Hasty Reactions Could Doom Future Of Offshore Drilling

Todd Shriber
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Reaction to the massive oil spill in the Gulf of Mexico caused by an explosion at a BP-leased rig two weeks ago has certainly been predictable in the financial markets. BP, one of Europe's largest integrated oil companies, and oil services firms such as Cameron International (CAM), Halliburton (HAL) and Transocean have seen healthy chunks of their respective market values disappear in the past week. Those bearish moves, while not palatable for shareholders, were at least predictable.

Something else that has been fairly predictable in the wake of this tragedy is the reaction of the political chattering class. Most politicians are not camera shy, but their rhetoric regarding the BP (BP) spill is especially sharp because 2010 is an election year. Politicians from a wide swath of states and both parties are eager to tell whatever networks will interview them that offshore drilling is dangerous and should not be part of America's energy future.

President Obama laid the blame for the spill firmly on BP when he visited the Gulf coast area last weekend. Obama can afford to take a hard-line against oil companies because it boosts his political standing with the Left and most of the big oil producing states, particularly in the Gulf region, are not states he won in 2008 or will win in 2012. And this is why the President has to tread carefully when it comes to the coal industry because has to carry the eastern coal producing states if he wants to win another term.

Some politicians are using incendiary tactics. Florida Sen. Bill Nelson met with BP CEO Tony Hayward earlier today and told reporters after the meeting that oil from the spill could make landfall in Florida as early as Wednesday. As if the alarmist tone was not enough, Nelson, a reliable opponent of drilling off Florida's coasts, told reporters that he told Hayward that Transocean (RIG), the rig's operator, is culpable to some degree. Hayward, of course, agreed. That did not stop Nelson from declaring that he got the feeling BP would fight Florida when it comes to compensation for economic damages.

Nelson is not up for reelection this year, but the spill and the future of offshore drilling will be a hot-button issue in Florida this election season. The state's other senate seat is open and Florida Gov. Charlie Christ has become an independent, he used to be a Republican, to throw his hat in the ring. With no clear leader as of yet, all three candidates are certain to make hay of the drilling issue.

So moved by images of oil-stained birds was California Gov. Arnold Schwarzenegger that he withdrew his support for expanded drilling off the coast of Santa Barbara County. Given Schwarzenegger's previous vocation, it is not surprising that he was stirred by images from the Gulf, but the decision is curious nonetheless when considering that California faces a $20 billion budget deficit for the 2010-11 fiscal year.

Of course, Schwarzenegger offered nothing in the way of alternatives to help California plug up its fiscal holes. For those hoping that Schwarzenegger's imminent departure from office (his term expires in November) may help offshore drilling in California see a better day, think again. Media reports in California said today neither of the three legitimate candidates to replace Schwarzenegger are likely to seek expanded drilling off California's coast.

The problem is not that these politicians are being critical of BP and offshore drilling. The problem is that they do so with an alarmist tone and no substantive alternative to oil. Arguing that the spill means alternative energy should see further investment is fine, but refusing to acknowledge that solar, wind, etc. are not viable alternatives as transportation fuels cheapens the argument.