FocusUS energy, manufacturing groups slam Gulf drilling ban

13 July 2010 20:10  [Source: ICIS news]

WASHINGTON (ICIS news)--A broad range of US energy, manufacturing and general business interests on Tuesday condemned the new deepwater drilling moratorium for US waters in the Gulf of Mexico, warning it will kill US jobs and undermine the nation’s energy security.

The Independent Petroleum Association of America (IPAA) charged that the new drilling moratorium, announced on Monday by Interior Department Secretary Ken Salazar, was irresponsible, represents no substantive change from the department’s earlier moratorium and “is simply more of the same short-sighted policy”.

The revised moratorium was in response to a federal court ruling that suspended the Obama administration’s first order shutting down deepwater drilling in the Gulf. 

US District Court Judge Martin Feldman had held on 22 June that the first moratorium was arbitrary and capricious and ordered it lifted, a ruling that was later affirmed by the federal Fifth Circuit Court of Appeals.

IPAA chairman Bruce Vincent said that “Judge Feldman’s ruling correctly recognised the severe unintended economic consequences of this moratorium”.

“Unfortunately, this administration simply does not understand the grave economic and national security implications” in revising and maintaining the moratorium, he said, adding that “such irresponsible measures will lead to fewer jobs and rigs permanently leaving our seas”.

The IPAA’s member firms account for 90% of US onshore and offshore drilling work.

Earlier, the American Petroleum Institute (API) also termed the new moratorium “unnecessary and short-sighted”, saying that it “places the jobs of tens of thousands of workers in serious and immediate jeopardy and promises a substantial reduction in domestic energy production”.

Although Secretary Salazar noted that the revised ban for rigs using deepwater drilling equipment and techniques did not apply to the shallow US waters of the Gulf, production companies working those near-shore areas said on Tuesday that they are nonetheless affected.

“The reality is that permits for shallow water drilling are not proceeding despite the widespread efforts being made by the industry to honour the letter and spirit of new Interior Department regulatory standards,” said Andy Stilley, a driller speaking for the Shallow Water Energy Security Coalition.

Stilley charged that the department’s new requirements for shallow water energy production are so vague and compliance standards so uncertain that no new shallow water drilling permits have been issued since the 20 April BP oil rig explosion and subsea leak.

Jim Noe, vice president and general counsel at coalition member firm Hercules Offshore, said that “To date, and despite assurances from the White House and the Interior Department, about one-third of the shallow water fleet has been idled by the application of what can only be called a de facto moratorium”.

“Unless Interior changes course,” Noe warned, “another third of the fleet will be idled and thousands more workers will be furloughed within the next few weeks.”

The National Association of Manufacturers (NAM) charged that “this new moratorium will only put our nation’s economy at a greater disadvantage”.

NAM, whose 14,000 member production firms include many US chemical manufacturers and plastics processors, said that “Manufacturers who make and supply equipment, services, engines, boats and materials such as steel and concrete will also suffer massive economic consequences as a result of the administration’s overly broad moratorium”.

“The expansion and development of the [outer continental shelf] is vital to affordable, reliable energy and the long-term health of our economy and the prosperity of American workers,” said NAM president John Engler.

The US Chamber of Commerce said that the Obama administration “is not getting the message” issued by the two federal courts.

“The administration is now proceeding with yet another blanket moratorium that will continue to cost the Gulf region much-needed jobs and America much-needed domestic oil and natural gas,” said Karen Harbert, president of the chamber’s energy group.

Many US manufacturers rely on natural gas as an energy fuel for production, and the country’s chemicals makers are additionally dependent on it as a major feedstock.

Energy industry analysts at investment bank Friedman, Billings & Ramsey (FBR) said that Salazar’s revised moratorium means that the administration is “essentially maintaining the moratorium at the secretary’s discretion” and “will increase the uncertainty in the minds of deepwater producers as to when the moratorium may end”.

“As such, we believe that the risk that a substantial number of deepwater rigs will leave the Gulf has risen considerably, coming on the heels of two Diamond Offshore units being moved abroad,” FBR said in an advisory to investors on Tuesday.

FBR said that further legal challenges to the revised moratorium are inevitable but would not likely have any impact.

“We emphasise that litigation is unlikely to resolve the moratorium issue,” FBR said, noting that the Interior Department “can continue to refine the moratorium or impose almost unlimited requirements regarding safety that will keep the drilling industry in limbo”.

Raymond James Equity Research, said the safety restrictions imposed on deepwater drilling in Salazar’s revised moratorium are “a joke”.

In a memo to clients, Raymond James said that the Interior Department’s moratorium requirement that energy firms prove that they have resources to cope with an oil spill similar to the BP disaster effectively bars further deepwater development.

“Bottom line, this is a joke,” the analysts said. “No one is going to allocate seemingly unlimited resources for a potential oil spill that equates to the single worst environmental disaster in the industry’s history.”

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By: Joe Kamalick
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