The Futility Of Oil Spill Cost Estimates

The Wall St. estimates of the cost of the BP Deepwater Horizon oil spill catastrophe are these: Analysts at Morgan Stanley put the figure at $3.5 billion, while analysts at Citigroup, Evolution Securities and Panmure Gordon put cleanup costs at under $1.1 billion.

The CEO of BP plc (NYSE: BP) said that his company will pay all the expenses of the spill which may include the cost to the fishing industry in Louisiana which could be $2.5 billion while the impact on tourism along Florida’s Paradise coast could be $3 billion, Neil McMahon, analyst at investment firm Bernstein, said in a research note on Friday, according to Reuters.

The leak from the damaged pipeline sends about 5,000 barrels of crude a day into the waters of the Gulf of Mexico, according to the NOAA. Interior Secretary Ken Salazar told CNN that the leak could spill 100,000 barrels a day if part of the well-head a mile beneath the sea breaks off under the pressure of the oil rising from beneath the ocean floor.

NOAA maps are based on a spill rate of 5,000 barrels a day which would put the first landfall of the huge patch of crude as early as today at least in Louisiana. Based on the agency’s map, if the rate at which crude is released rises sharply, the coasts of all the US states next to the Gulf will be covered in oil. This would shutter a number of the refineries of large oil companies, which would likely drive the price of crude, now at $86 up toward $100. That, in turn, will cause an increase in the price of gasoline just as the summer driving season begins

The amount of money involved in the Deepwater disaster will not be known until long after the well has been capped or until a second well can be drilled to relieve the pressure which causes the  current leak. By most estimates the drilling process for the second well could take three months, or more.

In the meantime, guessing the costs is  futile.

Douglas A. McIntyre