Energy Policy:

LSU's Mason discusses report on economic impacts of drilling moratorium

As the Senate weighs its options for offshore drilling reform, how is the current moratorium on offshore drilling affecting oil companies and jobs numbers? During today's OnPoint, Joseph Mason, a professor of banking at Louisiana State University, discusses a new study, commissioned by the American Energy Alliance, on the economic effects of the drilling moratorium. He explains why he believes the government is dragging its feet in investigating the circumstances of the Gulf spill and gives his take on the various policy options being discussed in Congress.

Transcript

Monica Trauzzi: Welcome to the show. I'm Monica Trauzzi. Joining me today is Dr. Joseph Mason, professor of banking at Louisiana State University. Dr. Mason, thanks for coming on the show.

Joseph Mason: Thanks for having me.

Monica Trauzzi: Dr. Mason, you recently released a report outlining the economic costs of a moratorium on offshore oil and gas drilling in the Gulf. The report was paid for by the American Energy Alliance. What are the key findings and numbers coming out of this report?

Joseph Mason: Well, firstly, although the report was paid for by the alliance, the alliance didn't play any part in dictating the conclusions or directing the analysis in the report. The important aspect of this report was really to undertake the economic analysis that the administration failed to undertake over the last several months that the moratorium has been in place. We took just the basic moratorium that was initially announced, 33 deepwater platforms, for six months expiring in November, assuming that the industry would bounce right back to take kind of a best-case scenario of the economic effects of the moratorium. And found in total U.S. effects, about $2.7 billion in reduced output, $500 million of wages, 12,000 jobs and about $300 million in tax revenue is foregone at the stroke of a pen during a recession.

Monica Trauzzi: But isn't the moratorium really just seeking to put pressure on the oil industry to clean up its act? Isn't it a necessary step in order to prevent future job losses?

Joseph Mason: Well, a necessary step in what respect? Putting pressure on producers who already have safe operations? In my view, this is really a safety concern. Now, I'm open to other arguments here. If we want to audit the other operations in the Gulf I'm open to finding that four or maybe five other operations may be similarly unsafe, but to the extent that we understand today, which is the same understanding we had 60 days ago, there was one unsafe operation that has been taken to generalizing the shutdown of a total 33 deepwater projects and a de facto shutdown of now many more shallow water projects that aren't included in my analysis, by the way. So, the moratorium is already expanding beyond its initial intent and certainly beyond my economic analysis, while nothing is really being done to sort out the causes or put in effect cures to the problems in the Gulf.

Monica Trauzzi: You testified before the Senate Small Business Committee this week on this subject. So, you're making the economic argument for lifting this ban, but what about the environment, the environmental argument against it? I mean don't we really have to look at the impacts on the coastal communities and what could happen to those areas, the job losses in those areas if a spill like this happened again?

Joseph Mason: Well, first of all, as an economist, I'll predict a spill like this will happen again. Hopefully, the causes will be different and hopefully we will have a better response to these crises which do occasionally happen and, by the way, happen much more often in other countries with less stringent safety standards. But this brings up a very important point, that it's crucial to separate crisis response from the much longer process of determining how regulation can be improved to at least avoid repeating the same crisis. Crisis response, in this case, arguably was lacking. You might envision kind of a most heavy-handed crisis response of coming in, capping the well immediately and immediately auditing all similar projects in order to preserve economic output from the Gulf. Of course, that was not what was followed and, in fact, we're still kind of stuck in the crisis response mode, uncertain what to do pending this six-month and possibly longer moratorium. But, again, that's a separate question than from the deeper investigation that needs to be undertaken as to how to reform regulation, how we might change the system to perhaps have different inspection teams on projects, different safety protocols required by regulators and so on and so forth that might, again, in the long-term help repeat a similar spill.

Monica Trauzzi: Let's talk policy for a second. Why do you believe some of the policies that have been introduced in Congress would put U.S. companies at a competitive disadvantage to our international counterparts?

Joseph Mason: Well, so far it appears that the policies that are emerging this week are taking the Gulf disaster, using the rhetoric of the Hill, to turn that into a broad-scale industry problem that can justify taxing the industry in order to pay for the budget shortfalls arising from the energy legislation that is expected to be introduced this fall. It really appears to be kind of a twisted dance and, in effect, magnifying the Gulf crisis to something that it's not. And I think that is the most damaging approach for the industry overall. It certainly would result in increased tax revenues to the industry and, remember, we do live in a global world where these firms are free to base themselves anywhere they want. It could drive many of these firms out of their U.S. base.

Monica Trauzzi: All right, so you're saying that this issue is being magnified by policymakers. Justify that a bit for me, because I'm sure it sounds surprising to many viewers right now. This spill has been a big deal, both economically and environmentally.

Joseph Mason: I'm not saying it's a small spill. Certainly, it's on a grand scale for the industry, but, again, it's one platform. It's one combination of companies. While it may be true that all deepwater projects in the Gulf are currently owned by BP, not all deepwater projects in the Gulf have the same combination of personnel and contractors that led to the poor decisions made on the platform that led to the disaster. Those are the important facts that need to be unearthed and without evidence to vilify the rest of the industry, I certainly think the policymakers are wrong in doing so. Again, I'm open to changing that opinion if presented with that evidence, but we've had 60 days now and the clock is still counting and the evidence still has not been presented.

Monica Trauzzi: So, let's talk specifically about these two proposals, the Democratic proposal versus the Republican proposal that we've seen this week on offshore drilling reform. Does the majority proposal adequately address some of the issues that we're talking about today on offshore drilling and the oil industry's response to these catastrophes?

Joseph Mason: Now, I'm familiar with the tax proposals, the Section 199 roll back for the oil industry, also the rollback of the tax parity conditions, which, in my view, are merely revenue enhancers. They have nothing to do with safety in the Gulf.

Monica Trauzzi: Many people say that the GOP proposal is more friendly to the oil industry. Do we have any reason to be friendly to the oil industry at this point?

Joseph Mason: I think we need to acknowledge the role of oil in U.S. energy demands. First of all, we have to acknowledge that Americans really like lots of energy. I'd like to say to friends outside the Gulf when you're really ready to put away your cars, we'll be happy to turn off those wells. But I think Americans really like to think that something goes on somewhere else that can be imagined to be clean and this stuff comes out of this nozzle without any icky smell and runs my car just the way I like it at an affordable price and I'd like to maintain that. And I think that's a very naïve belief. I don't think there's any reason to punish this industry that is supplying what Americans demand. And efforts to then try to skew markets into what are purportedly green alternatives, with their own unintended consequences and predisposition toward similar magnitude environmental damage, really risks skewing markets in the same way that we are dealing with right now from skewed home markets arising from housing policy. When does the madness stop? And so it's one thing to say the Republican proposal might be slightly more friendly toward the industry or skew markets in a slightly different direction, but I think that we need to look very, very hard at energy policy overall and look at the important role that oil and gas play in the U.S. and in transitioning to new technologies over the long term.

Monica Trauzzi: Final question here. What do you see for the future of offshore drilling policy in the U.S.?

Joseph Mason: Unfortunately, nothing good. I see the equivalent of a 2400 page financial reform package hitting Congress in the fall, except I think 2400 pages will now be considered small. I think Congress will see a need to do more than they did for the financial industry, so think of a 3000 page bill, just like financial reform, with very little of it having to do with the environment or safety offshore, but a lot having to do with pet causes and penalizing the industry when it's down.

Monica Trauzzi: All right, we're going to end it there. Thank you for coming on the show.

Joseph Mason: Thank you.

Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.

[End of Audio]

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