Industry Views On Offshore Energy Exploration: Myth vs. Fact

Offshore Energy Exploration: Myth vs. Fact
IER, Feb 11, 2009

Myth: There’s not enough energy in the outer continental shelf (OCS) to make exploration worthwhile.

Fact: The Minerals Management Service (MMS) estimates that the OCS contains 86 billion barrels of oil and 420 trillion cubic feet of natural gas. These estimates are likely very conservative, as bans on offshore leasing have made it illegal to explore and determine how much more energy is available. In other words, this is just the tip of the iceberg­—history has proven that when people are allowed to look for energy, they generally find it. The best way to stop them from finding it is to stop them from looking for it.

Myth: Offshore energy development would do nothing to lower prices because it would take too long for the energy resources to make it into the market.

Fact: Economists have long disputed the notion that offshore energy development would not affect consumer prices. Both economic theory and now empirical evidence demonstrate that government policies promising future oil production lead to immediate price relief. IER economist Robert Murphy made this point on a TV interview on June 26, 2008,[1] while Martin Feldstein made the point in a Wall Street Journal op-ed on July 1, 2008.

Further, while there may be areas along the Atlantic coast without the significant build-out of infrastructure needed to facilitate quick energy production, other currently unexplored areas do have that infrastructure in place, such as the eastern Gulf of Mexico. No serious observer has ever suggested that it would take anywhere close to ten years to access those energy resources and deliver them to American consumers. Furthermore, in places like California, where an infrastructure is already in place and the local community supports offshore exploration, those resources could be available in a significantly shorter period of time.

Myth: Offshore energy production is dangerous and harmful to the environment.

Fact: Offshore energy production is safe and environmentally sound. In the last 50 years, the oil and gas industry has developed innovative technologies and exploration methods that are efficient, pose little threat to the environment, and keep workers safe. The industry has taken additional precautions to prepare for any type of unwanted incident.

Some of those technologies include:

• Advanced 3-D seismic and 4-D time imaging technologies: enable offshore operators to locate oil and gas resources far more accurately to necessitate less drilling and allow greater resource recovery.[2]
• Storm chokes: placed on all offshore wells to detect damage to surface valves and shut down production during an emergency.[3]
• Blowout preventers: continuously monitor the subsurface and subsea-bed conditions to prepare for unexpected changes in well pressure.[4]
• Waste product reuse technology: transforms drill cuttings, a waste product of rock pieces and drilling fluids produced when drilling a well, into raw material for bricks, roads, and even rebuilding Louisiana’s wetlands.[5]

These technologies and practices are yielding results:

• According to the U.S. Department of Interior data, offshore operators produced 7 billion barrels of oil from 1985 to 2001 with a spill rate of only .001 percent.[6]
• In 2005, Hurricanes Katrina and Rita destroyed 115 Gulf of Mexico oil and gas platforms and damaged 535 pipeline segments, but there were no major oil spills attributed to either storm.[7]

Myth: Offshore oil and gas production is the number one contributor to oil in our oceans.

Fact: Less than 1 percent of all oil found in the North American marine environment comes from offshore oil and gas development.[8] According to the National Academy of Sciences, the majority—60 percent—is the result of natural seeps through the ocean floor.[9] In many places it is higher. For example, all of the tar on the beaches of Santa Barbara is from natural seeps.[10] Moreover, these seeps are reduced when the oil is produced and transported to shore, where it can be put to use as energy for America.[11]

Oil seeps—underwater cracks in the Earth’s crust—release more than 60 percent of the petroleum entering North American waters and over 45 percent of the petroleum in waters around the globe.[12] Natural seepage of crude oil from geologic formations below the seafloor is estimated to exceed 47,000,000 gallons in North American waters and 180,000,000 gallons globally every year.[13]

Myth: Oil companies are sitting on 68 million acres of untapped leases and don’t need access to new areas.

Fact: Lease agreements already contain federal requirements that require oil companies to use leased land in a timely manner. The 1992 Comprehensive Energy Policy Act requires energy companies to comply with lease provisions and explore expeditiously or risk forfeiture of the lease. Energy companies cannot “stockpile” leases (even those found to contain no oil or gas) to drive prices up. What’s more, historical data show only one discovery results from every 60 leases granted to energy companies.

Companies are not “sitting” on the leases they now have. Technology has allowed companies to increase their production on leased acreage.

The Hard Facts:

97 percent of Federal offshore areas are not leased.
94 percent of Federal onshore areas are not leased.


References:

[1] See also Robert Murphy, Lifting the Offshore Ban Gave Immediate Price Relief, Institute for Energy Research, http://www.instituteforenergyresearch.org/2008/10/02/lifting-the-offshore-ban-gave-immediate-price-relief/.
[2] U.S. Department of Energy, Office of Fossil Energy, Environmental Benefits of Advanced Oil and Gas Exploration and Production Technology, October 1999, p. 28. http://www.fossil.energy.gov/programs/oilgas/publications/environ_benefits/env_benefits.pdf [3] Id. at 41.
[4] Id.
[5] See id. at 54.
[6] SAFE Commends Movement Toward Lifting Ban on Offshore Oil and Natural Gas Production, http://www.reuters.com/article/pressRelease/idUS223711+18-Jun-2008+PRN20080618, June 18, 2008.
[7] Id.
[8] See National Research Council, Oil in the Sea III: Inputs, Fates, and Effects: Report in Brief, http://dels.nas.edu/dels/rpt_briefs/oil_in_the_sea_final.pdf.
[9] National Research Council, Oil in the Sea III: Inputs, Fates, and Effects, p. 2 (2003).
[10] See Kolpack 77 and Harman 198 R. L. Kolpack, Relationship of migratin of natural seep material to oceanography of Santa Barbara Channel, California Offshore Gas, Oil, and Tar Seeps, Staff Report, California State Lands Commission p. 226-55 (1977); B. Hartman & D. Hammond, The use of carbon and sulfurisotopes as correlation parameters tor the source identilication of beach tar in the southern California borderland, 45 Geochimica et Cosmochimica Acta 309 (1981).
[11] Stop Oil Seeps California, http://www.soscalifornia.org/presentation-bbsw/ze.html.
[12] Id. at 2.
[13] Id.