Lack of offshore drilling will weaken US economy - study

16 February 2010 19:15  [Source: ICIS news]

WASHINGTON (ICIS news)--US energy producers and manufacturers on Tuesday warned that the nation’s economy will decline and energy costs and foreign dependence will increase if offshore oil and gas resources remain closed to development.

The Consumer Energy Alliance (CEA) and the Natural Gas Supply Association (NGSA) were among several energy and manufacturing interests to cite a new study on the economic and social consequences that could result if the US fails to develop its vast offshore energy resources.

Development of oil and natural gas resources in about 85% of US outer continental shelf (OCS) regions - chiefly along the US East and West coasts and parts of Alaska’s shoreline - was barred for nearly 30 years under congressional moratoria that were allowed to expire in 2008.

However, while the offshore drilling bans technically have lapsed, US energy and manufacturing interests, including chemical makers, have charged that the administration of President Barack Obama has maintained a de facto ban on development of those once closed OCS areas by delaying leasing plans.

US petrochemical producers and downstream chemical manufacturers have long pressed Congress and successive administrations to open the East and West coast offshore regions to development.  The chemical makers are heavily dependent on natural gas both as a major feedstock and as an energy fuel.

The energy alliance and the gas association cited a study conducted for state-level electric utility regulators, showing that failure to develop those offshore energy resources will reduce domestic oil and natgas production and force increasing US dependence on imported energy commodities.

The study, commissioned by the National Association of Regulatory Utility Commissioners (NARUC), was done by the Science Applications International Corporation (SAIC), a major consulting firm that provides services to the US government and private sector companies.

SAIC’s study said that if the offshore areas remain undeveloped over the next 20 years, domestic US crude output will fall by nearly 10bn bbl or 15% annually.

Domestic natural gas production is expected to decrease by 46,000bn cubic feet (bcf) over that two-decade period, an average annual decrease of 9%, according to the study.

As a result, said SAIC, US reliance on imports of oil from OPEC nations will increase by nearly 19% annually, while dependence on foreign sources of natural gas - via pipeline from Canada and Mexico and in imports of liquefied natural gas (LNG) - will increase by nearly 75%.

The study also projects an average 17% annual increase in natural gas prices over the 20-year period, along with annual gains of 5% for electricity prices and 3% for retail gasoline costs.

Because of projected higher energy costs, SAIC said US GDP likely will decrease by 0.5% annually over the period, resulting in a cumulative $2,360bn (€1,746bn) reduction in output.

CEA president David Holt said that SAIC study shows that failure to develop US offshore energy resources will “give us higher energy prices, greater volatility, expanded foreign dependence and $2,300bn less for everyday Americans to spend”.

Holt said that those consequences can be avoided.

However, he added, “the bad news is that despite overwhelming support for ne energy exploration among the American people, the inertia of inaction that has defined this debate will be difficult to reverse”.

Holt and officials with the gas suppliers group said they hope the study results will help influence federal energy policy decisions in the White House and in Congress.

CEA member organisations include the American Chemistry Council (ACC), the American Forest and Paper Association, The Fertilizer Institute (TFI), the Grocery Manufacturers Association, the National Association of Manufacturers and the US Chamber of Commerce, ConocoPhillips, ExxonMobil and the Nuclear Energy Institute, among more than 100 others.

($1 = €0.74)

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By: Joe Kamalick
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