Obama administration says economic impact of drilling ban less than feared

The Commerce Department estimates that the federal freeze on deepwater oil-and-gas drilling imposed after the BP spill began will result in the temporary loss of up to 12,000 Gulf Coast jobs and a $1.8 billion reduction in spending. 

The department — which offered the projections at a Senate Small Business Committee hearing Thursday — calls the job losses the “regrettable” result of the freeze, but notes the ban's impact is significantly less than initially feared.

But Sen. Mary Landrieu (D-La.), the committee chairwoman, said the six-month ban imposed in late May is having a devastating effect.

“Today, thousands of Gulf Coast businesses are fighting their way out of this government-imposed economic disaster that not only threatens jobs and businesses — including oil and gas field services, transportation and fabrication companies — but also a way of life, just as surely as the massive oil spill does, and perhaps even more,” Landrieu said in prepared remarks.

The Commerce Department, however, argues that several factors have lessened the moratorium’s impact.

Rebecca Blank, the undersecretary for Economic Affairs, told the panel that almost all deepwater rigs have remained in the Gulf, defying earlier predictions.

“Earlier studies assumed that many of these rigs would leave the Gulf Coast as a result of the moratorium and that virtually all of these 9,700 workers would become unemployed. This did not happen,” she said in her prepared remarks, noting that of 46 such rigs in the Gulf in April, 41 remain.

“Furthermore, even for the rigs that are idle, drilling contractors and rig operators have, to date, held onto most of their employees. A primary reason to retain these employees is that they are highly skilled and it would be expensive to recruit and rehire them again in the near future. In addition, these highly skilled workers are able to conduct some backlogged rig maintenance and improvement,” she said. Overall, fewer than 2,000 of the 9,700 rig workers have been laid off or left to work elsewhere, Commerce estimates.

However, Blank also noted that rig spending on supplies, materials and services has fallen as rigs have been idled, which has had a ripple effect, leading to the overall estimate of 8,000 to 12,000 job losses. The figure includes the rig workers.

It might have been greater, but some of the companies that provide supplies and support to the drilling industry have served other customers related to the spill response and cleanup.

The Interior Department, which oversees offshore drilling, has argued the ban was needed to ensure safety and address the regulatory gaps laid bare by the April 20 explosion of the Deepwater Horizon rig, which touched off the worst oil spill in U.S. history.

Blank’s remarks similarly defend the freeze. “While any job loss due to the moratorium, even temporary, is deeply regrettable, it is important to place these effects in the context of the economic, environmental and safety threat — including the potential loss of life — that the BP Deepwater Horizon explosion created,” she said, noting the importance of putting new safeguards in place.

She also touted administration efforts to lessen the blow, including the $100 million rig worker assistance fund BP agreed to support.

Many Republicans and Gulf Coast lawmakers from both parties are pressuring the White House to lift the drilling freeze before its scheduled late-November expiration. Administration officials have suggested they may lift restrictions for some operations if they’re confident they can operate safely.

Landrieu said she supports tougher safeguards but calls the moratorium needlessly broad. “[L]et me be clear: As one of the first senators to call for a full investigation into the accident and request more effective safeguards against future spills, I share the administration’s goal of a safer oil and gas industry. But the blanket moratorium on all deepwater drilling does nothing to advance that goal,” said Landrieu, a strong energy industry ally.

She said small businesses are the hardest hit.

“This moratorium is not hurting big oil companies — they will survive. It is hurting Big Al’s, the corner grocery store in South Louisiana that has seen sales plummet since this moratorium went into effect,” Landrieu said.