The explosion at the Deepwater Horizon oil rig in the Gulf of Mexico has already been dubbed “Big Oil’s Chernobyl,” although it is still difficult to estimate the true scale of the disaster or the impact it will have on the local environment and the global economy.
The resulting oil spill is spreading rapidly, and is about to reach the southern coast of the United States, a region whose economy is almost entirely based on tourism. This could cause more than 150,000 people – fishermen, employees at hotels and restaurants – to lose their jobs.
British Petroleum, which owns the rig and is now to blame for the 700 metric tons of oil leaking into the Gulf of Mexico every day, will suffer huge losses as well. In addition to losing a $350 million drill rig, the company’s stock plummeted 12%, pushing its market value down by $23 billion. On top of that, the company may be facing $4.6 billion worth of lawsuits. However, what worries international economists is not the future of the British company, but repercussions of the Deepwater disaster on the global market for black gold.
The market was quick to react; speculators immediately took advantage to try to increase oil prices. On May 3, the OPEC oil basket closed at $84.36 per barrel, up $0.23, while light sweet crude oil futures rose $0.04, to $86.19. Still, economists do not believe that there will be any serious impact apart from short-time speculative price increases and continued high oil prices.
The accident has not damaged the infrastructure of the global oil market. The well being drilled at Deepwater Horizon was a test well, and so its loss will not effect the overall commercial production of black gold. Oil production in the region has not stopped, and only a few gas rigs had to suspend operations. The oil spill may only disrupt onshore oil refineries in the southern USA, which relies on oil unloaded along the Gulf coast.
And yet, the Mexico Gulf accident may have far-reaching consequences, as it may jeopardize the U.S. energy program President Barack Obama presented in March.
The program contains plans to resume nuclear power plant construction and to channel substantial investment into the exploration and development of alternative energy sources, in particular into increasing shale gas production. The program also lifted the 20-year moratorium on development of offshore oilfields, which contain an estimated 1.6 trillion cubic meters of natural gas and 14.5 billion barrels of oil. The moratorium was introduced for environmental reasons.
The new energy program was expected to reduce the American economy’s dependence on energy imports, on the one hand, and to generate additional cash to cover the budget deficit, on the other. The deficit for 2011 is projected to reach 10.6% of U.S. GDP.
The country’s new energy policy came as an unwelcome surprise for the global oil and gas exporters, because America alone used to consume between 20% and 25% of oil and gas produced internationally. The decline in U.S. imports could have triggered major changes on the global hydrocarbon market, hitting commodity-based economies the hardest. Suffice it to recall how analysts were worried about U.S. companies’ successes in shale gas production. True, shale gas is too expensive for commercial production now, and its output is meager, so it cannot revolutionize global gas prices – but only for the time being. But even now, it must be taken into account as a pricing factor.
And now this unexpected good fortune – an oil rig disaster threatens to thwart one of the key policies of the U.S. energy program. The U.S. government already said it would ban offshore drilling until the reasons behind the disaster are investigated.
Again, it is hard to assess the potential consequences of this decision, as we do not know how the situation in the Gulf of Mexico will develop, how soon the Americans will be able to cope with the consequences of the disaster and how long the new moratorium on offshore drilling will last. But one thing is for certain – an energy revolution which could have been triggered by the U.S. new energy program will at least be delayed.