What Does the Future Hold for Deepwater Drilling?

March 15, 2011

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In the aftermath of last year's Gulf oil spill, the U.S. government imposed a temporary ban on deepwater oil drilling. Although the moratorium was lifted, the future of deepwater drilling in the U.S. remains uncertain.

Although the Obama administration had planned to open up new areas for oil and gas leasing in Virginia, Alaska and the Gulf Coast, the massive spill caused by BP Plc's Deepwater Horizon oil rig in 2010 put those plans on indefinite hold and led the government to issue a moratorium on deepwater oil drilling. While the moratorium has since been overturned, signs indicate that deepwater drilling will remain severely limited, and this is likely to have a major impact on the energy industry.

The explosion at the Deepwater Horizon rig in April 2010 killed 11 workers and released roughly 205 million gallons of oil into the Gulf Coast, making it by far the largest oil spill in United States history. In May, President Barack Obama issued a six-month moratorium on deepwater oil exploration and drilling activities, allowing operations to continue at existing drills but freezing progress on any new offshore projects.

When the moratorium expired in October, the Obama administration announced a new set of drilling standards designed to reduce the chances of future spills and to ensure that companies could launch effective recovery efforts in case a spill did occur. However, no new drilling operations were authorized for the succeeding five months, drawing criticism from the drilling industry and resulting in legal proceedings.

"Industry leaders and their allies in Congress have been complaining for months that the government is moving too slowly in ruling on proposed offshore drilling projects," the Houston Chronicle reports. "Although the administration lifted its ban on some deep-water exploration in October, it was only Monday [March 1] that regulators issued a permit for work that had been blocked by the moratorium."

A Feb. 17 ruling by Judge Martin Feldman, of the United States District Court for the Eastern District of Louisiana, ordered the Obama administration to move quickly on permits for new deepwater wells in the gulf. The first new permit since the Gulf oil spill was issued earlier this month to Noble Energy, allowing the company to resume work on a coastal drilling rig it was forced to abandon in June, according to the Christian Science Monitor.

But energy industry representatives claim the pace of new permits is far too slow, causing serious financial harm as dozens of drilling operations remain stalled. Many manufacturers agree that the process is putting a strain on the economy.

"[W]e believe the administration must move forward on the other deepwater permits pending review and approval," the National Association of Manufacturers said in a recent press release. "Thousands of jobs are at risk and production is lost as these rigs sit idle. This production is critical to U.S. manufacturers who make and supply equipment, services, engines, boats and materials such as steel and concrete as well as their employees. It also is vitally important to the country's economic recovery at a time when unemployment remains high."

Despite promising that more permits would soon be issued, the U.S. Department of the Interior last week appealed to postpone the court-ordered timetable for accelerated authorization, claiming that the 30-day deadline for new permits would compromise the safety measures intended to prevent further spills.

"U.S. offshore regulators said they may deny the seven Gulf of Mexico drilling permits Feldman singled out for quick action if they're forced to act by the judge's deadlines. Feldman ordered government action by March 19 on five permits and by March 31 on two additional permits," Bloomberg News reports. "Regulators defended the delays as necessary and prudent until the oil industry improves offshore drilling safety and oil-spill cleanup capabilities."

Safety concerns remain a priority considering the degree of economic and environmental harm caused by the Deepwater Horizon spill, but critics of the delay are questioning whether constraints on deepwater drilling will actually reduce the chances of a spill.

"Political fantasies about ending our oil addiction notwithstanding, the U.S. economy will need oil and other fossil fuels for decades to come," the Wall Street Journal explains in an op-ed. "If we don't drill for it at home, the oil will have to arrive by tanker and barges. Tankers are responsible for more spills than offshore wells, and those spills tend to be bigger and closer to shore — which usually means more environmental harm."

Rising gasoline prices spurred by political turmoil in North Africa and the Middle East are giving added weight to demands to increase drilling. However, U.S. oil production rose 3 percent last year, and Deputy Interior Secretary David Hayes recently told NPR that production hasn't suffered from the slowdown in deepwater drilling, even in the Gulf Coast.

"To be sure, the effects of that Gulf drilling moratorium may show up in future years, as older wells dry up and fewer new ones take their place," NPR reports. "Credit for the increase in onshore production probably belongs less to any administration policy than to advanced drilling techniques, and the higher oil prices that make them worthwhile."

According to a report from the Council on Foreign Relations, deepwater drilling currently accounts for 70 percent of Gulf Coast oil production and the share is expected to grow over the next few years largely because the U.S. needs more oil and "other opportunities are closed." But despite these economic priorities, there is also a possibility that public perception may hinder this growth for the long-term future.

As the report states, "A few analysts even contend the oil spill could become a deepwater version of Three Mile Island, the 1979 accident that brought an end to nuclear power plant construction in the United States, and from which the industry has yet to recover."

Earlier

U.S. to Curb New Drilling as Oil Slick Hits Shore

Gauging the Impact of the Gulf Oil Spill

Resources

...Raising the Bar for Safety and Environmental Protection on Offshore Oil and Gas Operations U.S. Department of the Interior, Oct. 12, 2010

Government to Decide Soon on Offshore Permits by Jennifer A. Dlouhy Houston Chronicle, March 2, 2011

First Deep-Water Oil Drilling Permit Since Gulf Oil Spill Plays It Safe by Mark Guarino Christian Science Monitor, March 1, 2011

Manufacturers: Jobs at Risk with Deepwater Drilling Permit Delay National Association of Manufacturing, March 2, 2011

U.S. Appeals for Delay in 30-Day Order on Drill Permits by Laurel Brubaker Calkins and Allen Johnson Jr. Bloomberg News, March 10, 2011

Drilling in Deep Water The Wall Street Journal, May 4, 2010

Rising Gas Prices Spur Calls for U.S. Oil Production by Scott Horsley NPR, March 10, 2011

U.S. Deepwater Drilling's Future by Toni Johnson Council on Foreign Relations, Jan. 11, 2011

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