Nick Snow
Washington Editor
A slowdown in the government's approval process for Gulf of Mexico deepwater exploration plans and associated drilling permits has cost the US in hydrocarbon supply, jobs, and revenue, said a study by IHS-CERA and IHS Global Insight.
An accelerated approval pace could increase employment in almost every US state; boost tax and royalty revenue for federal, state, and local governments; and improve US energy security, the study said.
"These benefits could materialize rapidly," researchers said. "Early alignment between the capacity to properly regulate oil and gas activities, and the pace and scale of investment opportunities would capture the largest possible share of the activity gap."
Closing this gap between what the study's authors said was a current slow-recovery scenario, and one in which offshore permits were approved at a rate matching the US oil and gas industry's production and investment potential could produce 230,000 more jobs, more than $44 billion of gross domestic product, nearly $12 billion in taxes and royalties to federal and state governments, and an additional 400,000 boe/d of production by 2012.
A streamlined permit process also could reduce the US crude oil import bill next year by about $15 billion, researchers said.
US Interior Sec. Ken Salazar imposed a temporary deepwater drilling moratorium following the Macondo well incident and subsequent oil spill. The moratorium was lifted but the approval process is slow, industry reports.
"It's a new regulatory environment," said James Burkhard, managing director of IHS-CERA's global oil group, in a July 21 teleconference. "Our job was to identify the congestion points to help inform the debate about bringing the regulatory capacity in line with the industry's capacity to invest. There's a mismatch between the two. Right now, the regulatory capacity is a constraint."
Study details
The study, "Restarting the Engine: Securing American Jobs, Investment, and Energy Security," was commissioned by the Gulf Economic Survival Team. The independent nonprofit group serves as a liaison between the oil and gas industry and federal, state, and local governments to resolve federal permitting issues that are delaying a return to previous drilling and production levels in the gulf.
IHS compared current activity with what could be achieved with appropriate resources consistent with the industry's capacity to operate safely and in an environmentally responsible manner in the gulf based on its historic behavior.
"It's quite clear that after last year's accident and spill, there's no going back to the old regulatory regime," said IHS-CERA Chairman Daniel Yergin. "We didn't try to say what the reason was, but where the congestion was. There obviously are different viewpoints on what's causing it and what needs to be done."
Researchers examined plan and permit activity levels since the moratorium was lifted in the gulf in October 2010. They found an 86% decline in the pace of regulatory approvals for plans, a 38% increase in the time to secure each regulatory approval, a 250% increase in the backlog of deepwater plans pending approval (from an average of 18/year to a current pace of 67/year), and a 60% decline in drilling permits issued (combined shallow water and deepwater).
Burkhard noted a new regulatory environment, institutional change, and new safety and environmental requirements.
"That regulatory capacity could be aligned in a more beneficial way," he said. "It will take time and effort, and closer collaboration between government and industry."
Plans pending
The study said the significant increase in the number of plans pending and the slower pace of plan and permit approvals demonstrates that the oil and gas industry's commitment and desire to continue investing in the gulf remains strong, and that it is trying to work through and adapt to new safety requirements and the new regulatory environment. It also shows that the revised regulatory process is not yet working smoothly as the US Bureau of Ocean Energy Management, Regulation, and Enforcement struggles with a growing backlog and implementation of new processes, the study indicated.
Yergin added, "A lot has been evolving, including the regulatory system and structure. The well containment capability was not in place a year ago. There also has been a tendency to see this as an economic issue focused on the gulf, but it affects all the states."
National Ocean Industries Association Pres. Randall B. Luthi said the study complements one commissioned by the American Petroleum Institute and NOIA.
"Both confirm that the jobs and economic benefits generated by gulf offshore industry stretch nationwide," Luthi said. "Both also confirm how a slow permitting process has diminished these benefits."
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