Moratoridone.

Almost six months after the Obama administration’s controversial moratorium on deepwater drilling was initially imposed, the gulf drilling ban was finally lifted today. As I blogged about in early September, the moratorium has resulted in an unemployment increase in the gulf region, and in productivity stagnation in an already fragile economy.

The news of its repeal is good news, but there are strings attached. The moratorium is gone, yes, but drilling likely won’t resume before the end of 2010 due to companies needing to re-apply for drilling rights by demonstrating their compliance with the new regulations the Obama administration has begun to levy. It’s important to consider the timing of the announcement, too. The administration has repealed the ban six weeks previous to its originally planned date in an effort to show their focus remains on the economy.

But there are question marks surrounding the future of the gulf energy industry. For starters, how long will the permit process take to resume drilling? The White House’s projections of 2010 are just that: projections; and it’s a real possibility that the process will be subject to delay. Yet much of the concern is about small businesses or midsize companies that cannot afford the idle waiting time or the new safety regulation costs. Complimentary manufacturers are also feeling the pressure. Gulf Island Fabrications Inc., a builder of massive steel platforms used by the oil and gas industry, laid off a third of its workforce, or about 500 employees this year.

It’s unclear to what extent the new regulations will affect gulf coast companies and the industry as a whole, but there is no doubt that the cost of production is going up – a lot.


Sources: The Wall Street Journal, Foreign Policy