Oil's Well That Doesn't End Well For This Oil Well, Part 4

So the people in the energy industry analysis game are crunching the numbers on the Deepwater Horizon disaster/Lake Palin, and even the best case scenario is outright catastrophe.  Annie Lowrey reports on the analysis by David Kotok of Cumberland Investors (emphasis mine:)

Containment chambers are put in place and they catch the outflow from the three ruptures that are currently pouring 200,000 gallons of oil into the Gulf every day. If this works, it will take until June to complete. The chambers are 30-foot-high steel configurations that must be placed on the ocean floor at a depth of one mile. This has never been done before. If early containment is successful, the damages from this accident will be in the tens of billions. The cleanup will take years. The economic impact will be in the five states that have frontal coastline on the Gulf of Mexico: Texas, Louisiana, Mississippi, Alabama, and Florida.

Now keep in mind, this is the optimal scenario right now, if the containment dome gambit actually works, which is a hell of a long shot at this depth.  The "even worse" scenario is horrifying.

The containment attempts fail and oil spews for months, until a new well can successfully be drilled to a depth of 13000 feet below the 5000-foot-deep ocean floor, and then concrete and mud are injected into the existing ruptured well until it is successfully closed and sealed. Work on this approach is already commencing. Timeframe for success is at least three months. Note the new well will have to come within about 20 feet of the existing point where the original well enters the reservoir at a distance of 3.5 miles from the surface drilling rig. Damages by this time may be measured in the hundreds of billions. Cleanup will take many, many years. Tourism, fishing, all related industries may be fundamentally changed for as much as a generation. Spread to Mexico and other Gulf geography is possible. 

This is middle of the road, the most likely scenario.  200,000 gallons of oil a day for a good 90 days, two Exxon Valdez tankers worth, and pretty much the end of the Gulf coast as we know it.  That's the likely scenario.

Now here's the worst case:

This spew stoppage takes longer to reach a full closure; the subsequent cleanup may take a decade. The Gulf becomes a damaged sea for a generation. The oil slick leaks beyond the western Florida coast, enters the Gulfstream and reaches the eastern coast of the United States and beyond. Use your imagination for the rest of the damage. Monetary cost is now measured in the many hundreds of billions of dollars.

Yeah, we're talking half a trillion bucks or more, who knows.  Goodbye, fishing industry.  Goodbye, beach tourism.  Goodbye, wildlife.  Oh hey, and now the real numbers start adding up:

We expect that the Federal Reserve will extend the timeframe that we have come to know as the “extended period” in the making of its monetary policy. We do not expect the Fed to raise interest rates at all for the rest of this year, and maybe well into next year. We expect to see the deterioration of the economic statistics for the US to reveal the onset of this oil-slick crisis in May, and the negative impact will intensify during the summer months. A “double-dip” recession probably has been made more likely by this tragedy.

Yeah kids, Lake Palin may have just knocked us into a double-dip recession. There's some great news, huh?  Batten down the hatches, folks.  We just got lubed up, and where this one's going to be inserted, you're not gonna like it.  And it's not just BP who is going to hurt.

Thousands of small and independent businesses as well as larger public companies in tourism are hurt here. This is not just about the source of half the nation’s shrimp. That is already a casualty. It’s also about the bank loans for the $200,000 shrimp boat and the house the boat owner and/or his employees live in and the fact that this shock piles on a fragile financial system that is trying to recover from a three-year financial crisis. Case study, my fishing guide in the Everglades splits his time between Florida and Louisiana. His May bookings in LA have cancelled. His colleagues lost theirs and their lodge will be empty. They are busy trying to find work in the clean up. For him, his wife and eleven year old daughter, his $600 a day guide fees just went “poof”. When I asked him if he thought he had a legal claim on BP, he said he hadn’t thought about it yet but it gave him pause. As we suggested above, the $12.5 billion loss estimate is only a starter.

Anyone think for a moment that BP is still going to pay for all this?  I've got some lovely wetlands in Louisiana to sell you, too.  The reality is this disaster may very well be the shock that knocks the whole house of cards down, folks.  Offshore drilling just might be the issue in November, and both parties are on the wrong side of it.  The Democrats however do have the opportunity to prove that the federal government can and will make a difference, but if this disaster really is worth half a trillion of more in damage, all bets are off for the elections.

I just keep coming back to those big budget disaster flicks: Armageddon, Deep Impact, Chain Reaction, and more recently The Day After Tomorrow, The Core and 2012.  It's not the end of the Earth or anything that crazy, but it sure is going to be horrendous if this analysis is even in the ballpark of the total cost down the road.

It's going to be a sticky summer.