BP Gulf Oil Spill: The Worst-Case Scenario Looms for the Company and the Region

It's hard to imagine how the Gulf oil spill could get any worse. In the 41 days since the Deepwater Horizon oil rig exploded and killed 11 workers, millions of gallons of oil have spilled into the Gulf; hundreds of birds, turtles and mammals have died; at least 100 miles of Louisiana's coastline has been inundated with crude; and commercial fishing areas continue to be closed, threatening the livelihood of more than 27,000 people.

Suddenly, the worst-case scenario is looking a lot more likely. BP, the owner of the well, has now pinned its hopes to containing, not stopping, the flow of oil. And the effort could temporarily increase the volume of oil spilling from the well by 20 percent. The company's best plan to plug the leaking well will take two more months to complete.

UPDATE: Take a look at this simulation from the National Center for Atmospheric Research released June 3. This isn't a forecast, but one of six simulated paths the oil could take.

Beyond Louisiana

Short term: The spill has hit Louisiana the hardest. But that could change very soon. The National Oceanic and Atmospheric Administration's 72-hour trajectory forecast has the spill moving oil towards the Mississippi Delta. Oil also may move north to the barrier islands off Mississippi and Alabama beyond the forecast period.
Long-term: Consider another two months of up to 19,000 barrels of oil gushing into the Gulf every day. The Gulf coast would no longer be the only victim. The worst-case scenario would mean oil dragged into the Loop Current, which would deliver the crude to the Florida Keys. From there, oil can move south and enter the Gulf Stream, a powerful ocean superhighway that carries warm water up the eastern seaboard. Florida's east coast, the coral reefs in the Keys, northern Cuba, the Carolinas and Virginia would be at risk.

What about BP? Irish bookie Paddy Power already has 6-to-4 odds that CEO Tony Hayward loses his job. But the worst-case scenario extends far beyond Hayward's sacking. BP's oil-spill recovery operations have cost the company nearly $1 billion, to date. The spill may cost BP $22 billion if it continued through August, according to an ING analyst Jason Kenney. UBS suggests BP will face $12 billion in cleanup costs, compensation and fines. If ING's prediction is accurate that would mean more than BP makes in a year. BP profits were $16.7 billion in 2009.

The oil and gas company has received an avalanche of class-action lawsuits from courts in Texas, Louisiana, Alabama, Mississippi and Florida. the lawsuits come from restaurant owners, local fishermen and of course, workers on the Transocean oil rig that BP was leasing.

All of this will at the very least affect BP's bottom line for several quarters. At the worst, a company unable to recover financially for years, pushing shares down to all-time lows. This would leave the door open to rivals like Shell (RDS) to carve out more profits and heck, maybe even buy the BP on the cheap.

Wildlife habitats: Everything from bluefin tuna to plankton As the spill grows, so does the devastation to the marine and coastal wildlife habitats. What does that mean, exactly? Up to 400 Gulf coastal species could be affected. Along Mississippi's coast, the largest nesting colonies of least terns in the U.S. can be found. The Atlantic bluefin tuna, which has suffered a significant decline in spawning stock since 1950, are now moving into their spawning grounds in the Gulf. Their spawning habitat overlaps the Deepwater Horizon oil accident site. Other at risk species include up to 5,000 bottlenose dolphins that may be calving in the path of the oil spill; sperm whales, some of which lives just south of the Mississippi Delta; and plankton, the food source that larger animals depend on.

If oil hits the Loop Current, the vast array of sea life in the Florida Keys would be hard hit. Florida's mangrove forests -- forest of tropical trees that act as important nurseries for coral reef fish -- would become saturated with oil.

Seafood industry: Oysters and high unemployment The spill has already forced NOAA to close 25 percent of federal waters to fishing. A bigger spill means more closures and more folks out of work. Louisiana's $2.4 billion seafood industry is responsible for up to 40 percent of the seafood caught in the continental U.S. and is the No.1 provider of oysters, crab, crawfish and shrimp.

Among the at-risk industries are oysters, many of which come from beds along the Gulf coast. Many oyster beds have already been shut down because of the oil spill. The spill could hit oysters in two ways: by smothering the beds themselves; and once the water warms up, it could kill hatching oyster larvae, National Geographic noted.

Death to tourism The coastal states rely heavily on tourist dollars to keep their economies afloat. Here are some numbers to put the worst-case scenario of no tourists in perspective. The spill hasn't even reached the Florida panhandle or the Keys, and already the tourists are choosing to stay away or cancel planned trips.

The Gulf coast tourism industry valued at $20 billion
Florida's tourism industry valued at $57 billion
South Carolina's tourism industry valued at $18.4 billion

Hurricane season starts Tuesday This year, forecasters expect one of the most active and volatile hurricane seasons ever. And unfortunately for us, hurricane season starts Tuesday and runs right through to November. NOAA is predicting a 70 percent probability there will be between 14 and 23 named storms. Of those, there will be eight to 14 hurricanes with top winds of 74 mph or higher and three to seven could be major hurricanes.

Everything will depend on the path, speed and strength of the hurricane as well as the size and location of the spill, the NYT notes. And those factors are impossible to predict. But here's what we do know. If a storm were to pass to the west of the spill, the oil would probably be pushed to the coast. A storm to the east would push the oil away from the coast.

Offshore drilling hurt, and not just by the moratorium The oil spill has already caused President Obama to extend a moratorium on deepwater exploratory drilling in the Gulf, cancel a lease sale in Virginia and delay exploration offshore Alaska. But there are other ways to hurt the offshore oil and gas industry. Large claims from the oil spill will drive insurance premiums higher and could price smaller companies out of the market, Devon Energy president John Richels said recently.

A worst-case scenario in the short term would see new offshore permits ended for good. In the long term it would mean shutting down producing deepwater wells, a prospect that appears unlikely right now. If that were to happen, BP wouldn't be the only company to suffer. The oil and gas industry employs thousands of people living in the Gulf coast region. The offshore industry's demise would produce a similar result for its employees.

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