Slowdown in Shallow-Water Drilling Could Cost Gulf Economy $4.3 Billion
Friday, October 08, 2010
By Matt Cover
(CNSNews.com) – The reduced number of shallow-water oil drilling permits issued by the government after the BP oil spill could place as many as 40,000 jobs at risk and cost the region $4.3 billion in lost wages and revenues, according to a study by the Maguire Energy Institute at Southern Methodist University.
“We’re talking about a significant loss of income to a number of Gulf Coast communities whose livelihoods depend on an active oil and gas operation on the Gulf Coast,” Dr. Bernard Weinstein, the author of the study, told CNSNews.com.
While there is no official ban on shallow-water drilling – drilling occurring in less than 500 feet of water – the federal government has drastically reduced the number of drilling permits it has issued since a deepwater oil rig run by oil giant BP caught fire and sank in April 2010, leaking millions of barrels of oil into the Gulf of Mexico.
In response to that event, the Department of the Interior issued a ban on all oil production in the Gulf of Mexico. The government lifted the ban on shallow-water drilling in May 2010, opting to keep the ban on deepwater drilling in place until at least November 30.
Despite the lifting of the shallow-water ban, Interior officials have not issued as many drilling permits as they previously did, leading to what the study’s author called a “de facto ban” on shallow water oil production.
“[D]espite the official removal of the limitation on shallow-water operations, the rate at which the Department of the Interior's Bureau of Ocean Energy Management, Regulation and Enforcement (BOEM) now issues permits authorizing drilling of new shallow-water wells has slowed markedly in comparison to pre-April 20th levels,” the study says.
“As a result, the impacts of the deepwater drilling ban have been exacerbated by a de facto moratorium on shallow-water drilling operations,” it reports.
Compared to deepwater drilling, shallow-water drilling is relatively easy and historically safe, compounding the confusion over the government’s sluggish pace of approving drilling applications, which are necessary for businesses to drill for oil.
“Despite the industry's demonstrated safety record and straightforward approach to subsurface energy resource extraction, as of September 22, 2010 BOEM had issued only six permits for new shallow-water wells in the five months since the April 20th Deepwater Horizon accident,” the study reported. “Prior to the spill, the Interior Department issued an average of 10 to 15 permits for new shallow water wells per month.”
This slow pace has resulted in nearly one-third of the shallow water drilling fleet to sit idle, a fact that could “mothball” the entire shallow water drilling industry due to the fact that rigs move from one project to the next approximately every six weeks. If the government continues its slow pace of drilling permit approvals, nearly 75 percent of the shallow water fleet could be idled by November 30, the report stated.
This slowdown in drilling could cost the region’s economy an estimated $4.3 billion over the course of the year, the report found.
“Over the course of one year, should 75 percent of the rigs become stacked as a result of BOEM inaction on issuing permits, the direct economic losses to the nation’s businesses and workers would exceed $4.3 billion, with Louisiana taking the biggest hit and Mississippi second,” it said.
The economic effects of this “de facto” ban on shallow-water drilling are not confined to the drilling industry, the report explained. Because the oil industry is such a large regional employer, sectors from banking to hospitality are being negatively affected.
“Many small businesses are scaling back expenses and laying off workers while others are cutting back because of uncertainty about the cost of proposed new regulations for offshore drilling once the drilling ban is lifted,” the report said.
“Banks are leery about making loans to oil, gas and boat businesses for fear that more operations will move overseas,” according to the study. “Housing prices and sales have dropped markedly over the past several months -- even as they’ve stabilized nationally -- while pending residential home sales are down 23 percent from a year ago.”
The long-term consequences of both the deepwater and de facto shallow-water bans could be severe, the study warned, as jobs move overseas, oil imports rise, and U.S. technological leadership diminishes.
oil spill commission
President Barack Obama with BP Oil Spill Commission co-chairs, former Sen. Bob Graham of Florida and former EPA Administrator William Reilly, in the Rose Garden on Tuesday, June 1, 2010. (AP Photo/Charles Dharapak)
“If the bans remain in place much longer, additional exploration and production will move overseas, destroying thousands of high wage American jobs while weakening the nation’s economic and national security as larger quantities of fossil fuels are imported,” reads the report. “And as more rigs relocate to other countries, the U.S. risks losing its global technical leadership in offshore drilling, just as has occurred with nuclear energy.”
The report’s author, Dr. Bernard Weinstein, told CNSNews.com that the loss of income to Gulf Coast communities would be “significant” and would affect through the wider economy.
“That income [loss] ripples through the economy and affects not only those directly employed in offshore exploration and production but all the service industries for that matter [and] small businesses providing goods and services to residents in those communities, grocery stores, farmers – you can just go on down the list,” he said.
The Bureau of Ocean Energy Management, Regulation and Enforcement did not respond to messages left by CNSNews.com inquiring about the slowdown in drilling permits at press time.
