Gulf Oil Spill Update: August 9, 2010
The economic impact of the oil spill cannot be estimated with any precision. The spill has resulted in significant negative effects on parts of the region's economy, especially the tourism and fisheries industries.
The long-term uncertainties are substantial.
- Ecological damage
- Cleanup duration—the amount of oil spilled may not be known for years
- Gulf Coast brand
- Energy policy
Most important for the near-term national outlook, transportation hubs and energy supplies have avoided significant disruption. Because of this fact, and the relatively small footprint of the affected area relative to the overall U.S. economy, the Atlanta Fed does not anticipate altering its forecast.
Agriculture & Fishing
Overall disruptions to commercial fishing and shrimping, recreational fishing, and oyster harvesting are unlikely to have a national impact. However, they have had a significant impact on some coastal communities.
According to the National Oceanic and Atmospheric Administration's National Marine Fisheries Service:
- "The longer term effects may be larger than any short term effects, depending on how much is spilled, how broadly distributed the spill gets, and what species will be affected.
- Recruitment failure could occur for some speciesn which means that a year class will be gone.
- The effects of losing a year class will not be immediately evident but will be reflected in subsequent years."
To date, the supply of natural gas and refined petroleum products has not been significantly disrupted by the spill. A key risk factor is that the six-month moratorium prohibiting drilling for oil in the Gulf of Mexico may last longer than six months. Enhanced regulation of the offshore industry results in decreases in production and increases in the cost of extraction.
Stephen Brown, a 27-year veteran of the Dallas Fed and former head of their Energy Economics section, published a study looking at the long-term implications on production of a moratorium.
- Deepwater production would decline modestly with higher costs. It would fall off to nearly zero by 2035 if drilling were halted.
- Imports would make up most of the difference, which has its own set of problems (instability in countries that supply us oil).
- A 20 percent increase deepwater drilling costs would likely have relatively little effect on world oil prices. Gasoline +$.05 to $.08 in 2035.
Higher insurance costs or set-asides could also pressure Gulf oil producers. The net effect of all these factors could be to discourage Gulf of Mexico operations and result in the transfer of infrastructure away from the U.S. coast. A decline in total U.S. oil production would result, as would a number of permanent job losses.
On a more upbeat note, an increase in production costs appears manageable.
Shipping lanes remain open and port activity remains unaffected.
Travel & Tourism
There has been no significant change in information about travel and tourism since the last update.
Of significant concern is the potential for long-term damage to the Gulf Coast brand as a fishing, recreation, and tourism destination.