Aftermath in the Gulf

Signs of Recovery

While it will only be with years of hindsight that we can determine the total environmental impact of the Macondo blowout in the Gulf of Mexico, there are encouraging signs that the environmental devastation will be less severe than many had feared. Today a reader sent me this encouraging story:

Oil spill area coming back to life

More than a dozen scientists interviewed by The Associated Press say the marsh here and across the Louisiana coast is healing itself, giving them hope delicate wetlands might weather the worst offshore spill in US history better than they had feared.

Some marshland could be lost, but the amount appears to be small compared with what the coast loses every year through human development.

Irving A. Mendelssohn, a coastal plant ecologist at Louisiana State University, said the wetlands data so far is good news for fishermen who depend on the ecosystem to produce shrimp, menhaden and other seafood.

“My gut feeling, based on what I have seen, based on the recovery people have observed, I doubt that the impact to the wetlands is going to create a significant problem for our coastal fisheries,” Mendelssohn said.

Good news indeed, but let us not let our guard down. Just because the worst case may have been avoided doesn’t mean the risk of a worst case isn’t still there. The industry will need to remain diligent in identifying and addressing root causes, and in coming up with better response plans. (I previously noted the $1 billion investment in a containment system to mitigate against this possibility in the future: New Oil Spill Containment System to Protect Gulf of Mexico Planned by Major Oil Companies).

Signs of Higher Prices

On the other hand, I have maintained from the beginning that beyond the environmental impact, there would be a very real impact on future oil supplies as a result of this incident. The International Energy Agency has now estimated that the loss in 2011 may be 100,000 barrels per day:

IEA Raises Gulf of Mexico Output Loss to 100,000 Barrels a Day

Aug. 11 (Bloomberg) — The International Energy Agency raised its forecast for Gulf of Mexico oil production loss to as much as 100,000 barrels a day in 2011 because of BP Plc’s crude spill and subsequent deepwater drilling ban.

The Macondo spill will curb Gulf output by 60,000 barrels a day this year, Paris-based IEA said today in its monthly report. The agency has doubled its estimate from last month, when it also said the reduction may increase to 100,000 barrels to 300,000 barrels a day in 2015.

With oil supplies still tight, this will put additional pressure on prices. The likelihood that we will continue into the Long Recession scenario remains high in my view.