BP Oil Spill Economic Impact

Costs of the Deepwater Horizon Oil Spill

On January 16, 2018, BP PLC announced it would take a $1.7 billion charge for expenses related to the 2010 Deepwater Horizon oil spill. It expects cash payments of $3 billion for the year. As of July 14, 2016, BP had spent $61.6 billion in court fees, penalties, and clean-up costs. 

On Sept. 4, 2014, a federal judge ruled that BP was "grossly negligent." The company was fined a record $18 billion under the Clean Water Act. The court ruled that BP repeatedly cut corners to boost profits

BP's penalties didn’t begin to address the damage done to human life, wildlife, the environment, and the local economy. Here are the details.

Key Takeaways

  • The BP oil spill, also called the Gulf oil spill, was the biggest ever in U.S. waters
  • Worse than the Exxon Valdez oil spill, was one of the world’s worst environmental disasters
  • Ten years after, this disaster continues to harm wildlife and the environment

Worst U.S. Spill Ever

bp oil spill cleaning pelican
Spencer Platt/Getty Images

The BP oil spill began when the Deepwater Horizon rig suffered an explosion on April 20, 2010. Of the 126 workers at the site that day, 11 were killed by the blast. 

In its first month, BP spilled 30 million gallons of oil into the Gulf, three times the Exxon Valdez oil spill. 

Over the next three months, oil leakage in the Gulf of Mexico created the biggest oil disaster in the United States. Scientists estimated 184 million gallons were spilled. This is 18 times the amount spilled by the Exxon Valdez. 

Its economic impact is far worse. The Gulf fishing and tourism industries produce $3.5 billion to $4.5 billion a year. It cost BP $4 billion to contain and clean up the mess and another $4 billion to $5 billion in penalties. 

Satellite images showed the oil slick covering 68,000 square miles and impacting the shoreline from Gulfport, Mississippi to Pensacola, Florida. At the time, the National Oceanic and Atmospheric Administration forecast that there was a 60% chance the slick would reach the Florida Keys.

Environmental Effects

Oil washed up on the beach at Grand Isle State Park, Louisiana, June 5, 2010.

Matthew D White/Getty Images

Almost 10 million pounds of oily residue was removed from Louisiana shorelines between June 2011 and April 7, 2013. Even after the cleanup, more than 200 miles still had this oily residue embedded in its marshlands. It killed vegetation and caused erosion.

While Louisiana was the hardest hit, Alabama, Mississippi, and Florida shorelines were also impacted. Here's how much oil residue was collected in each state.

  • Louisiana - 9,810,133 pounds
  • Alabama - 941,427 pounds
  • Mississippi - 112,449 pounds
  • Florida - 73,341 pounds

Impact on Fisheries

The oil disaster affected the cellular function of the killifish, a common baitfish at the base of the food chain. It harmed the development of larger fish such as mahi-mahi and reduced the number of juvenile bluefin tuna by 20%.

Impact to Wildlife

In 2011, half of the area's bottlenose dolphins were sickened by lung disease. An NOAA study reported this type of disease is caused by "toxic exposure to oil." Almost 20 percent were so ill they weren't expected to live. BP contested the study. 

Between May 2010 and November 2012, more than 1,700 sea turtles were found stranded. This is compared to 240 normally found a year. In addition, 930 dolphins and whales were discovered stranded during the period from February 2010 to April 2013. Only 20 a year are usually found in this state. 

To replace lost foraging habitat for ducks and other migratory birds, 79,000 acres of harvested and idle rice fields have been intentionally flooded. 


The damaged blow-out preventer that caused the oil spill

Thomas M. Blue/Getty Images

On April 20, 2010, an explosion rocked the $600 million rig. Prior to that, it produced 336,000 gallons of oil per day. It had 700,000 gallons of fuel oil stored for operations. BP leased the rig from Transocean for $500,000 a day. A second explosion three days later sunk the rig.

At first, BP reported that no oil was leaking. But on April 24, the Coast Guard said that 42,000 gallons of oil a day was leaking from the rig at 5,000 feet below the surface. At that point, BP started trying to cap the well and stop the leakage. They first used robots to repair and activate a shut-off valve.

On April 28, the government announced the site was leaking 210,000 gallons of oil a day. The oil slick already covered a 5,000-square-mile area. On May 2, 2010, BP started drilling a relief well to intersect the damaged well. It planned to pump in mud and cement to close off the leak.

The wells weren't successful until August. Until then, BP attempted to capture the leaking oil. On May 16, they inserted a tube that collected 84,000 gallons a day. Two days later the NOAA declared 19% of the Gulf to be a "no-fishing zone." The next day, thick oil started blanketing the Louisiana wetlands.

On May 27, scientists announced that the oil had been leaking at a rate of 798,000 gallons per day. On June 10, this estimate increased again to 1 million gallons per day. 

Worse Than the Exxon Valdez

BP oil Spill on fire

John Kepsimelis/Getty Images

The BP oil spill damaged the shorelines of four Gulf States: Louisiana, Alabama, Mississippi, and Florida. Worse yet, it took three months to build the relief well to stop the flow. It immediately threatened more than 65,000 acres in four National Wildlife Refuges, home to endangered species. Approximately 40% of the coastal wetlands of the lower 48 states is located in Louisiana. It's worth $96 billion.

The impact of the Exxon oil spill lasted for decades. In 1989, the Exxon Valdez crashed onto the shore of Prince William Sound in Alaska. The accident contaminated 1,300 miles of coastline with 250,000 barrels, or 11 million gallons, of oil. The tourism industry immediately lost over 26,000 jobs and more than $2.4 billion in sales. By 2003, it still hadn't recovered completely.

Did It Benefit the Economy?

A dead sea turtle is carried out of the surf

Mario Tama/Getty Images

JPMorgan Chase calculated that oil spill clean-up efforts actually boosted the economy in 2012. BP spent $6 billion to hire 4,000 people to clean up the spill that year. This contributed more than the $700 million lost in fishing and tourism revenues and the 3,000 jobs lost to the six-month deep-water drilling moratorium. But that didn't count long-term costs or things that aren't counted in gross domestic product such as the value of human and animal life that was lost.


An American flag lays in a slick of oil that washed ashore from the Deepwater Horizon oil spill in the Gulf of Mexico on July 4, 2010 in Gulf Shores, Alabama.

Joe Raedle/Getty Images

Oil and hurricanes don't mix, whether shaken well or stirred. Add the worst oil disaster in U.S. history to a hurricane season almost as bad as the one that spawned Hurricane Katrina and you get "Oilzilla". The NOAA forecasted that 2010 could have been a near-repeat of the 2005 season with as many as 14 hurricanes.

Oilzilla would have combined the ferocity of a hurricane with the long-lasting effects of an oil spill. It could have flattened the domestic oil industry the way that the Three Mile Island nuclear accident did to the U.S. nuclear industry.

At the very least, Oilzilla could have finished off BP PLC, the biggest oil and gas producer in the United States. The company's stock value had declined 34% since the April 20th explosion and wiped $96 billion in value. This led some to speculate that BP became a prime takeover target, one of possible interest to Royal Dutch Shell. BP's clean-up costs were estimated at $37 billion which is equivalent to three years of cash flow.