INSIGHT: New US offshore drilling ban sparks outrage

02 December 2010 16:42  [Source: ICIS news]

By Joe Kamalick

WASHINGTON (ICIS)--Energy and chemical industry officials have joined other manufacturers, general business leaders and members of Congress in sharply condemning the Obama administration’s new moratorium on offshore oil and gas development.

The more restrained comments expressed disappointment and concern, while one energy industry official accused the administration of launching “an attack on the American economy and our nation’s energy security”.

The US Chamber of Commerce said: “The administration is sending a message to America’s oil and gas industry - take your capital, technology and jobs somewhere else.”

Among others, American Chemistry Council (ACC) president Cal Dooley said he was concerned and dismayed by the decision.

“Affordable domestic energy drives economic growth and helps keep consumer costs down, but with this announcement the White House has essentially thrown that economic engine into reverse,” Dooley said.

The US chemicals sector is heavily dependent on natural gas as both a feedstock and process energy fuel, and other manufacturers rely on gas for power as well.

The Obama administration sparked outrage on Wednesday, saying it will not issue new oil and gas exploration leases in any US offshore areas other than those already under development in the Gulf of Mexico and along a limited part of Alaska’s coast - and none in those regions until 2012 at the earliest.

Citing the BP Deepwater Horizon rig explosion in April this year and the subsequent spill of some 5m barrels of oil into the Gulf, Interior Department Secretary Ken Salazar said the administration was rescinding plans announced in March to open more of the US outer continental shelf (OCS) regions to oil and gas drilling.

In March, about a month before the catastrophic BP oil spill, the Obama administration had announced general plans to include US territorial waters of the eastern Gulf and parts of the nation’s Atlantic coast offshore areas in the next five-year OCS development plan, for 2012-2017.

But Salazar said that because of the lessons learned from the BP Gulf spill, and in order to allow ongoing studies of the spill’s environmental consequences, he was withdrawing those Atlantic coastal areas and the eastern Gulf regions from the 2012-2017 OCS development plan.

In addition, he said that no new leases would be issued for those US areas of the central and western Gulf of Mexico that are already under development until late 2011 or at some time in 2012.

Gulf of Mexico lease sales that were already scheduled for March and August 2011 have been pushed back to some point in 2012 at the earliest, he said.

Furthermore, no new leases would be issued before 2012 for offshore areas of the Alaska coasts, he said. 

A decision on whether to allow any offshore oil and gas development in Alaskan waters in the 2012-2017 period would only be made after extensive environmental impact studies and input from other federal agencies, environmental groups and Alaskan native tribes.

Salazar said that environmental studies of the consequences of the BP well spill would require at least another year to be completed and that no new leases in the existing Gulf development areas would be issued until those studies are done.

He also said that decisions on whether new leases in the central and western Gulf regions would be issued in 2012 could only be determined after public hearings that would be held in 2011.

All of this represents “a major step backward for the security of America’s energy future”, said the US Chamber of Commerce.

Karen Harbert, the chamber’s chief energy policy official, said that the new offshore drilling ban compounded earlier bad decisions the administration had made in the wake of the BP disaster.

“The decision comes on top of the de facto moratorium the administration has imposed on production in both deep and shallow waters in the Gulf and Alaska, which is already causing significant harm to our economy and our energy security,” Harbert said.

While the Interior Department has formally lifted its moratorium on deepwater drilling in the Gulf, energy sector officials contend that the department’s new environmental, safety and inspection restrictions essentially maintain the drilling ban in all water depths.

Harbert also argued that the new moratorium will increase US dependence on foreign-sourced oil, a complaint raised by many in reaction to the Interior Department decision.

“In addition, this decision will cost us many thousands of well-paying jobs that would have been created both directly and indirectly in regions that badly need them, making this a major lost opportunity for our economy,” she said.

“It is ironic that the administration is willing to forego a significant new stream of revenue,” Harbert added, referring to lease fees and production royalties, “at a time when leaders on both sides of the aisle are seeking ways to address our rapidly ballooning deficit.”

The American Petroleum Institute (API) said that the OCS policy announced by Salazar “will stifle investment, deny billions in revenue for critical government services and increase our dependence on foreign energy sources”.

API president Jack Gerard said that the Obama administration’s reversal of its limited offshore energy development plan issued in March “comes on top of a de facto moratorium, which has all but stopped new drilling in the Gulf of Mexico”.

The Institute for Energy Research (IER), an oil industry think-tank, charged that the Interior Department announcement on Wednesday barring any new offshore leasing was part of the Obama administration’s “vendetta against domestic energy production”.

The Independent Petroleum Association of America (IPAA), which represents drilling operators, said the new offshore leasing ban was nothing less than “an attack on the American economy and our nation’s energy security”.

The National Association of Manufacturers (NAM) said that its members were angered by the drilling ban.

“By failing to open these areas to drilling, our nation will be forced to rely even more heavily on foreign production, which will only discourage investment in new projects,” said NAM executive vice president Jay Timmons.

The Interior Department ruling means that no new offshore leases will be issued before 2012 - and then only for existing areas of development in the Gulf and limited Alaskan offshore regions.

But energy analysts at investment bank FBR Capital Markets suggest that new leasing in even those restricted areas might well be delayed until 2013 or later - beyond the 2012 end of President Barack Obama’s first term in office.

FBR Capital Markets noted that the Interior Department now requires supplemental environmental impact statements (SEIS) before any new leases will be issued.

The FBR analysts said that their conversations with Interior Department officials “suggest that the SEIS could take six to 12 months or more”. That means that even if Gulf and Alaska leases were offered in 2012, actual lease sales might be delayed until 2013.

“In addition, public comment periods hold opportunity for further delay,” FBR said.

Many in Congress, especially among Republicans who will assume majority control in the House of Representatives next year, might not want to see US offshore energy development so long delayed.

Congressman John Shimkus (Republican-Illinois) could be chairman of the House Energy and Commerce Committee when the 112th Congress convenes in January.

He said the decision to so drastically restrict energy development in the OCS “harms our ability to decrease our reliance on imported energy and will only cause energy prices to rise”.

He added: “This decision will certainly be under great scrutiny next year in the Republican-controlled House.”

Paul Hodges studies key influencers shaping the chemical industry in Chemicals and the Economy
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By: Joe Kamalick
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