OUTLOOK ’09: US offshore energy may be shut in again

02 January 2009 21:37  [Source: ICIS news]

Offshore drilling may be jeopardisedBy Joe Kamalick

WASHINGTON (ICIS news)--US offshore areas that were closed to energy development for nearly three decades are now open - but the new Congress that convenes in January may move to restore that drilling ban in all but name.

On 1 October a congressional moratorium on drilling in the outer continental shelf (OCS) regions off the US East and West Coasts was allowed to expire after 27 years.

Many in Congress wanted to maintain that drilling ban, which was first imposed in the early 1980s when US natural gas was plentiful and cheap and politicians were worried that offshore development would ruin coastlines. But with US retail gasoline prices at around $4/gal, the offshore moratorium could not be sustained politically.

And while gasoline prices have moderated significantly since September, popular support for renewed offshore energy development is still strong, so there are not many in Congress who would risk public ire by openly seeking to restore the drilling ban.

Top Democrat leaders in the US Senate and House say that they will support renewed access to oil and gas resources in offshore areas, but there may be crippling caveats and conditions.

Senator Jeff Bingaman (Democrat-New Mexico), chairman of the powerful Senate Committee on Energy and Natural Resources, said his plans for broad-based energy and climate legislation in the next Congress “must assure an adequate supply of conventional energy resources”.

He said US policymakers must ensure access to domestic onshore and offshore oil and gas resources even as they move the nation toward greater reliance on renewable fuels.

He called for a comprehensive inventory of US energy reserves in outer continental shelf regions, which may hold vast quantities of oil and natural gas but which have not been seismically measured since the 1970s.

Bingaman’s support for development of US offshore energy reserves addresses a major concern of the country’s petrochemicals industry and their customers, who have long argued for greater access to what may be major oil and gas deposits off the US Atlantic and Pacific coasts.

The US chemicals sector is heavily dependent on natural gas as a feedstock and energy fuel and has seen gas prices increase four-fold since 1999 while Congress maintained the drilling ban.

But even if Bingaman’s call for a prompt and thorough survey of OCS energy resources is brought to fruition, that doesn’t necessarily mean that those measured oil and gas reserves will be accessed.

Bingaman also said that environmental and political concerns will weigh heavily in federal offshore development policy.

Those sorts of caveats were reflected as well in comments by the second-highest Democrat in the US House of Representatives, Majority Leader Steny Hoyer of Maryland.

Hoyer said the next US Congress will not seek to restore an offshore drilling ban but will impose “some limits” on energy development in the OCS.

“There is an effort under way to look at further ways to delineate areas that will be open to drilling,” he said.

The term “some limits” could mean that an offshore drilling ban will be restored in fact if not in name.

A Democrat-sponsored offshore energy bill passed by the House earlier in 2008 sought to bar development of energy resources within the first 50 miles of the 200-mile wide US outer continental shelf region. 

It also would have barred drilling in the second 50 miles unless coastal state legislatures gave approval.  

But the measure also denied any federal revenue sharing for coastal states that might approve development in that second 50-mile band. If those states would get no financial benefit out of development in that OCS territory, their legislatures are not likely to authorise drilling.

The bill left the outer 100 miles of the US OCS region technically open to development, but those more distant waters are deeper and little is known about what reserves they might hold - so there would be many and perhaps discouraging risks for energy companies eyeing those areas.

That so-called offshore development bill was seen by industry officials as a thinly disguised effort to re-impose a drilling ban.  The measure is almost certain to be revived in the new 111th Congress.

The US chemicals sector also will face what may be daunting energy challenges in the new year on another legislative front - the near panic effort by Congress to pass laws to limit US emissions of greenhouse gases.

The new Democrat majority in Congress and President-elect Barack Obama share a commitment to what industry fears will be draconian and mandatory measures to cut US emissions of carbon dioxide (CO2) and other greenhouse gases (GHG) to 80% of 1990 levels by 2050.

A certain effect of such laws would be to drive US utility companies to switch from coal to natural gas to power electric generators, which would create huge new demand for gas and drive natgas prices still higher.

To discuss issues facing the chemical industry go to ICIS connect

By: Joe Kamalick
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