Why Trump's Offshore Drilling Expansion Won't Be So 'Yuge'
Interior Secretary Ryan Zinke released the Trump Administration’s long-awaited offshore drilling proposal last week. Once enacted, the plan will replace the existing leasing schedule, which was designed by the previous administration and had been set to run through 2022. New administrations are free to scrap the hold-over plans of prior administrations, and anyone who followed the 2016 presidential campaign knew that President Trump had a dramatically different view of offshore energy development than his predecessor.
As it’s written, the new plan represents a radical departure from the past several decades of bipartisan consensus on the approach to developing oil and gas in federal waters, which has focused almost entirely on the Western and Central Gulf of Mexico. Covering the period 2019 to 2024, the new plan envisions 47 individual lease sales covering all tracts of the outer continental shelf (OCS) spanning the entire U.S. coastline. This would include lease sales, for example, in the Straits of Florida, between Florida and the Bahamas, and up and down the entire east and west coasts, including off the coasts of states that expressly oppose drilling off their shores. It would also include development off the entire coast of Alaska.
In short, it is the most aggressive plan put forward since the Reagan Administration, when the oil-price induced recessions of the 1970s and early 1980s led to an emphasis on developing domestic oil supplies. A plan put forward by President George W. Bush in the final days of his administration included a total of 31 sales after the lifting of long-standing congressional moratoria covering much of the West and East coasts, but it was never likely to be implemented. President Obama scrapped that plan following a lengthy process that was extended by the Deepwater Horizon oil spill.
Yet, as aggressive as it is on paper, the new plan faces an uphill climb before it results in actual leasing in many of the new areas it covers. First, lease sales off the coasts of Washington, Oregon, California, and the entire Northeast will be bitterly contested by those state governments. As several analyses have pointed out, even though OCS resources belong to the federal government, states have enormous leverage over key aspects of the development process.
For starters, states control the waters nearest to their shores, meaning any pipelines intended to bring resources onshore would likely require state approval. Companies could in theory bypass this by opting to develop resources using floating production storage and offloading (FPSO) vessels, but states also have authority under a myriad of existing laws, like the Coastal Zone Management Act, that will allow them to stall the leasing process from the beginning and file lawsuits throughout the process, forcing oil companies to tie up capital for decades with no clear return.
The waters off the northern coast of Alaska are among the most prospective areas proposed for development, together holding more than 23 billion barrels of technically recoverable oil resources and 131 trillion cubic feet (tcf) of natural gas. And the state is obviously favorable to development. The option value of being able to consider these resources again is a clear a positive for industry. But these are also the same waters unsuccessfully explored by Royal Dutch Shell in 2015, after which the company halted Arctic operations for the foreseeable future. While that decision reflected in part the unpredictable nature of federal policy in the Arctic under the previous administration, it also reflected limited drilling success in a costly and complex operating environment. Given current oil prices, it is unlikely that the Arctic will soon present the same allure it did back when Shell originally bid on those tracts in February 2008 and oil prices were approaching $100 per barrel.
Of the new areas considered, the one with the most potential promise for actually being developed remains the Eastern Gulf of Mexico—essentially the entire eastern third of the Gulf from the Florida Panhandle to the coast. The region was placed under a moratorium by Congress in 2006, but it will open up after 2022, in time for the new Trump plan to include two sales there. It is estimated to contain 3.6 billion barrels of oil.
To be sure, Eastern Gulf development faces some obstacles. The Air Force conducts live-fire training over the region, so the Secretary of Defense would need to consent to industry’s presence. Donald Rumsfeld opposed it back in 2005. Much has also been made of the fact that Florida Governor Rick Scott has come out in opposition to drilling there. And Senator Bill Nelson (D-FL) has been a long-time, tireless opponent of drilling near Florida, having beat back numerous similar attempts over the years.
Nonetheless, the geography of Gulf oil resources could very well provide some room for a compromise that deals with all of these issues. According to this assessment by the Department of Interior, the large majority of Eastern Gulf oil resources are located at water depths of greater than 2,400 meters—waters that are more than 125 miles from the Florida coast in most cases. Conveniently, these resources are adjacent to the heavily-developed Central Gulf, where industry infrastructure is both plentiful and accessible.
It’s not out of the realm of possibility that a deal that limited lease sales to 125 miles from the Florida coast could minimize political fallout enough to move forward. And the new Trump plan includes such an alternative. If the Department of Defense consents, the Eastern Gulf might be the plan’s most viable option—assuming a new president hasn’t scrapped the whole thing in 2021.
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