HOUMA, La.—People here are still haunted by the oil crisis that crushed the local economy, closed down dozens of businesses, wiped out 24 percent of the region’s jobs, and triggered painful soul-searching about the Gulf Coast’s entrenched dependence on the offshore drilling industry.
The disaster that caused such devastation? Not the BP oil spill a year ago. Certainly, everyone here acknowledges that the deadly April 20, 2010, explosion aboard the Deepwater Horizon rig—which killed 11 men and sent more than 200 million gallons of oil gushing into the Gulf of Mexico, coating beaches and birds with crude—was a calamity. But the economic impact on southern Louisiana didn’t come close to the one precipitated by the oil-price collapse of the 1980s, when crude plunged from $40 a barrel in 1980 to less than $12 in 1986. In the rest of the country, the falloff helped fuel an economic boom. In southern Louisiana, it triggered a free-fall.
“It was devastating,” recalls Charlotte Randolph, president of LaFourche Parish, which runs along the bayou from the oil shipyard town of Houma to Port Fourchon, the nation’s largest port devoted to servicing the offshore drilling industry. The parish’s motto is “feeding and fueling America.” “It was an abandonment of the area. There was no work. All the ancillary industries, the service industries, were affected. There wasn’t a need for a welder or a cook. The bumper sticker was, ‘Last one out of Houma, turn out the lights.’ ”
The economic impact of the Gulf spill by comparison? “Not even close,” Randolph says.
And the environmental impact of what has been called the nation’s greatest ecological disaster? “It was not considerable—to this point,” she says. “We don’t know the long-reaching effects. [But the oil] may have all dissolved.… As far as the marsh and wetlands, it didn’t get into a whole lot of the spawning areas. And it was removable. The ideal place for it to come onshore was the beach. You can sift oil out of the sand and remove it.”
What has hurt them worst in Houma—say Randolph and dozens of south Louisiana business owners, officials, shipyard and construction workers, fishermen, charter-boat operators, and restaurant owners—was the six-month moratorium that President Obama imposed on new offshore drilling and the five subsequent months it took the Interior Department to issue new permits. Environmental-policy experts say that the “permitorium” was both essential and justified; Interior waited for the bipartisan White House oil-spill commission to complete its investigation of the disaster and then wrote new safety and environmental rules based on the panel’s recommendations before it began issuing permits in February.
But even after the spill, people living on the Gulf Coast want more, not less, from the oil industry. The livelihoods of Randolph and others are bound to offshore drilling, and they say that the permitorium slowdown—and the prospect of potentially time-consuming and pricey new safety and environmental rules—raise the specter of those dark economic times in the ’80s.
Louisiana’s fundamental dependence on the offshore oil industry is a microcosm of America’s dependence on oil. Louisiana, Alaska, and other states that count on petroleum jobs and the tax revenue that drilling generates are vulnerable not only to the ravages of climate change (from melting permafrost to rising sea levels) but also to the environmental and economic devastation of offshore oil disasters. Yet oil locks them in an embrace they cannot escape, because the local politicians are loyal to the local benefactors, protecting the industry’s needs rather than pushing for transformational energy policies that might steer the nation away from oil.
Throughout southern Louisiana, where every aspect of the economy, government, and civil society is tied to the oil industry, people say that what will help them recover from the spill is new drilling—now. So, those reports that BP is in talks with the Interior Department to begin drilling more deepwater wells in the Gulf this summer?
“I’m OK with it.”
Louisiana is a classic energy state—broadly defined by economists as a state or nation so tied to oil, gas, coal, and other extractive natural resources that its entire economy rises and falls on the fortunes of those industries. The year following the BP spill has laid bare how badly Louisiana relies on energy, which supports hundreds of thousands of jobs ranging from rig workers to shipbuilders to line cooks, and supplies a tax base that pays for everything from schoolteachers’ salaries to the upkeep of levees that protect southern Louisiana from the next big hurricane.
