Editorial: Offshore opportunity

May 2, 2005
The US oil and gas industry has its best chance in many years to break a senseless logjam in offshore leasing.

The US oil and gas industry has its best chance in many years to break a senseless logjam in offshore leasing. It should approach the opportunity carefully-but boldly. There is danger in aiming too low. The goal is energy supply, not a clever political deal.

High prices of natural gas are straining what for many years has been unyielding support for moratoriums on leasing of the Outer Continental Shelf off the East Coast. Many industries staggered by elevated gas costs now recognize that relief requires an increase in supply and that moratoriums represent idle supply potential. Lawmakers, therefore, are hearing old arguments from new sources.

Signs of opportunity

Hence the opportunity. An early indication of wavering East Coast support for leasing moratoriums came late in March in a bill passed by the Virginia legislature. Introduced by Republican Sen. Frank W. Wagner, whose district includes heavy industrial users of gas, the measure would have committed Virginia to the support of a federal move to partly relax leasing restrictions. Gov. Mark R. Warner vetoed the legislation on jurisdictional grounds without directly opposing it (OGJ, Apr. 25, 2005, p. 34).

Another sign of change appeared in a provision in legislation by Sens. Lamar Alexander (R-Tenn.) and Tim Johnson (D-SD) that would allow coastal state governors to override federal moratoriums against activity off their coasts (OGJ Online, Apr. 11, 2005). When he introduced the measure, Alexander said, “We have contradictory energy policies. We’re restricting the supply of natural gas, but we’re encouraging its use.”

While opposition to offshore leasing remains strong, especially off Florida and the West Coast, any reconsideration of moratoriums is important. For the industry, capitalizing on that opportunity means navigating two broad areas of negotiation.

One of those areas is coastal-state interests. Proposals under discussion, including an initiative called State Enhanced Authority for Coastal and Offshore Resources (SEACOR), would extend state influence far seaward of existing territorial boundaries and increase state shares of revenue from leasing and production. That’s fair, as long as the interests of interior states don’t get trampled in the deal-making. As the proleasing bill from a Tennessee senator illustrates, all states have interests in energy that might become available from federal acreage and in the wealth created by its production.

The other broad area of negotiation is one that the industry should approach warily. It’s a lease structure favoring gas over oil. It takes its most extreme form in the Alexander-Johnson bill, which would give states authority to approve gas-only leases. SEACOR discussions contemplate a system of gas preferences.

The temptation is strong on the production industry to let practicality trump principle. Because the East Coast OCS has long been considered gas-prone, lease provisions discouraging or prohibiting oil production might be moot. That type of provision might seem like a small price to pay for access to long-untouchable acreage.

But nature holds many surprises. Oil sometimes shows up in gas-prone wells. The holder of a gas-only lease would have a difficult time explaining to stockholders why it shut in an otherwise commercial oil discovery. And no matter how leases dealt with the technicalities, production of gas liquids would raise political suspicion.

What’s more, acceptance of gas-preference leases would imply that the industry agreed with the core fiction of its land-access challenges, onshore and off. It would say-or easily be made to appear to say-that, yes, drilling and production threaten areas where they occur but that the potential for damage can be limited if production is confined to gas. That’s not a healthy message.

Safety record

In fact, the industry can drill for and produce both oil and gas safely and has a long record to prove it. It showed late last year in the Gulf of Mexico that production equipment can sustain widespread damage from powerful hurricanes without allowing the kind of environmental catastrophe leasing opponents fear. That’s the message that should drive decision-making about federal oil and gas leasing.

The producing industry should welcome this chance to relax offshore leasing moratoriums. In its pursuit of the opportunity, however, it should not let anyone forget that the US needs oil as much as it needs gas. The care and technology behind the offshore industry’s safety record apply to both.