This was supposed to appear in last Sunday’s money section, but due to the fiasco I previously posted about it was taken out of the budget. I spent this week shopping it around, but the few people who responded didn’t want it, so it’s time to post it on here. Note: Minimal editing was done by the section editor, but it is not copy edited, though I have done my best.
Two-and-a-half months after the explosion of BP’s Deepwater Horizon rig set off the most catastrophic environmental crisis in the country’s history, the immediate and long-term economic impacts of the incident and the ensuing Gulf of Mexico oil spill on Louisiana have become clearer, but no less bleak. Though the spill has negatively affected the state’s various sectors in a myriad of ways and to different degrees, industry leaders, researchers, government officials, and business owners all agree that the critical period is not the current state of affairs, but what lies ahead in the months and years to come.
Chris John, the president of the Louisiana Mid-Continental Oil and Gas Association, predicts that the economic consequences of the moratorium on offshore drilling will last for at least a decade.
“The thirty-three deepwater drill rigs effected by the moratorium are billion-dollar pieces of equipment, and they’re not going to stay idle in the Gulf,” he said. “They’re signing multi-billion contracts throughout the world and moving, so if the moratorium runs for six months or more the negative impact could last ten to fifteen years before we get up and running.”
Louisiana’s oil and gas industry is worth $70 billion, according to the Louisiana Mid-Continental Oil and Gas Association, and 30 percent of the United States’ crude oil comes from the Gulf of Mexico. The Gulf Economic Survival Team, formed in June under the leadership of Louisiana Lieutenant Governor Scott Angelle, estimates that since each drilling rig averages 180 to 280 employees for each two-week shift, and because each job supports four other jobs in local communities, that the suspension of drilling activity will result in a loss of up to more than 20,000 Louisiana jobs over the next 18 months. While the spill is certain to deal a devastating blow to rig workers and others directly involved in the process, it will also affect the service companies that depend on oil and gas production for profits and income.
“The spill will affect us tomorrow, but not today because BP still needs us a little bit,” said Encore Food Services LLC vice president Kendall Craig, whose Houma company provides catering for offshore rigs and vessels. “But that doesn’t mean anything once BP leaves and they keep this moratorium, and we had three major contracts drop because we couldn’t drill.”
Craig added that Encore’s employees, which number “anywhere from a hundred to three hundred” at any given time, are already feeling the dip in business.
“We have a lot of people out of work, and when they’re drilling we’re out there with them,” he said. “They have a meal every six hours because they work twenty-four hours a day, so our people are working constantly.”
Baton Rouge economist Loren Scott says his economic outlook is based on a recent Morgan Stanley study of the moratorium that reinforces the grim picture.
“They think there’s a sixty percent chancethe moratorium will last twelve to eighteen months, and a thirty-five percent chance it will last up to four years,” Scott said. “I think those are pretty reasonable, given the makeup of President Obama’s commission.”
When it comes to the economic damage, he added, the statistics do not discriminate.
“It’s going to rain all over the place, because on the small business side you have truckers, grocery stores, car dealerships, and a big hit will go to the healthcare industry.
“If those workers do not get that $1,800-a-week paycheck, they don’t spend.”
The “cascade effect” doesn’t end there, acknowledged Lt. Gov. Angelle, who served as secretary of the Louisiana Department of Natural Resources before being appointed to his current post just 2 weeks after the explosion.
“When these folks get laid off, they tend to not have as much money to buy a new vehicle, which impacts sales tax collections for local schoolboards,” he said.
Stephen Perry, president and CEO of the New Orleans Metropolitan Convention and Visitors Bureau, also expects his industry to sustain severe losses.
“We could have at least ten to twelve percent losses over the next year with the brand damage the spill is causing us,” he said. “The billion-dollar question for us is what unfolds over the next eight months, and if we lose that kind of business in that time frame, we’ll lose close to a half-billion dollars from the New Orleans economy, and probably seven to eight thousand jobs, so this is a very delicate moment for us.”
In the meantime, added Perry, the bureau is in the middle of a $5 million advertising and public relations campaign to preempt the cancellations happening in places like the Florida panhandle. The money comes from the $15 million checks BP gave to each Gulf Coast state last month solely for tourism market stabilization.
