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Obama Bans Atlantic Drilling

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Obama Bans Atlantic Drilling
oil-platform

The Obama Administration dismayed four governors and several oil companies when it announced it was reversing course and not issuing drilling leases off the southeastern US coast. The news, however, was cheered by environmentalists and at least 106 coastal tourist communities who had fought hard to block Atlantic drilling.

In a statement announcing that the ban on offshore drilling in an area stretching from Virginia to the Georgia/Florida border, Interior Secretary Sally Jewell noted “We heard from many corners that now is not the time to offer oil and gas leasing off the Atlantic coast. When you factor in conflicts with national defense, economic activities such as fishing and tourism, and opposition from many local communities, it simply doesn’t make sense to move forward with any lease sales in the coming five years.”

News last year of the impending leases mobilized not only tourist communities, but also towns and cities dependent on fishing, aquaculture, and military bases for their livelihoods. An estimated 1,000 coastal businesses wrote Obama, opposing the plan. More than 80 state legislators throughout the four states broke with the official line and opposed the resumption of Atlantic drilling.

atlantic-offshore-leases-bloomberg(click to enlarge)

The oil industry reacted angrily to the news. Jack Gerard is president and CEO of the American Petroleum Institute, the largest US petroleum industry trade association. He called today's decision to halt Atlantic drilling before it even got started a measure that "appeases extremists who seek to stop oil and natural gas production." He warned that the move would increase energy costs for Americans, decrease US energy security, and cost jobs. The API said Obama's action goes against the will of American voters, governors, and members of Congress who support

National Ocean Industries Association president Randall Luthi warned that the investment dollars that would have been spent in Virginia, the Carolinas, and Georgia will be lost. “If the Atlantic is taken out, that means there’s less of an opportunity to invest in the U.S., and those dollars will flow overseas, and we’ll hear more and more of that in the presidential election,”

Given Up Years Ago

There were 56 offshore oil rigs drilled in US Atlantic waters between 1946 and 1982. None of them were found to be commercially viable. All but five were considered "dry holes," and the five natural gas platforms that had actually hit something were capped due to low natgas prices.

Drilling off the US Atlantic coast has always been a bust for oil companies. With oil prices so low that even shale companies are going under, why would anyone put up the exorbitant amount of money it takes to put an offshore oil platform into operation?

The oil companies expect that oil prices will have to recover, someday, which would make these leases valuable, In the meantime, seismic surveys and exploratory wells would be employed to identify the best areas to drill.

Jobs vs Jobs

The argument about jobs has been a large part of the debate on Atlantic drilling. The oil companies, the governors of Virginia, North Carolina, South Carolina, and Georgia, as well as Senators and Congressmen saw the opening of the southeast Atlantic coast to exploration as a panacea for a region that has seen so many manufacturing jobs lost.

Houston Ship Channel - one of the largest oil terminals in the US Houston Ship Channel - one of the largest oil terminals in the US

On the opposing side, most coastal communities and their state and Congressional representatives claimed that the risks to tourism, commercial fishing, and aquaculture (primarily shellfish) outweighed any benefit. While there was the dangers of an oil spill, the industrialization of the coastlines would certainly have a negative impact. In fact, the lack of any infrastructure in the Mid-Atlantic states to support offshore drilling was cited by the Interior Department as one reason the plan to offer leases was halted.

In Virginia, Lt. Governor Ralph Northam, who is eyeing the Governor's chair in 2017, has taken up the cause of the state's coastal communities, saying that the economic contributions from military bases and tourism outweighed any benefit that offshore drilling would bring. In a letter last month to the Interior Department, he wrote "It would be best to take a conservative approach and exclude Virginia from the proposed leasing program,"

Myrtle Beach Myrtle Beach

Two South Carolina Congressmen who sided with their coastal communities were former Governor Mark Sanford, and Congressman Tom Rice, whose district includes the tourist hub of Myrtle Beach. Rice noted "As more and more recoverable oil has been located onshore due to advancing technology" (such as hydraulic fracturing and horizontal drilling,) "tapping new reserves in the Atlantic has become less and less feasible," Sanford said "This is fantastic news for the coast of South Carolina. Residents along our coast should be proud of the way they united on this issue and sent a compelling message to Washington."

However, this victory for the "little people" may never have happened, if it weren't for one event.

Deepwater Horizon

Deepwater_Horizon_on_fire

On the evening of April 20, 2010, an oil platform operated by British Petroleum off the Louisiana coast suffered a blowout, exploding and catching fire. The semi-submersible oil rig sank in 5,100 feet of water on the morning of April 22. Later that day, a large oil slick was seen rising from the site. The blowout prevention valves on the wellhead had failed, The Deepwater Horizon would spew crude oil into the Gulf of Mexico for 87 days, despite efforts to seal the wellhead. An estimated 210 million gallons of oil were released by the time the wellhead was capped on July 15. Three years later, tarballs were still washing up on tourist beaches.

Before the Deepwater Horizon disaster, many coastal communities of the Mid-Atlantic states were receptive to offshore drilling. Afterwards, many of those same communities decided that dangers were not worth the benefits.

Eco Green and Navy Blue

US-Navy-Carrier

The conservationists and coastal communities may not have won this fight if the US Navy had not come to the rescue. Virginia's Norfolk Naval Station is homeport to the Atlantic Fleet, and is the largest naval base in the world. Georgia has Kings Bay, homeport to the Atlantic Fleet's Trident ballistic missile submarine force. Charleston, SC is home to the Navy's Nuclear Power school and Air Force bases.

Therefore, the Pentagon has a very keen interest in developments in what is one of it's prime training areas, as well as the transit area for the Atlantic Fleet and nuclear deterrent submarines.

This was emphasized late last week when the Department of Defense issued a statement that military officials had identified areas where “offshore readiness activities are not compatible, US-Navy-subpartially compatible or minimally impacted by oil and gas activities.” It also noted that oil exploration such as seismic testing and platforms could compromise training naval exercises “from unit level training to major joint service and fleet exercises.” DoD spokesman Matthew Allen said "These live training events are fundamental to the ability of our airmen, sailors, and marines to attain and sustain the highest levels of military readiness. Additionally, [the Defense Department] conducts major systems testing activities in the mid-Atlantic region that are also important to military readiness."

This sealed the deal, as far as the Obama Administration was concerned. Plans to lease out parcels for Atlantic drilling operations were canceled. Since shale fracking operations are very flexible and magnitudes cheaper than offshore drilling, they will probably limit the attractiveness of offshore drilling for some time to come.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product

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