How the Movement of the Oil Slick Might Affect Damages

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Friday, May 14, 2010 at 3:27 pm

If you’re interested in commentary about the the possible economic impact of the oil slick, I highly recommend signing up for the emails from David Kotok of Cumberland Advisors. (I quoted him earlier on the worst case scenario — read: multi-billion-dollar catastrophe.)

In his most recent advisory email, he cites Louisiana State University Professor Loren Scott on how the movement of the slick might change the economic impact. The economist says:

My biggest concern for the country is that the slick will move to the West. If it does there are two serious issues. The first is that that is where the great majority of the producing platforms are and most of the few active drilling rigs. If the slick gets under those platforms — as you pointed out — will the MMS or Coast Guard require those platforms to be abandoned for security reasons (fire)? Some can be remotely operated, but not forever. Even if they can remain manned, there is a huge fleet of supply boats operating around the clock supplying those platforms with potable water, food, supplies, etc. Will the Coast Guard allow those supply boats to motor through the slick to make their deliveries? If the answer is no, then the platforms will have to be abandoned. About 31 percent of our domestic oil supply will be shut off. You can imagine the impact on fuel prices.

He also predicts serious consequences if the slick gets near the Louisiana Offshore Oil Port:

LOOP is the only super port in the U.S. and is the only place where very large crude carriers can offload their oil. Will the LOOP be closed if it is surrounded by the slick?  There goes another 10 percent of our nation’s oil supply. Combine that with issue #1 above, and the impact on fuel prices is scary.

And he notes that most tourists don’t go to Mississippi for the pretty beaches, but for the casinos. Therefore, the worst effect on tourism would be if the oil slick moved east to the white-sand beaches of Alabama and Florida:

People come there to get in the water. For most of these communities their entire economy is based on tourism and the military. Just the prospect of the slick coming onshore is hurting bookings from Gulf Shores, Alabama to all along the western coast of Florida. The good news is that this should be a short-run problem. Sandy beaches can be cleaned up. New sand can be brought in. If this thing goes to the West — where Louisiana has no sandy, or even identifiable coast — and gets into Louisiana’s marshes, that is another more difficult cleanup altogether.

Kotok himself interjects at the end of the note: “Our point is that there are no good outcomes here.” Indeed.

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3 Comments

The Looming Economic Implications in the Gulf | NEWS Gate
Pingback posted May 16, 2010 @ 2:01 pm

[...] the futility continues, Annie Lowrey forwards along an interesting take from investment advisor David Kotok on the economic impact of the disaster. [...]


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Comment posted May 16, 2010 @ 1:28 pm

nice article,very useful,thanks


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