Low oil prices aren’t likely to keep oil and gas companies from tapping the Atlantic Ocean for the first time since the 1980s, as the Obama administration indicated it would allow in its draft plan on offshore drilling.
Offshore oil and gas projects are costlier than those on land, not least because of the crews, regulations, equipment and extra safety precautions required for drilling in more environmentally sensitive areas. Starting a new project now, with oil prices staying below $50 per barrel, wouldn’t make much sense.
It’s not just a U.S. issue, either. The slump is causing Mexico to consider delaying auctions on the historic opening of its portion of the Gulf of Mexico to foreign companies for the first time since 1938.
But the industry is taking the long view on the Atlantic Ocean, said Erik Milito, director of upstream operations at the American Petroleum Institute.
“The oil and gas industry … is looking at investment windows of 10, 20, 30 years. And we’re looking at these windows based upon the understanding that global demand for oil and gas resources is going to continue to grow,” said Milito, who supervises exploration and production issues at API, ahead of the release of the draft five-year drilling plan, which runs from 2017 through 2022.
That’s true, according to the U.S. Energy Information Administration. Even in a low-price scenario, the Energy Department’s independent statistics arm projects global oil consumption to grow from 92.9 million barrels per day this year to 123.3 million barrels per day in 2040.
Still, the decision has not been made to allow drilling off the coasts of Virginia, North Carolina, South Carolina and Georgia. Interior Secretary Sally Jewell said the plan “isn’t final” and that the inclusion of those states’ shorelines reflected the wishes of state legislatures and governors.
Environmental groups think they can push back on the Obama administration. There’s no deadline for finishing the five-year plan, so President Obama could sign it at the end of his second term and avoid facing the political ramifications.
“To fulfill his commitment to climate action, the president should double down on clean energy sources like wind and solar, not open up more of our beaches to a legacy of oil slicks and dead seabirds,” said Margie Alt, executive director with Environment America.
If the Atlantic does stay in the five-year plan, it’s not likely to yield oil for a while for a few reasons. Oil price is one of those factors, another being that it takes so long to set up the rigs, said EIA Administrator Adam Sieminski.
“Anything that’s associated with leasing activity on the outer continental shelf … is probably not something that will make an impact on U.S. production for about a decade,” he said at a recent Washington event.
On top of that, Interior Department officials said Atlantic drilling won’t begin until 2021 because there’s not enough data about how much oil and natural gas lies beneath the Atlantic’s ocean floor, or where it is, since testing for those deposits had been banned until last year. Federal estimates, however, put technically recoverable reserves at 4.72 billion barrels of oil and 37.51 trillion cubic feet of natural gas.
Getting permits to conduct those surveys is a time-consuming and “cumbersome” process, said Ken Wells, president of the International Association of Geophysical Contractors. He said the process takes 18 months, slowing the collection of data that would be used to hone in on valuable oil and natural gas deposits.
By the time all the information is collected and sorted through, Wells said, he expects oil prices to rebound, potentially enough to make new offshore endeavors worthwhile.
“No rational person believes they’re going to stay low for the future, for the very long future,” Wells said.
Sieminski echoed those sentiments.
“It’s happened before,” Sieminski said of low prices. “Just because something lasts for three or four years doesn’t mean that it’s forever.”
