Gulf Oil Spill Update: June 14, 2010

The fishing industry, which has economic and cultural importance to the region, could be significantly curtailed by the Gulf oil spill. However, the effect on U.S. employment is estimated to be less than 0.1 percent. Energy, another of the region's economic engines, could be considerably affected if the offshore drilling moratorium is drawn out. Estimates of job losses related to a prolonged moratorium range from 19,000 to 50,000. Tourism in the region is seeing mixed effects from the spill, according to industry contacts. Many travelers canceling Gulf area bookings are rebooking elsewhere in the District, which is resulting in a displacement of economic activity in the tourism sector rather than an overall loss.

  • Agriculture & Fishing


    Fishing in the Gulf could be sharply curtailed for many years. However, fishing is a small industry. According to numbers from the National Fisheries Institute, only about 2 to 2.5 percent of all seafood consumed in the United States comes from the Gulf. Even if the industry completely shuts down in the months ahead, it cuts U.S. employment by perhaps 50,000 to 100,000 jobs, or less than 0.1 percent. Moreover, in the near term, many of these workers will transfer into the cleanup business, so the impact may only become apparent over a long period of time.

  • Energy


    Many potent disasters include a shock to energy prices, which can spread to the national economy. To date, the Gulf oil spill has not resulted in an increase in energy prices. Many analysts believe an extended offshore drilling moratorium and increased regulation may reduce domestic inputs into refineries and increase extraction costs, but there has not as yet been a short-term shock to oil prices.


    Gulf energy firms and political leaders have called on the U.S. government to take swift action on federal drilling regulations and to end the drilling moratorium quickly, making sure that all deepwater drilling is in compliance with federal regulation, to prevent as many job losses as possible and reduce negative impacts on the economy of the Gulf Coast.

    The overwhelming majority of oil extraction in the Gulf today comes from deep water drilling (see the table). If the moratorium is prolonged, the impact on employment will be direct. Estimates vary widely, but former Louisiana governor Roemer predicted a loss of 22,000 jobs for that state. Greater New Orleans Inc. estimates job losses of between 19,400 and 32,400. The Louisiana Chemical Association predicts a loss of 35,000 jobs if there is a six-month moratorium. Dan Juneau of the Louisiana Association of Business and Industry predicts a loss of more than 35,000 jobs, and Louisiana State University economist Loren Scott estimates that this number may top 50,000 if the moratorium runs beyond six months. The bottom line is that until a clearer picture of the moratorium's duration and impact emerges, the effect of the moratorium on jobs is difficult to determine.

    The spill could be a boost for companies that can support the containment and cleanup of the oil contamination. Such activities may help offset the loss of drilling employment tied to the moratorium.

    Power Generation

    Based on reports, the chemicals used to disperse the oil are creating emulsified oil that is appearing throughout the vertical water column. The presence of emulsified oil creates a potential threat to saltwater-dependent power plants that pump in surface water from the Gulf to cool their condensers and auxiliary components. No commercially available device exists that can guarantee protection from the emulsified oil for these power-generating units, and operators are allowing facilities to run normally at this time.

  • Transportation

    Port activity remains unaffected. The spill is likely to have limited effect on the large industries on the Gulf Coast who rely on shipping to support their processes. The Coast Guard is developing a plan to minimize any impact on shipments into the Gulf ports. Plans are underway to set up decontamination stations offshore to remove oil from any vessels that may contact the oil spill. Shipping routes may be changed to avoid contact with the oil spill. In the worst case, these changes, if implemented, could cause some delays in shipping schedules.

  • Travel & Tourism


    Tourism is largely experiencing a displacement of economic activity rather than a loss. Although tourists are canceling bookings on the Gulf coast, many of them are booking elsewhere in the region.

    BP is covering lost income for individuals and businesses, including tourism-related businesses, that can document the loss as a result of the oil spill. Coverage is on a month-to-month basis, with claims paid in the month following the loss. For rental properties, BP is reimbursing only for specific cancellations. The company is not considering the potential of lost income—that is, it is not reimbursing rental property operators and owners for potential visitors who might be taking vacations elsewhere.

    In addition, the majority of vacationers that scheduled Gulf Coast trips early in the summer season have reportedly kept their plans, but those that scheduled vacations for later in the summer are changing their plans to other locations. Atlanta Fed contacts in Southeast Florida report that they are receiving large numbers of vacationers who have changed their original destination, but the area is still reportedly experiencing a decrease of 20 percent in future bookings.

    A June 3 survey by The Knowland Group, the world's largest data firm in the global meetings and conventions industry, found that 60 percent of hotels are experiencing group booking cancellations. These numbers are an 18-percentage-point increase from the survey conducted two weeks earlier and a 25-percentage-point increase from the group's initial May survey. Participating in the poll were fifty hotels that host meetings and events.

    Hotels are experiencing increased difficulty in booking future events, with 28 percent of those surveyed stating significant slowdown in such bookings—double the amount from the previous survey. Additionally, 28 percent, an increase of 20 percentage points from the initial survey, described the effect on future bookings as moderate.

    The spill seems to have had mixed effects on the recent Memorial Day weekend, which typically sees bookings by families enjoying the first official holiday of the summer. Of surveyed hotels, 39 percent stated they had cancellations directly related to the spill, and 26 percent reported an overall decrease in business from the previous year.

    Some of the surveyed hotels stated that although vacationing families were less numerous than in previous years, cleanup workers and other responders to the spill were making up for some of the lost room revenue. However, vacationers tend to spend more, so the hotels were not necessarily experiencing increased revenues. Many rental properties are forestalling vacation cancellations of existing reservations with reasonable success by offering an "oil guaranty." With this guaranty, clients can cancel without penalty if oil has affected the beach by the day of their arrival. New bookings are becoming increasingly last minute as buyers wait to see if the oil arrives.