It has also revealed that, for many on the Gulf Coast, protecting the oil industry and the jobs it provides is far more important than tightening safety and environmental rules for drillers. At the same time, it has revived a decades-long effort to lessen Louisiana’s dependence on oil by diversifying the state’s economy beyond energy extraction—and has shown just how difficult it will be to do that.
Economists have identified a core group of 13 energy states in which fossil fuels have an outsize influence on the rest of the state’s economy: Alaska, Colorado, Kansas, Louisiana, Mississippi, Montana, Oklahoma, New Mexico, North Dakota, Texas, Utah, West Virginia, and Wyoming. In 2008, energy states got an average of 6.3 percent of their revenues from oil and gas, compared with a national average of 1.2 percent. An average of 14 percent of their taxes came from the fossil-fuel industry, compared with a national average of 2 percent.
What’s more, economists say that because of the multiplier effect of all of the oil-related jobs, the economic impact is much greater. Experts say that it’s difficult to compile exact state-by-state data to determine a particular state’s economic reliance on one industry, but they estimate that at least 20 percent of the jobs in Louisiana are related to or supported by the offshore drilling industry. Even the auto industry in Michigan is thought to account for less—15 percent of jobs.
“You work in either the oil field or … an oil-service company.” —Jimmy Bouziga, Golden Meadow mayor
Of those 13 core energy states, five—Alaska, Louisiana, Oklahoma, Texas, and Wyoming—are considered the “tier 1” energy superstates in which oil and gas drilling are the monster drivers of their economies, affecting nearly every other sector by feeding thousands of secondary and tertiary businesses. Oil and gas generate an average of 8 percent of those states’ total earnings. A 2003 study by the Louisiana Energy Policy Advisory Commission concluded, “Louisiana’s economy is more dependent on energy … than any other state except Alaska. Though in absolute size the Texas energy industry is about three times the size of Louisiana’s, Texas’s economy is far more diversified and much less dependent on the fortunes of the energy sector.”
“Economists call this problem the resource curse,” says Alan Krupnik, director of the Center for Energy Economics and Policy at Resources for the Future, a nonpartisan energy and environment think tank in Washington. “It’s an economy characterized by low diversification, a lot of money concentrated in a single sector. That can lead to political power, corruption, and some degree of indifference to environmental damage. When an industry dominates, it will bring in all the subsidiary industries that supply it, but it tends to be difficult for other sectors to flourish. That’s been the case in Louisiana.”
Krupnik pointed to a slew of state statistics: “Louisiana is 49th [among the] states in life expectancy; [the] second-highest infant-mortality rate; [and ranks] fourth in violent crime; 46th in college degrees; second in percentage of people below the poverty line. It’s not fair to ascribe all of this to the dominance of oil and gas, but some of this is clearly related to that dependence.” According to a 2010 study by McKinsey, a business consulting firm, Louisiana’s traditional, oil-dependent economy will lead the state to underperform relative to the southeastern region in the next 20 years. While other Southern states are projected to gain an average of 690,000 jobs, Louisiana will add just 290,000.
Not all major energy-producing states fall into the traditional “energy state” category. California, for example, is the nation’s third-largest producer of oil, after Texas and Alaska, but its vast, diverse economy means that the industry makes up a sliver of the whole. Indeed, despite California’s oil production, its state lawmakers have been among the most progressive in enacting—and its federal lawmakers have been the most progressive in pushing for—green policies to reduce oil use and counter climate change. The less a state relies on energy production, the more it can shape its economic destiny.
Yet, even with oil’s dominance, even in the wake of the spill, it’s hard for many people on the Gulf Coast to view the region’s deep ties to the oil industry as anything but positive. Most recently, Louisiana and the other energy states experienced a reprieve from the recession that convulsed the rest of the country. As rising oil and gasoline prices have buffeted other states’ economies, most energy states’ unemployment rates have stayed below 5 percent—well below the national average, which has hovered around 9 percent.
