Why the Gulf Spill Won't Touch Most Consumers

With the pain contained to the Gulf region, energy reforms will be as tough as ever

By SHARE

It's horrifying. Infuriating. Depressing, even. But the ghastly oil spill in the Gulf of Mexico is likely to have little impact, if any, on the majority of Americans.

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The damage to the Gulf region, of course, could be catastrophic, especially in Louisiana. Seafood and tourism are huge sources of jobs and revenue for the star-crossed state, and the undersea blowout could disrupt those industries for years. The Harte Research Institute at Texas A&M estimates the annual damage to Louisiana alone at nearly $2 billion. Other states like Mississippi, Alabama, and Florida will obviously be hit as well, as the oil slithers up on beaches far from the wellhead. Damage to the whole region could top $4 billion per year, for an uncomfortably long time.

Aside from outrage, however, most Americans won't feel a thing. And that could limit the scope of reforms resulting from the spill, along with any real changes in our love-hate relationship with oil.

The Gulf region, for example, accounts for about 15 percent of all the seafood caught in the United States—and 73 percent of the shrimp. With about one-third of the Gulf now closed to fishing, prices are going up and some fish is becoming scarcer. But a 30 percent rise in the price of shrimp or oysters isn't the kind of thing that wrecks the family budget. For most people, seafood is a discretionary good, something that might be nice to have every now and then, but isn't essential. Seafood, in fact, is a tiny part of the American diet. The average American eats just 16 pounds of seafood per year, compared to 76 pounds per person in France and 139 pounds in Japan. Americans eat five times as much chicken and four times as much beef.

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So as the price of Gulf seafood goes up, price-conscious consumers will simply buy other kinds of food, with no harm to their lifestyle or well-being. Seafood importers may even benefit from the spill. While the domestic supply of fish has stayed flat over recent years, imports from Asia, Latin America, and elsewhere have been rising. The Gulf spill could be a chance for importers to increase their market share further.

The same goes for tourism. Befouled beaches could spell disaster for the "Redneck Riviera" in Mississippi and Alabama and for Florida's Gulf Coast, but there are hundreds of warm-weather destinations that people in Atlanta or Minneapolis can visit. New Orleans is an American original, but if tourism falls there it might pick up in Nashville or Austin. Again, the pain may feel intense in the region, but it will mostly stay localized.

Then there's the oil supply itself, which is wholly unaffected by the crude erupting into the Gulf. The Macondo reservoir that BP was drilling into wasn't producing oil when the well exploded, it was merely being tapped for production at some point in the future. So the fiasco in the Gulf hasn't affected the global oil supply by a single barrel. In fact, oil prices have fallen by about 12 percent since the gusher erupted on April 22, driven down by a flatlining global economy.

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One thing that could affect the actual oil supply is a moratorium on deepwater drilling in U.S. waters. The Obama administration has ordered a six-month delay in the drilling of new wells, while it figures out what went wrong with the BP operation. If there ends up being permanent new limits on deepwater drilling it could reduce domestic oil production, raising prices. Still, for all the fancy technology that it takes to operate at the bottom of the ocean, deepwater U.S. wells account for only about 170,000 barrels of oil per day—less than three percent of the 7 million barrels Americans consume. In the short term, "That would be easy to replace," says Sarah Emerson, president of energy consultancy ESAI, "because right now there's a lot of inventory worldwide." So even a fairly drastic policy change would have a minimal impact on consumers.

With the volume of the Gulf spill now topping the 1989 Exxon Valdez disaster, it's natural to anticipate pivotal changes that will arise from it. But the drama always fades, or leaves the headlines, at least, and so does the impetus for change. The Valdez spill led to reforms in shipping practices and safety standards for oil tankers, but it didn't change anything about the biggest factor of all: Americans' demand for oil. A lot of Americans felt bad about the Valdez spill, but their behavior didn't reflect their remorse.

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The one thing that will clearly force Americans to use less petroleum is higher prices, as we learned in 2008, when gas hit $4 per gallon and drivers abandoned big cars. If the BP spill had caused a similar spike in prices, then President Obama and other green-energy advocates would have a rallying cry that would make pocketbook sense—a much easier sell in a tough economy than energy independence or "green jobs." Alas, no such luck. "A couple of years from now," says Emerson, "we'll look back on this and it will either seem like a bump in the road, or a defining moment." Bet on the bump.