“We explain to our customers that the oil spill is as far away from us as Philadelphia is from New York City,” he said.
As for Louisiana’s tourism industry as a whole, Assistant Secretary at the Louisiana Department of Tourism Jim Hutchinson said that while the coastal parishes are suffering the most, the hard part is making people aware of all that the state has to offer.
“There’s a lot of things that represent a really unique culture of Louisiana, so it’s our mission right now to make people aware that there’s no reason to avoid coming down here because the strong possibility is that nothing they were planning on doing is effected by the oil spill,” Hutchinson said. “The further you get away from Louisiana, when they just watch the national media, they think that we’re all wading around in oil.”
A study that Louisiana Economic Development conducted nationwide at the end of May confirms his concerns, with 26 percent of the 1,000 people surveyed saying they have chosen to either postpone or cancel their trips to Louisiana, and 46 percent of that group believing the oil spill is as bad or worse than Hurricane Katrina.
It is therefore no coincidence, observes Greater New Orleans Inc. president and CEO Michael Hecht, that airline reservations have decreased.
“One airline reported a forty-five percent drop month-by-month that they attribute to the oil spill,” he said. “Personally, I am deeply concerned about this brand damage.”
Hotel bookings in places like Venice, La., however, tell a different story.
“They’re all fully booked by people related to oil spill cleanup,” Hecht said. “We’re seeing a bump in the near term but concerned about the midterm once cleanup ends.”
Darlene, the desk manager at the Empire Inn in near-by Buras, affirms “business is booming” because of the cleanup efforts, but doesn’t know what will happen afterwards.
“We expect a big dip,” she said about the inn’s fisherman client base. “People’s livelihood down here is fishing, so I don’t know what we’ll do.”
“The difficult times for tourism are after after the spill is stopped and hotels are vacant and restaurants lose business,” added Hutchinson. “At least the people working on the oil slick mitigate some of the financial suffering.”
Louisiana’s coastal attractions are also worried about sudden changes in business.
“Right now our attendance is better than normal, and our campsites are packed every weekend, but I think it’s because of what’s going on everywhere else,” said Tommy Jamison, who manages Bayou Segnette State Park in Westwego. “I heard that it’s [the oil slick] down in Barrataria, and that’s not too far from here, so the situation might look totally different in the next couple of weeks if we get oil in this direction.”
As the future of the state’s tourism and hospitality industries hang in the balance, United States Secretary of Commerce Gary Locke said that misperceptions are causing the greatest harm to those sectors.
“There’s no need to cancel vacations, trips, conventions, and outings, and a lot of jobs are being affected unnecessarily,” he said after visiting the Gulf Coast in June. “They are hurting a lot of people financially and affecting their livelihood and the future of their children as well.”
Misperceptions are also hurting Louisiana’s $2.6 billion-a-year commercial fishing industry, which supplies up to 25 percent of the seafood to states outside Alaska and Hawaii.
People think we’re either shut down all together, or that the seafood isn’t safe,” said Ewell Smith, executive director at the Louisiana Seafood Promotion and Marketing Board. “I will say right now that eating seafood is being scrutinized more right now than it has ever been in the history of the state, and so far we’ve gotten a clean bill of health from state agencies.”
The Board, like the New Orleans Metropolitan Convention and Visitors Bureau, has also launched an intensive public relations campaign that includes running advertisements in USAToday, but the fact remains that oyster production is at 25 to 30 percent of its usual rate, while shrimp production has dropped one-third. The same LED study indicated that 86 percent of respondents either think that oyster beds are contaminated from the spill or that they are not sure, and Vicky Pacania is concerned.
“I’ve been in business twenty years and have never seen it drop off as fast as it’s doing now,” said Pacania, who owns The Galley restaurant in Metairie with husband Dennis. “I am concerned about what’s going to happen in the next three months.”
Pacania is now getting her oysters from Texas, but does not know how long she can keep serving them for. The Galley also sells softshell crabs at Jazz Fest, and Pacania is already thinking about 2011.
“I don’t know if I’ll be able to get them, or they could be $80 a dozen by that time,” she said.
Meanwhile, the restaurant is bracing itself by adding barbecue ribs and fried chicken to its menu.
“Everything here is from Louisiana,” said Pacania. “There will never be a Chinese shrimp in this restaurant.”