June 3 (Bloomberg) — Louisiana Governor Bobby Jindal, whose state is bearing the brunt of the environmental damage from BP Plc’s Gulf of Mexico oil spill, challenged President Barack Obama’s decision to suspend deepwater drilling for six months.
The moratorium may cost the state as many as 20,000 jobs in the next 12 months to 18 months during “one of the most challenging economic periods in decades,” Jindal said in a letter to Obama released today. Two thirds of the rigs subject to a ban are in Louisiana’s coastal waters, the governor said.
Obama declared the moratorium to give a presidential commission 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. A longer interruption could crimp 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.
Each platform that is idled puts 1,400 jobs at risk, according to the National Ocean Industries Association, a Washington-based group that represents drillers and companies that support oil production. Lost wages could reach $10 million a month for each rig.
In addition to the ban on deepwater drilling, Obama delayed planned 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.
“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.”
Obama 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.
Economic Costs Considered
“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 Baton Rouge, Louisiana-based Mid-Continent Oil and Gas Association. The suspension will hurt rig owners, supply boats, welders, divers, caterers and other supporting contractors.
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.
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 cancelled 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.
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 director. The panel aims to issue a report, with recommendations on steps to avert future offshore drilling disasters, by the end of the year.