Course:ECON371/UBCO20010WT1/GROUP3/Article3

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Summary

The devastating British Petroleum (BP) oil spill had a significant impact on both the oil industry and the environmental stability of the Gulf of Mexico. The National Oceanic and Atmospheric Assiciation (NOAA) estimates the total loss of oil prior to it being caped in July and then sealed in August to be around 4.9 million barrels of oil.

The dispersion breakdown for the 4.9 million barrels of oil was less than impressive with regards to the environment, with 25% of it evaporating instantly and 26% still unaccounted for. Of the remaining 49%, 24% has been dispersed either naturally or through chemicals and 25% has been either skimmed or siphoned up or burned off.

Louisiana, Mississippi, and Alabama along with the Gulf of Mexico with have to keep a close eye on the long-run effects of this spill. Non-government scientists along with James Cowan, a Oceanographer at Louisiana State, are skeptical that the spillage estimates are too small and the dispersion technique may have just sunk the oil to the bottom, where it can still make it's way into the food chain.

Economic Analysis

Fishing Industries

Initial damage estimates for the BP oil spill were very large with huge losses expected in both the fishing and shrimp/prawn industry. Fisheries are now re-opening; however, most of the losses in these industries will occur over the long-run (similar to the environmental damage in the southern United States from the spill) in both quantity and quality of the fish and shrimp product.

BP as a Company

British Petroleum (BP) has suffered a massive hit in both their stock portfolio as they managed to only collect 25% of the 4.9 million barrels of oil that spilled into the ocean. Worse than the spilled oil revenues was the loss to BP's public image, as CEO Tony Hayward resigned on July 27th taking with him a 12 million Euro severance package. In addition to the loss of the rig, revenues, CEO, and public image, BP is also spending 50 million a year on cleanup efforts as well as financing NOAA research.

Prof's Comments

You don't have much here. One thing this article highlights is the difficulty in measuring the damage. Firms choose how much to spend on spill prevention before they get the bill. They often don't know what the bill will be because they don't know how big the spill will be. How much protection they will choose depends very much on the type of liability. What is the type of liability here? What sort of liability is most likely to get efficiency?