Opinion

2015 Outlook On Energy Policy

Who would have thought? The United States has become a global energy superpower. Just 10 short years ago, some of the most vitriolic debates on energy policy were over where to permit the receiving terminals that would allow us to import the liquefied natural gas we thought the nation would need to survive. Now, due to advances in drilling technology and vastly increased onshore production, the United States is a global exporter of natural gas and a major producer of oil, too. In December, OPEC declined to limit its production, risking instability among the member governments who rely on oil revenue to function, just so they could try to render the energy we produce domestically from unconventional shale plays uneconomic.

This incredible change of economic fortune comes despite policy, however, not as a result of it. And that means there remain significant opportunities for further enhancing our recent successes. The question is, will the political leadership in Washington be able to do that?

The prospects are unclear. For sure, next year will continue to see a capital city with a divided government, making major legislative change unlikely. This will be further exacerbated by the Presidential election season, which begins earlier and earlier and tends to push all other decision making aside.

But just because it is unlikely that major energy policy changes will result from the legislative process does not mean the 2015 is not a vitally important year for the offshore energy industry. In fact, the opposite is true. 2015 will define the offshore oil and gas industry in the United States for the remainder of this decade. Therefore, any look at the year ahead needs to explore exactly how this is likely to happen.

The reason that 2015 will be so pivotal is that it is when the majority of the next outer continental shelf (OCS) 5-Year Leasing Program will be crafted. Prepared by the Department of the Interior, the 5-Year Program consists of a schedule of oil and gas lease sales indicating the size, timing, and location of proposed leasing activity the Secretary determines will best meet national energy needs for the five-year period following its approval. An area must be included in an approved 5-Year Program in order to be offered for leasing.

The current 5-Year Program that expires in 2017 included no new access. Instead, it offered for lease the same areas that have been made available for decades in the Central and Western Gulf of Mexico plus a few limited portions of the Alaska OCS. By refusing to even consider the other 87 percent of the nation’s OCS, the current leasing program  has put the United States far behind many other nations that are actively pursuing offshore oil and natural gas energy development – – particularly in the Atlantic basin and the Arctic.  Canada, Mexico, Venezuela, Brazil, Norway, Russia, Cuba and West African nations are examples of countries actually moving ahead with Atlantic and Arctic offshore exploration and development plans.  Contrast that with the United States, where even geophysical and geological surveys, let alone exploratory drilling, have been forbidden off the Atlantic and Pacific Coasts and in most of the Alaskan Arctic for decades

The energy resources on the OCS are vital to the nation’s economic prosperity.  Allowing oil and natural gas development in federal waters in the Atlantic alone could result in as many as 280,000 new jobs, $24 billion annually to the economy, $51 billion in government revenue, and the safe production of 1.3 million barrels per day of oil and natural gas.  But frankly, these numbers likely underestimate the potential.

Therefore, whether the next 5-Year Leasing Program includes areas in the Atlantic OCS and in expanded areas off Alaska will set the tone for years to come. Currently, the Interior Department is considering all the comments it received during the first phase of preparation of the next 5-Year Leasing Program. During that initial “Request for Information” phase, the National Ocean Industries Association (NOIA) and other voices from industry made clear that increasing access to new areas is vital to the continued success of the United States’ economic recovery and its new status as the world’s biggest producer of oil and natural gas.

Now, add an additional twist for 2015.  The year is beginning as a boon for consumers with low oil prices translating to low gasoline prices at the pump.  However, lower oil prices will also cause industry to curtail or postpone many exploration and development projects, particularly expensive deep water prospects. Since many deep water projects take years to evaluate and develop, industry must take a long term view that prices will rebound and take steps now to evaluate and produce those potential resources in the future..

Will 2015 be a year in which the policymakers in the nation’s capital embrace the promise of the American energy renaissance or will they choose to stand in the way of this recent, unprecedented growth? Only time will tell.

 

Randall Luthi is President of the National Ocean Industries Association.

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