An IHS Global Insight study found that in 2009, the Gulf’s oil and gas industry generated almost $70 billion in economic value and 400,000 jobs, ranging from mechanical engineer on an offshore platform, to pipe fitter at the equipment supplier, to waitress. The study also determined that if no laws were passed imposing further safety and environmental controls on offshore drilling, companies would increase their workforces from 91,173 direct employees in 2009 to 130,510 direct employees in 2020. Meanwhile, jobs indirectly supported by the industry—such as construction, welding, and shipbuilding—would grow from 382,250 in 2009 to 518,760 in 2020. “It’s an industry with very large multiplier effects,” said Loren Scott, an energy economist at Louisiana State University. “What would a state like Louisiana be if it did not have the oil and gas industry? Given the alternative of having it or not having it, people would rather have it.”
OIL IS EVERYWHERE
On the Gulf Coast, it’s not just the jobs that the major oil companies and their rigs provide; it’s also the work they generate for the local, independent firms that service those rigs—laying pipeline, running tugboats, and building and flying the helicopters that ferry workers out on the water. Companies like the Bayou Industrial Group, Cajun Trucking, Louisiana Machinery, and Terrebonne Motor.
One of southern Louisiana’s largest employers is the 65-year-old Bollinger Shipyards, where about 2,500 workers build boats used by the Coast Guard and the equipment that serves offshore rigs. Having two big clients make Bollinger one of the more diversified companies in the region—but it still wouldn’t survive without the offshore oil industry. “Building Coast Guard boats is a five- to seven-year process. The government is a good customer, but in order to get through that process, we need the business from the oil and gas industry,” says Ben Bordelon, an executive vice president at Bollinger. “We couldn’t exist as a pure government shipyard.… With our 10 operating facilities, it’s all focused on the oil and gas industry.”
John Breaux is a supervisor at Bollinger’s Port Fourchon shipyard, where he oversees a crew of about 40 rig builders and welders. He has lived in and around Houma his whole life, and he echoes the prevailing sentiment: “In some shape or form, it all goes back to the oil field,” he says. Breaux’s family, like so many others in Louisiana, works in the industry in some way. “My daddy was a supply-boat captain. Then he went to be a commercial fisherman—but then he went back to the oil fields.” His brother is an accountant for Shamrock Electric, which provides electrical wiring for offshore rigs.
Another shipyard manager at Port Fourchon is Jimmy Bouziga, who is also the mayor of Golden Meadow, a small boating town on Bayou LaFourche that over the past 50 years has evolved from a community of shrimp boaters to one of oil boaters and oil workers. “My son went to college; he was going to be a schoolteacher. And when he saw what a schoolteacher makes and what he could make in the oil fields, after two or three years he dropped out and went to work in the oil fields,” Bouziga says. “You got a lot of ’em who go to college for different professions, and they come out and they can’t find a job. They end up in the oil field.”
Bouziga calls this situation “a problem,” but he doesn’t have a solution. As mayor, he is focused on directing the town’s oil-tax revenue to the places where it will have the most impact—such as the high school’s vocational-training program for jobs in the oil industry. “You work in either the oil field or go into business with an oil-service company. Besides that, there’s nothing.”
As in other energy states, oil money in Louisiana doesn’t flow just to paychecks and tax collectors. Donations from big oil companies and local oil-supply firms are the exclusive source of funding for the nonprofit Larose Regional Park and Civic Center near Houma, which includes a 46-acre park, library, senior center, and swimming pool. People in Larose say that the community center—which provides swimming lessons for children, subsidized meals for seniors, after-school programs, and tennis and basketball courts—is the heart of their community.
