BP disaster darkens U.S., world fuel future

It was supposed to be the future, both for the United States and the world.

When the Deepwater Horizon oil platform sank more than a month ago, it may have taken down with it America’s best hopes for remaining an oil-producing powerhouse while waterlogging the fastest-growing source of new oil in a world thirsty for fuel, analysts say.

Most newly discovered oil in the United States and the rest of the world in recent years has come from the deep ocean waters. The contribution to new U.S. oil output from depths of a mile or more in the Gulf of Mexico was expected to rise to 72 percent in 10 years before last month’s catastrophic spill, according to the U.S. Energy Information Administration.

But now President Obama has slammed the lid on new deep-water drilling activities for at least six months while his administration investigates what caused the incident and ratchets up regulation of the industry.

With the massive spill demonstrating that there is no foolproof way to safeguard the environment while drilling at such great depths - where no humans can reach and existing technology falls short - many analysts doubt that the oil spigot will ever be turned back on to more than a trickle in the U.S., despite the nation’s heavy dependence on oil to fuel American lifestyles and to power economic growth.

“The BP spill is likely to throw a wrench” into plans in the U.S. and rest of the world to extract more and more oil from the deep oceans, said Richard Heinberg, an analyst at the Post Carbon Institute.

“Heavier regulations, and higher and more-expensive standards are on the way,” he said. “Future deepwater projects could be delayed by years.”

Mr. Heinberg said nations have increasingly plumbed the ocean depths in search for oil because “weve already chewed our way down through” most of the more readily available sources. “Theres very little onshore or shallow-water oil left to find. So down we go,” he said.

The problem is, “as the industry is forced to drill deeper in ever more hostile environments, there are more things to go wrong; and when problems happen, they are harder to fix,” he said. “An event such as the Deepwater Horizon explosion becomes more likely with every passing year, despite the continuing development of superior technology” that for the first time opened up the ocean depths in the past decade.

Even if the U.S. does not extend the regulatory ban on activity, oil companies will run into major financial obstacles in the future as insurance costs and liability claims soar, and investors balk at financing deep-water projects that they fear could go haywire like the BP venture, he said.

Gregory Lemaire-Smith, an associate energy analyst at Datamonitor, a business research group, said “any restriction in the exploration of offshore areas would be bad news” because of the critical role such drilling was expected to play in the future, not only in the U.S. but worldwide.

Offshore oil in the Gulf has become so essential to the U.S. - accounting for 40 percent of U.S. oil production overall - that he doubts Mr. Obama would make the drilling ban permanent despite the disaster and pressure from environmental groups.

In a sign that Mr. Obama remains reluctant to impose an all-out ban, the administration this week decided to continue allowing new drilling in the shallow waters of the Gulf of Mexico, where protection against disaster is more easily assured but less oil is available. It is allowing production to continue at deep-water wells that are already up and running.

“The state of the oil market doesnt allow the U.S. the luxury of closing offshore regions to activity - a fact that both political parties are all too aware of,” Mr. Lemaire-Smith said.

Effects on projects would ripple worldwide if the U.S. permanently rules out further exploration for oil in deep waters, where oil companies already face high costs and risks to access the oil, he said.

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