments outside the US, where they already have a significant presence.


It would be imprudent to allow the heedlessness of one operator in the GOM to obliterate a relatively progressive E&P business in the Gulf Coast of the US, as the Santa Barbara blowout diminished the operating environment for E&P in the Pacific Region in the 1970s and reaction to the Three Mile Island accident in 1979 curtailed the US nuclear industry. The US government must avoid regulations and institutional restructuring that may cause similar damage to the US oil and gas industry. Certainly, there are deep wounds caused by the Macondo well explosion. These wounds may take several years to heal. The US government must not aggravate the wounds with undue regulations and ineffectual fiscal terms. n


London: Infield Systems Limited, 2008.


Iledare OO, Olatubi WO, The impact of Changes in Crude Oil Prices and Offshore Oil Production of the Economic Performance of the U.S. Coastal Gulf States, The Energy Journal, 2004;25(2):97–113.


7. Inter-Agency Report, Estimating the Economic Effects of the Deepwater Drilling Moratorium on the Gulf Coast Economy, 2010.


8. Aissaoui A, Macondo and global Oil Supplies and Prices. Economic Commentary, Middle East Economic Survey, 2010.


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