But the center’s fate is tied directly to the fortunes of the oil industry. With the drilling moratorium in effect last year, donations slowed, dropping the budget from $1.2 million to about $800,000, Director Jasmine Ayo said. “We were afraid we wouldn’t have the budget for swimming lessons this year. We watch the industry closely, and the stock market. We talk … daily about, ‘Was another permit issued today?’ We watch to see, ‘OK, permit No. 6 was issued to so-and-so, who’s a big donor to the center.’ Ultimately, we pray for the success of the industry because that indicates the success of my program.”
Oil companies work hard to maintain a positive civic presence in Gulf communities through programs like the Larose center. “We want to know, ‘What does the state need that industry could help with?’ ” said Gary Luquette, president of Chevron North America, which donates money to Gulf Coast schools to buy computers and to local police and sheriff’s departments to purchase emergency vehicles and bulletproof vests.
Louisianans recognize that they’re too dependent on the oil industry, and the state government has tried to diversify the economy. “For years, young men, and eventually young women, were able to leave high school and get jobs in Louisiana without further education,” Lt. Gov. Jay Dardenne said. “Now we’re working to train for a changing economy. But it’s a work-in-progress. We’re not there yet.”
The governor’s office cites a number of efforts to broaden the economy: a raft of tax breaks designed to draw film producers to Louisiana and measures to boost the growth of Lafayette-based Stuller jewelry manufacturers, which employs 2,100 people globally. Washington and the think tanks have also weighed in. A September 2010 federal report on restoring the Gulf Coast after the spill, produced under the direction of Navy Secretary Ray Mabus, cited “chronic underemployment and wage stagnation … the region’s overreliance on natural resources, and the need to build support for a clean-energy future.”
The report argued that “a central component of the economic vision for the Gulf Coast involves diversifying the economic drivers that create jobs and wealth in the region.” Both the Mabus study and the McKinsey report recommended that Gulf Coast states develop such fields as alternative energy, digital media and software, next-generation auto manufacturing, and medical research. (The McKinsey study even suggests a growth area in medicine: research on obesity and diabetes, because Louisiana leads the nation in incidents of those diseases.)
State and local officials have listened to those recommendations—and responded with pragmatic skepticism. “For every one person on a rig, there’s four other people in the economy who are supported by that job,” says Michael Hecht, president of Greater New Orleans, a 10-parish regional economic-development agency that has worked with McKinsey and similar outfits on an economic-diversification plan. “The problem is that it’s hard to see how any [other] industries could ever provide as much money as the oil industry.”
James Richardson, an economist at Louisiana State University, said, “It’s like Detroit being dependent on the auto industry, or West Virginia being dependent on the coal industry. It’s comparative advantage; it’s what they do best. It’s always better to have more eggs in your basket, but the question is: If you want to diversify that part of the world, how do you do it? We can have all the studies you want about the need to diversify, but at the end of the day, no other industry is going to give back as much money.”
Among scientists, the jury is still out on just how bad the spill hurt the environment. On one hand, it’s surprising how much oil has dissipated. The beach at Grand Isle, where thick, sulfurous oil and grapefruit-sized tar balls washed up all last summer, is now a beautiful stretch of white sand. Sandpipers are playing in the waves as a family walks along the beach. Gulf shrimp, crayfish, and oysters (rigorously tested by the Food and Drug Administration) are on everyone’s plate at the nearby Lighthouse restaurant.
But look more closely and you can see that the waves still bring in hundreds of tiny tar balls—the locals call them tar babies—that look like round, black pebbles and smell like hot asphalt. Fishermen say that all you have to do to stir up oil in the water is to start a boat’s motor, and soon enough a black sheen swirls up from the sand. In February, National Oceanic and Atmospheric Administration scientists declared an “unusual mortality event” after dozens of dead dolphins washed ashore on the coasts of Alabama, Louisiana, and Mississippi—at least eight of which, NOAA said, were coated with oil from the BP spill.
