Imagine if the government required automobile drivers to purchase liability insurance against the Worst Case Accident: totalling a 2010 Maybach Laundalet with four newly-minted orthopedic surgeons aboard. Worst case liability: $50 million or so.
With a $50 million liability insurance requirement, who would drive? Only the wealthy.
The Deepwater Horizon incident pointed up the inadequacy of the Oil Pollution Act of 1990’s $75 million economic liability limit for operations involving high pressure, high-volume deepwater oil.
Some Congressional Democrats would like the liability cap to be set at $20 billion; some want no cap at all. They don’t even acknowledge the fact that shallow water operations are orders of magnitude less risky than deepwater oil; to them, an offshore well is an offshore well.
Independents, small to large, will have no way to insure against a liability of this magnitude. Without insurance, they will cease operations, leaving the Gulf to the only companies with sufficient assets to self-insure. That group would include Exxon, Shell, Chevron and BP among the private companies, plus the National Oil Companies of Brazil, China, Spain and others.
WASHINGTON, DC, July 23 — Excluding independent producers from the deepwater Gulf of Mexico would eliminate 265,000 jobs and $106 billion in federal, state, and local tax revenue by 2020, a new study by IHS Global Insight in Lexington, Mass., concluded. If independents left the gulf completely, 300,000 jobs and $147 billion in taxes in the region would be lost over 10 years, it added.
According to the IHS study, in 2009, independent companies drilled 122 wells on the “Shelf” (shallow water); the majors drilled only 8, as they are no longer interested in the Shelf. The average cost of a Shelf well was $6.5 million in 2009. In deepwater, independents drilled 62 of 143 wells that cost on average $77 million. Right now, remember, we have an open-ended deepwater drilling moratorium in place, so who knows when Obama and Salazar will let the deepwater boys start drilling again.
The Gulf supplies 30% of domestic oil and 11% of natural gas. The only way to sustain that supply is to continue to drill new wells.
If we don’t drill new wells, the Gulf will dry up and become a boneyard. Of course this affects me, my community, and my state.
The Democratic strategy will cripple the domestic industry and its reserve and production base. That necessarily means higher prices for the consumer, and increased imports. Permanently. Think $8 per gallon gasoline.
Some might think rising energy prices are fine, in that they will stimulate the demand for alternatives. If that’s the plan, I will flatly predict that there are no alternative technologies that have the capacity or the ability to take up the slack for oil and gas.
You can’t suck this much industrial activity out of the economy without a cascade of unanticipated effects. We’ve heard that Red Wing Shoes, a Minnesota-based company, has already felt the impact of the moratorium in declining demand for its steel-toed work boots, the offshore workers’ preferred brand. And that’s just one example among thousands.
The next two weeks are critical, not just to the future of the offshore oil and gas industry and to Louisiana, but to the future of the American economy. Your future prosperity. And you can do something about it.
The House breaks for August recess this Friday, the Senate a week later. Before breaking for recess, both chambers plan energy bills that will address spill liability, among other things. Call your Senator and your Congressman — this week! — to let them know that offshore oil and gas matter to you.
Cross-posted at VladEnBlog.