A blue heron walks along the shore of Anna Maria Island.
I came across this analysis when searching for information as to how this disaster in the Gulf will affect Florida, my second home. My family lies on the Gulf Coast and it saddens me to no end to imagine the pristine white sand covered in oil slicks. I think of the wildlife - the dolphins and manatees and sea turtles and all of the birds and businesses and homes and livelihoods lost... The oil has already reached the Chandeleur Islands, with small black patches of oil slick coming close to the flocks of birds, including the endangered brown pelican, least tern and piping plover shore birds.
| “At its current leak rate of 5,000 barrels of oil per day, the spill could surpass the size of the 1969 Santa Barbara spill by next week. If the leak cannot be contained, it could exceed the size of the 1989 Exxon Valdez oil spill off Alaska by mid June.” Paul Harrison, Environmental Defense Fund UPDATE: In a closed-door briefing for members of Congress, a senior BP executive conceded Tuesday that the ruptured oil well could conceivably spill as much as 60,000 barrels a day of oil, more than 10 times the estimate of the current flow. Three scenarios lie ahead. They rank as bad, worse, and ugliest (the latter being catastrophic and unprecedented). There is no “good” here. The Bad. Containment chambers are put in place and they catch the outflow from the three ruptures that are currently pouring 200,000 gallons of oil into the Gulf every day. If this works, it will take until June to complete. The chambers are 30-foot-high steel configurations that must be placed on the ocean floor at a depth of one mile. This has never been done before. If early containment is successful, the damages from this accident will be in the tens of billions. The cleanup will take years. The economic impact will be in the five states that have frontal coastline on the Gulf of Mexico: Texas, Louisiana, Mississippi, Alabama, and Florida. The Worse. The containment attempts fail and oil spews for months, until a new well can successfully be drilled to a depth of 13000 feet below the 5000-foot-deep ocean floor, and then concrete and mud are injected into the existing ruptured well until it is successfully closed and sealed. Work on this approach is already commencing. Timeframe for success is at least three months. Note the new well will have to come within about 20 feet of the existing point where the original well enters the reservoir at a distance of 3.5 miles from the surface drilling rig. Damages by this time may be measured in the hundreds of billions. Cleanup will take many, many years. Tourism, fishing, all related industries may be fundamentally changed for as much as a generation. Spread to Mexico and other Gulf geography is possible. The Ugliest. This spew stoppage takes longer to reach a full closure; the subsequent cleanup may take a decade. The Gulf becomes a damaged sea for a generation. The oil slick leaks beyond the western Florida coast, enters the Gulfstream and reaches the eastern coast of the United States and beyond. Use your imagination for the rest of the damage. Monetary cost is now measured in the many hundreds of billions of dollars. Some thoughts about markets and impacts. Usually, the first estimates in any crises are too low. That is true here. 1000 barrels a day is now 5000, and some estimates of spillage are trending higher. No one knows exactly. The containment and boom mechanism is subject to weather cooperation as we can see this weekend. Soon we are entering the hurricane season. The thoughts of a storm stirring up the Gulf, hampering any cleanup or remediation drilling effort and creating a huge 10,000 square mile black stew is frightening to every professional in the business. This will be a financial calamity for many firms, not just BP and its partners and service providers. Their liabilities are immense and must not be underestimated. The first estimate of $12.5 billion is only a starter. Thousands of small and independent businesses as well as larger public companies in tourism are hurt here. This is not just about the source of half the nation’s shrimp. That is already a casualty. It’s also about the bank loans for the $200,000 shrimp boat and the house the boat owner and/or his employees live in and the fact that this shock piles on a fragile financial system that is trying to recover from a three-year financial crisis. Case study, my fishing guide in the Everglades splits his time between Florida and Louisiana. His May bookings in LA have cancelled. His colleagues lost theirs and their lodge will be empty. They are busy trying to find work in the clean up. For him, his wife and eleven year old daughter, his $600 a day guide fees just went “poof”. When I asked him if he thought he had a legal claim on BP, he said he hadn’t thought about it yet but it gave him pause. As we suggested above, the $12.5 billion loss estimate is only a starter. Federal deficit spending will certainly rise by tens, and maybe hundreds, of billions as emergency appropriations are directed at larger and larger efforts to clean up this mess. At the same time, federal and state revenues tied to Gulf-region businesses will fall. My colleague John Mousseau will be discussing the impact on state and local government debt in a separate research commentary. We expect that the Federal Reserve will extend the timeframe that we have come to know as the “extended period” in the making of its monetary policy. We do not expect the Fed to raise interest rates at all for the rest of this year, and maybe well into next year. We expect to see the deterioration of the economic statistics for the US to reveal the onset of this oil-slick crisis in May, and the negative impact will intensify during the summer months. A “double-dip” recession probably has been made more likely by this tragedy. We are at the highest level of cash in our US stock accounts that we have seen in over a year and a half. We expect a market correction will present entry points at lower stock prices. We have exited the financial sectors, including the insurance ETF. We now worry about the banks that are exposed. We do not own the major oil stocks now. Some of them face enormous liability payments. In addition, the offshore-drilling energy sector will face much-increased and more costly regulation. Deepwater and all offshore drilling in the US has been set back for a generation, just as Three Mile Island set back nuclear power development for decades. No politician can win an election now with a permissive view on drilling. Sarah Palin’s “Drill, baby, drill” now condemns her to political marginalization. Off shore drilling has lurched to the top of the political agenda in this November’s election cycle. Readers may be interested in following events on the NOAA website: http://response.restoration.noaa.gov |
It's not only BP. Last year, Royal Dutch Shell plc spilled nearly 14,000 tons of crude oil into the creeks of the Niger Delta last year, the company has announced, blaming thieves and militants for the environmental damage.
The amount of oil spilled by Shell's Nigerian subsidiary was more than double the amount poured into the delta in 2008, and quadruple what was spilled in 2007 – highlighting the worsening situation the oil company faces in Nigeria.
An interesting side note: Goldman Sachs took short positions on TransOcean stock days before the explosion.
No joke: Goldman Sachs shorted Gulf of Mexico - It turns out that Goldman Sachs really did place shorts on TransOcean stock days before the explosions rocked the rig in the Gulf of Mexico sending stocks plunging while GS profits soared -- benefitting once again from a huge disaster, having done the same with airline stocks prior to 911 then again with the housing bubble. (PESN; May 5, 2010)
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