Obama’s Drill Ban May Trigger Job Losses, Slow Gains

U.S. President Barack Obama
U.S. President Barack Obama picks up balls of tar while touring a beach in Port Fourchon, Louisiana, on May 28, 2010. Photographer: Win McNamee/Pool via Bloomberg

President Barack Obama’s six-month ban on new offshore drilling while a commission investigates BP Plc’s Gulf of Mexico oil spill may slow employment gains after U.S. companies added fewer jobs than forecast in May.

The moratorium will cost as many as 20,000 Louisiana jobs in the next 12 months to 18 months during “one of the most challenging economic periods in decades,” Governor Bobby Jindal said in a letter to Obama released yesterday. Each drilling platform idled by the ban puts 1,400 jobs at risk, according to the National Ocean Industries Association, a Washington-based group for drillers and companies that support oil production.

Obama, who plans to visit Louisiana today, declared the moratorium to give a presidential panel time to investigate the April explosion and sinking of the Deepwater Horizon drilling rig, which killed 11 workers and unleashed as many as 19,000 barrels of oil a day. The interruption may extend beyond six months, further crimping U.S. oil-and-natural gas production, raising energy prices and costing jobs, lawmakers have said.

“The last thing we need is to enact public policies that will certainly destroy thousands of existing jobs while preventing the creation of thousands more,” Jindal said in a statement.

The moratorium will shut 33 deepwater rigs in the Gulf of Mexico, including 22 near Louisiana, costing as many as 6,000 jobs in the next three weeks and 20,000 by the end of next year, Jindal said. At least 100 miles (161 kilometers) of coast has been fouled by oil and the fishing industry has “huge economic losses,” he said. Lost wages could reach $10 million a month for each rig.

April, May Employment

Employers in the U.S. hired fewer workers in May than forecast, Labor Department figures in Washington showed today. Payrolls rose by 431,000 last month, including a 411,000 jump in government hiring of temporary workers for the 2010 census. Economists projected a 536,000 gain, according to the median forecast in a Bloomberg News survey.

In April, the U.S. added 290,000 jobs, led by gains in private employment, after a 230,000 rise in March that was larger than initially estimated, government reports showed. The April increase exceeded the median estimate of economists surveyed by Bloomberg News.

Representative Chris Van Hollen of Maryland, who leads the Democrats’ House campaign committee, last month said the party will focus on steps Congress has taken to create jobs, aiming to combat an anti-incumbent mood among voters in special elections.

Louisiana Dilemma

Senator Mary Landrieu, a Louisiana Democrat who supports offshore oil production, said BP’s spill poses a dilemma for her state. She is asking the administration to provide a timeline to help companies plan for the restart of deepwater drilling.

“I understand why President Obama has called for a review of deepwater drilling,” Landrieu said in an e-mail. “I have argued strongly to him that he should adjust this moratorium.”

BP said it may be able to capture more than 90 percent of the oil from its leaking well with the cap put in place last night. The cap will let BP divert oil to ships on the surface.

Obama also delayed planned oil-and-gas exploration in the Arctic Ocean off Alaska and canceled a plan to search for oil and gas off the Virginia coast. New drilling in the Gulf in less than 500 feet of water can proceed after companies submit applications that meet new safety and environmental rules.

‘Cost American Jobs’

“Shutting down the outer continental shelf, all that’s going to do is raise energy prices and cost American jobs,” U.S. Representative Joe Barton, a Texas Republican, said in an interview. “The right course is to continue the permitting process and become more diligent in the inspection and enforcement of existing wells.”

The Obama administration has promised unemployment aid and cleanup jobs to workers affected by the spill, White House spokesman Ben LaBolt said in an e-mail. Among the rigs idled by the moratorium are four that BP has a role in operating.

“We must ensure that the BP Deepwater Horizon spill is never repeated,” LaBolt said. “Economic impacts were certainly taken into account -- the moratorium is surgical and shallow water drilling, in which the risks are better known, is continuing under stricter safety rules.”

One third of U.S.-produced oil and gas comes from the Gulf, and 80 percent of Gulf oil is extracted from deepwater wells, according to the Louisiana Mid-Continent Oil and Gas Association in Baton Rouge. The suspension will hurt rig owners, supply boats, welders, divers, caterers and other supporting contractors.

Fishing Bans

Fishing bans in place in the Gulf may force more than 85 percent of sport fishing businesses in Louisiana, Mississippi, Alabama and Florida to close by July 4, the Alexandria, Virginia-based American Sportfishing Association said yesterday. Memorial Day weekend sales were 55 percent off 2009 figures.

About 80,000 barrels of new daily production, or 4 percent of deepwater Gulf output, will be delayed until after 2011 because of the ban, according to a May 28 report by Edinburgh- based Wood Mackenzie Consultants Ltd. The total may be as high as 130,000 barrels a day, according to Kevin Book, a managing director at ClearView Energy Partners LLC, a Washington-based policy analysis firm.

The U.S. would spend $10 billion to buy imported oil through the end of 2011 to replace lost Gulf production, Book said in an e-mail.

Brazil, China

Oil producers including BP and Exxon Mobil Corp. don’t know when work in deep waters can resume, said Jack Gerard, chief executive officer of the American Petroleum Institute, which represents the oil industry. In the meantime, companies probably will ship their rigs to the coasts of Brazil and China or to the North Sea in Europe to avoid sitting idle in the Gulf, he said.

Contracts were canceled on three drilling rigs Anadarko Petroleum Corp., the Texas company that owns a stake in BP’s leaking well, had leased in the Gulf using a clause triggered when events occur beyond the company’s control, Gerard said. The cancellations let Anadarko stop paying rent on rigs it will no longer be able to use.

“It’s unlikely they’ll sit around that long waiting in the Gulf of Mexico,” Gerard said in an interview. “If some of those drilling operations are moved to other parts of the world, it will be difficult to get them back to this part of the world any time soon.”

The moratorium will cost the government as much as $150 million in lost royalty payments as production of oil and gas stops, Gerard said.

‘Pausing’ Drilling

The administration is “pausing” deepwater drilling “to ensure this type of disaster doesn’t happen again,” Interior Secretary Ken Salazar told reporters last week.

Obama created the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling by executive order and on May 22 named as co-chairmen Bob Graham, former Democratic governor of Florida, and Republican William Reilly, a former Environmental Protection Agency administrator. The panel aims to issue a report, with recommendations on steps to avert future offshore drilling disasters, by the end of the year.

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