By Avery Shenfeld
http://research.cibcwm.com/res/Eco/EcoResearch.html

The lives lost and the environmental degradation wrought will be the worst legacy of the BP Deepwater Horizon accident, but it’s not too early to ask about the economic fallout from the Great Gulf Spill of 2010. We’ll learn more in the months ahead, but already the outline of the economic consequences is in sight.

The immediate macroeconomic shock will be largely invisible in national economic reports, even as it has a notable impact on Louisiana. Fishing employs only 50,000 nationally, with a further 10,000 or so in seafood processing. Tourism (including sport fishing and beaches) could end up being hit hard as far away as the Florida panhandle. But the national economy only suffers a net loss if those tourists do not substitute a trip to another US location, and don’t spend the money on entertainment at home. Another loss of jobs will be a consequence of the moratorium being put on further deepwater drilling, which could entail roughly 30,000 or so direct job losses, the majority of which will be in Louisiana.

Those sorts of numbers, spread out over several months, will still have relatively minor impacts on aggregate US GDP and employment. The same will be true for the up-to-100,000 barrels per day of production that could be forestalled for 2011, a drop in the bucket in terms of world supply. With OPEC still sitting on about 6 million barrels per day of unused capacity (which could be brought down to the 2-3 mn bpd level), there is a lot of much cheaper-to-produce oil that could be brought to the market to fill that supply gap. Little wonder, then, that crude prices have not reacted.

But further out, there could be more material consequences, depending on whether Deepwater Horizon becomes synonymous with “Exxon Valdez” or with “Three Mile Island”. The devastating but much smaller Valdez spill did not mark the end of oil tanker traffic. The Three Mile Island accident, in contrast, was a major factor in stalling growth in nuclear power generation, with dozens of plants cancelled in the five years after the incident.

With conventional oil output stagnating or falling in many parts of the world, deepwater production accounted for nearly half of the net increase in oil output in the past decade. Beyond the current moratorium, outright bans, or simply higher costs associated with tighter regulations—not only in the US, but potentially in waters off Brazil, Canada, and elsewhere—could have a material impact on what would otherwise have been the oil sand’s major competitor for non-OPEC oil development. Suddenly, those controversial Oil Sands, if only by comparison, are looking a shade greener, both environmentally, and by extension, economically.

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Tags: Alberta, BP, Economy, environment, oil, OPEC