New Offshore Access Vital to Sustaining America’s Energy Revolution

Mark Green
Posted August 13, 2014

America’s energy revolution is reality. Thanks to vast reserves of oil and natural gas in shale and other tight-rock formations, developed with advanced hydraulic fracturing and horizontal drilling, the United States is the world’s leading producer of natural gas and by next year could be No. 1 in oil production.

Yet, the dramatic shift in the U.S. energy picture – from one of scarcity and limits just a few years ago to abundance and opportunity – could be just a memory without policies and actions to sustain it. Key to keeping the domestic energy revolution going is offshore development. The ability to explore for and develop new offshore oil and natural gas reserves is vital to maintaining America’s status as an energy superpower  – a point grasped by a strong majority of U.S. voters in recent polling.

That’s the main thrust of official comments just submitted by API and 10 other associations to officials who are assembling the next federal five-year offshore leasing plan that will establish where the federal government plans to lease offshore blocks for exploration and development from 2017 to 2022. The stakes are high, as API Senior Advisor Andy Radford explained during a conference call with reporters:

“Opening new offshore areas to exploration and development could empower the U.S. and our allies by shifting the geopolitical balance. Signaling to the world that the U.S. is serious about discovering new oil and gas resources here at home and bringing them into production could give America greater leverage to positively influence events in Ukraine, the Middle East and around the world. To remain a global energy superpower, the U.S. must continue to explore for and produce new domestic supplies of oil and natural gas.”

We’ve posted the map below a number of times because it effectively illustrates America’s tremendous offshore potential, as well as the main obstacle to that potential – policies that keep 87 percent of the offshore acreage under federal control off limits to development.

Radford said the associations’ comments to the federal Bureau of Ocean Energy Management (BOEM) center on getting the agency to include in the next five-year plan areas on the map that are highlighted in red, including the Atlantic and Pacific coasts, the Eastern Gulf of Mexico and more of the Alaskan coast.

Allowing industry to buy, explore and develop leases could create nearly a half-million jobs and boost domestic energy production by 3.9 million barrels of oil equivalent per day, Radford said, citing studies by Wood Mackenzie and Quest Offshore Resources. The Quest study estimates that Atlantic development alone could create nearly 280,000 jobs, grow the economy by up to $23.5 billion per year and result in production equal to about 70 percent of current Gulf output. Radford:

“These incredible resources are within our reach. As the government works on the next leasing program, it should examine all areas with the potential to generate jobs and new revenue by advancing America’s energy renaissance.”

Radford said the long time line of offshore development, from leasing to production, underscores the importance of making wise decisions now:

“This is not an issue to be considered lightly. … Decisions the government makes now will impact our economy and our ability to exert diplomatic influence for decades. Global oil supply disruptions from Libya, Iraq and other countries over the last few years have created a situation where, according to numerous analysts, oil prices would have risen dramatically if not for the almost barrel-for-barrel counterweight of increasing U.S. production. But the International Energy Agency warned earlier this year that the current situation may not last forever. If the federal government continues to prohibit oil and gas leasing on 87 percent of the U.S. Outer Continental Shelf and domestic production plateaus, IEA projects the balance of power in oil markets could shift back to OPEC and increase the price of oil by $15 per barrel.”

Other key points from the association comments to BOEM:

New Areas Need to Be Opened to Development

The associations note that the Atlantic outer continental shelf (OCS) hasn’t been explored for decades and that no Atlantic lease sales were included in the current plan, which expires in 2017. Atlantic OCS leasing and development is strongly supported by elected officials in Virginia, North Carolina and South Carolina. At the same time, the Pacific OCS and the Eastern Gulf are known to have significant oil and natural gas reserves and should be made accessible. The associations say that including these areas in the plan is critical to research needed for exploration and development:

With new seismic data in hand, even better informed decisions can be made as to the true resource potential in these areas. However, the timing of the 2017-2022 Five-Year Program development process and industry’s seismic data collection are out of sync. BOEM will need to make decisions regarding which areas to include in the Draft Proposed Program well before industry collects and analyzes any seismic data. … If the Atlantic OCS is not included in the Draft Proposed Program, then new seismic data will likely not be available since the incentive for companies to collect the data – and the prospect of a future lease sale – will be gone.

The associations say that the five-year planning process should not take areas of potential development off the table:

The multi-step program development process is designed to collect information from all stakeholders, provide the opportunity for careful analysis and consideration of available information, and allow the Secretary of the Interior to decide on what areas are best suited for future offshore exploration and development activities. However, the existing process does not allow an area removed from consideration at an early stage to be added back in at a later stage, thus highlighting the importance of not prematurely eliminating areas from consideration.

Industry Has Improved Safety Performance

The associations point out that standards have been revised, enhanced or newly created since the 2010 Macondo incident, and that the co-chairs of the National Oil Spill Commission recently said “offshore drilling is safer than it was four years ago.” Standards for well design, blowout prevention equipment and more have been strengthened, and industry formed the Center for Offshore Safety to work with companies and regulators to engrain safety in day-to-day operations. The associations:

The oil and natural gas industry has also established a robust oil spill response research and development program that oversees more than 25 projects in eight areas: planning, mechanical recovery, dispersants, in-situ burning, remote sensing, shoreline protection, alternative technologies, and inland spill response. Oil spill response organizations have increased their capabilities by increasing training and keeping in inventory more equipment that is fit for specific purposes such as in-situ burning, and the industry has invested in international oil spill preparedness and response programs focused on improving industry operational capabilities in all parts of the world, including the Arctic.

Rents and Royalties to Government

The associations argue that potentially increasing the average minimum bid for a lease doesn’t mean government will draw in more money. “It just means that fewer marginal tracts will be sold and that fewer companies will participate in lease sales because of the higher cost,” they say. “Over time there will be less OCS activity.”

On potentially higher royalty rates there’s a similar caveat. “BOEM might see higher royalty payments if rates were raised but the gains would be offset by lower bonus bids and other revenue flows,” the associations say. “Coastal states eligible for revenue would see lower employment and less economic development attributed to OCS development because of the decreased level of activity.”