Offshore drilling moratorium: good for the Gulf, bad for the economy?

The federal government enacted a six-month moratorium on offshore drilling in deep waters in the wake of the Gulf oil spill. Depending on who you ask, it is either an environmental necessity or an economic disaster.

By , Staff writer

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    Oil workers protest the drilling ban in Houma, La. Louisiana Gov. Bobby Jindal says the moratorium could kill thousands of state jobs.
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More than three months after the Deepwater Horizon oil spill began, Gulf Coast states and the oil industry are still howling over what they say is unnecessary economic harm from the Obama administration's six-month moratorium on deep-water offshore drilling.

Congressional opponents argue it "is causing a second economic crisis in the Gulf" and that "thousands of jobs have already been lost and thousands of additional jobs are at risk of being sent overseas." The Senate Small Business and Entrepreneurship Committee heard testimony Tuesday predicting losses of $2.8 billion and over 10,000 jobs from a moratorium.

But new deep-water drilling would still be dangerous and irresponsible, the administration says. Not enough is known about what caused the spill and several panels are investigating.

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Amid a whirlwind of charges, countercharges, and legal hardball, numerous questions linger. Among them:

Is a drilling moratorium now in effect? Where?

Yes. On May 28, Secretary of the Interior Ken Salazar announced a "six-month suspension of all pending, current, or approved offshore drilling operations of new deep-water wells – those more than 500 feet deep – in the Gulf of Mexico and the Pacific regions." That first nationwide moratorium was, on July 12, superseded by a second order (see following question) that blocks offshore deep-water drilling in the same areas. That second order remains in force until Nov. 30 – unless it is successfully challenged in court or until Mr. Salazar lifts it. The moratorium has halted drilling at 33 deep-water sites in the Gulf of Mexico.

Didn't a federal judge stop the moratorium?

Yes, but only temporarily. On June 22, US District Court Judge Martin Feldman, responding to an industry lawsuit claiming economic harm, issued a preliminary injunction blocking the first six-month moratorium. He ruled that the moratorium was overbroad as well as "arbitrary and capricious." On July 8, a government motion to suspend the judge's injunction failed in the US Court of Appeals for the Fifth Circuit, based in New Orleans.

In response, Salazar four days later issued a new order in which the government did not cite water depth to define the type of drilling to be banned but instead banned drilling by certain floating deep-water drill rigs. That new suspension has the same effect as the old moratorium, but may be harder for the oil industry to reverse in court, experts say.

"Judge Feldman essentially provided a road map for the Department of the Interior, and Secretary Salazar's memorandum follows that road map," writes Jeffrey Rachlinski, a professor of environmental law at Cornell University Law School in Ithaca, N.Y., in an e-mail interview. "The memo demonstrates that the problems that caused the Deepwater Horizon event are endemic to the industry as a whole, and not specific to BP."

Why does the Obama administration say a moratorium is needed?

The moratorium is needed because additional deep-water drilling poses "serious, irreparable, or immediate harm to life, to property, or to the marine, coastal, or human environment," Salazar argued in his July 12 order. This "temporary pause," he writes, will give investigators and the industry time to address this threat. The new order also cited fresh concerns about drill rig safety equipment. New problems appeared in blowout-preventer safety devices on the two rigs drilling relief wells to stop the leak, the order said.

How has the moratorium affected the economies of Gulf Coast states?

Over the six months of the deep-water drilling moratorium, Gulf states will lose an estimated $2.1 billion in economic productivity, 8,169 jobs, $487 million in wages, and $98 million in state tax revenues, according to Joseph Mason, a Louisiana State University professor of finance and a private business consultant. "Spillover effects" will cost other states $600 million, 3,877 jobs, and $219 million in wages, his study says. The US government could lose $219 million in tax revenue. "These losses are dramatic in both the context of local economies ... and on a national scale," Professor Mason writes.

Still, he notes that his numbers are more conservative than others, including those used by the state of Louisiana. The state assumes a stoppage lasting 12 to 18 months. The Obama administration insists BP will pay and has forced the company to set aside $20 billion.

Has the moratorium cut domestic oil production?

The Louisiana Mid-Continent Oil and Gas Association reports that the equivalent of 80,000 barrels of oil a day will not go to market due to the moratorium – a shortfall that will be picked up by increasing imports. But 80,000 barrels a day represents less than 1 percent of the 11.7 million barrels of oil the United States already imports daily, according to the Energy Information Administration's website. The EIA reported in mid-June that "to date, energy production and shipments in the Gulf have not been significantly affected by the spill."

What will happen between now and the lifting of the moratorium?

In the run-up to lifting the moratorium in November, the Interior Department is reorganizing the functions of the former Minerals Management Service into three new agencies – including one that will focus only on enforcing safety rules. During that period, a presidential commission is also looking into causes of the spill, along with another federal inquiry led by the US Coast Guard. Congress is pursuing its own investigation. Out of all this, should come a resetting of the regulatory relationship between the government and oil industry in deep-water drilling – and greater safety, experts agree.

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