Nevertheless, it seems unlikely that Congress will pass tough new safety and environmental legislation—recommended by the White House oil-spill commission—in the near future. For example, the panel advised raising the financial-liability limits for companies in the event of a disaster. The current level stands at just $75 million, less than 0.4 percent of the $20 billion that BP pledged to clean up the spill. Sens. Mary Landrieu, D-La., and Mark Begich, D-Alaska, are working on a bill to raise that figure to $150 million, but environmental advocates say that it should be much higher.
The commission also recommended that a company demonstrate the ability to pay for such a disaster before it receives a drilling permit. Smaller companies without BP’s resources say that high capital requirements will price them out of the market, but the report argues that such economic and environmental protection is vital. “If smaller companies can’t comply with that level of requirement, then maybe they shouldn’t be drilling,” said Jay Hakes, the commission’s director of policy and research.
Environmentalists see a common theme of Louisianans backing away from regulations opposed by the industry that feeds and clothes them. “They can’t tell the oil industry as strongly as they need to because they’re so dependent,” says Peter Lehner, executive director of the Natural Resources Defense Council.
It’s probably true that tougher regulations could make it more difficult for some companies to drill in the Gulf. “Rules and regulations [particularly on liability] could mean that oil companies will leave,” said Eric Smith, an energy economist at Tulane University. “The oil industry is about as international a business as you can find.” In countries such as China and Nigeria, for example, the appetite for more offshore drilling is high, while weaker safety and environmental regulations make it cheaper to drill.
But if the companies stay, they will continue to pump money into Louisiana’s economy—and even into its wetland restoration. The state’s residents say that, as bad as the spill was, it is no match for the problem that has for decades been Louisiana’s greatest environmental crisis: the erosion of its coastal wetlands, which are washing away at the rate of 25 to 35 square miles annually. As the land disappears, so do fragile ecosystems, homes where people have lived for generations, and crucial barriers that once served to protect the mainland from violent weather. The impact of the eroding coast is visible far inland: As the marshes erode and salt water creeps into the bayous, the trees and plants along the banks are dying.
Oil companies accept much, though not all, of the blame for the erosion. When they began drilling in the Gulf in the 1940s and ’50s, the firms cut deep channels through the coastal wetlands, exacerbating the erosion.
But in 2006, Landrieu helped push through a law opening up new areas of the eastern Gulf for drilling—and, for the first time, channeling a huge hunk (37 percent) of the royalties that oil companies pay to drill in federal waters directly to Gulf Coast states. (Previously, that money went to the federal Treasury.) The royalty cash, which will begin flowing in about 2016, will be set aside almost exclusively to restore the wetlands. Early estimates are that Louisiana’s share could total as much as $40 billion over a decade—but, of course, the more drilling there is, the more money there will be to restore environmental damage.
“What’s good about it is, we’ve fueled the Industrial Revolution and supported the growth of this economy,” Landrieu said. “Yes, there’s a price that was paid. The coast has sacrificed, but we’ve also benefited.”
In the coming decades, it’s unlikely that the U.S. will wean itself off oil as an energy source completely, or that Louisiana and other energy states will wean their economies off the oil industry. The current run-up in oil prices (economists project that a barrel will average more than $100 through the rest of the year) will drive a revenue boom in oil states, potentially slowing efforts to create new industries there.
Historically, steep oil prices have inflamed the energy debate, which is now breaking down as much along regional divides—energy states versus nonenergy states—as partisan ones. As ever more oil money flows into their state coffers, and out toward the educational, social services, and infrastructure programs that other states are being forced to cut, the energy-dependent states will fight harder to protect their dominant industry, resisting tough new environmental regulations and other measures that would discourage oil production. Nationally, their powerful, bipartisan bloc makes even the discussion of reform in Washington more difficult—starting with the deadlock in Congress over new offshore drilling regulations to prevent spills. “If Congress doesn’t act,” the spill commission’s Hakes said, “it increases the chance at some level that something like this will happen again.”
This article appears in the April 16, 2011 edition of National Journal Magazine.