Analyzing the Gulf Coast Oil Spill

This entry was posted by on Saturday, 1 May, 2010 at

An accident in the Gulf of Mexico created a large oil spill that is still growing, and British Petroleum has to pay for the cleanup costs. Already costing millions of dollars a day, the cleanup expenses will increase even more once the spill reaches the shore of states such as Florida and Louisiana. British Petroleum will be paying a lot of the damages, but how much will the total cost of this spill add up to?

British Petroleum is paying several costs. The oil spill itself is expensive to clean up. A comparison can be made to the Exxon Valdez oil spill, a famous accident that occurred in Alaska twenty years ago. The pilot of the oil tanker, who was suspected to be drunk at the time, crashed the tanker and released more than 257,000 barrels of oil into the ocean. This is equivalent to about 38,800 metric tons, according to the Alaska website.

The Exxon accident is actually not the largest oil spill on record, it is well known because of the amount of environmental damage and cleanup cost. There was a very large oil spill in the Gulf of Mexico in 1979, at an oil well named the Ixtoc I. The well was not shut down for almost a year, and the oil that was released caught on fire, sending a vast plume of smoke into the air. Although this location is farther south than the BP spill, the oil still reached as far as the beach of Texas. Coastal areas of Mexico absorbed much higher amounts of oil, affecting beach resorts like Veracruz as well as the fishing industry, tropical fruit plantations, and other businesses. Information on exactly how much oil was released in this accident varies. It is suspected to be at least 454,000 tons, according to Cedre. This figure is more than ten times as much oil as the Exxon spill.

Although the cost of the barrels of oil is significant, it is much less than the cost of the environmental cleanup. A million barrels at $80 each is 80 million dollars, and the cleanup costs, including fines and other expenses, were in the billions for both British Petroleum and Pemex. These spills occurred several decades ago so the effect of inflation is added to cost estimates of the current spill. According to CNN, the biggest hit so far was to British Petroleum’s stock price; since the oil spill occurred the value of BP’s stock has dropped by 25 billion dollars. If the well can be capped quickly, the cleanup and restoration costs will not be that high. BP planned to give itself an environmentalist image by manufacturing green power supplies such as solar panels. Their credibility is now destroyed, losing them goodwill and potential investors. Federal and state legislation is likely to block drilling in many locations, especially offshore, where BP was planning to drill for oil, eliminating expected revenue and leaving BP with properties that other oil companies will not want to buy.

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