Saturday, July 15, 2006

Foolishly, the United States is the only industrialized country with substantial coastlines not actively seeking new offshore oil and gas deposits. Canada and even economically backward Cuba are moving forward with plans to drill in offshore areas that abut U.S. coastal waters.

Since pools of oil do not respect international boundaries, it is almost certain that Canada and Cuba will access oil that could otherwise be developed by and benefit Americans.

The Senate still lacks the courage stand up to environmental special interests, even on an issue as important as America’s energy security. By contrast, on June 29, the U.S. House passed the “Deep Ocean Energy Resources Act of 2006,” which would end the federal moratoria on new offshore oil and gas production in most of the U.S. Outer Continental Shelf (OCS). At best, they will only allow new drilling in a small portion of the Gulf of Mexico.

Few would dispute that, at least for the foreseeable future, the U.S. needs oil and natural gas — and the OCS has it in abundance. However, due to environmental concerns, since the early 1980s the federal government has banned new oil and gas production off of most of the U.S. coast. The ban on offshore natural gas production has always been inexplicable since it has never harmed U.S. coastlines. But the moratoria on offshore oil production had some justification. After all, oil platforms and pipelines have occasionally spilled or leaked substantial crude oil.

However, technology has improved greatly since the earliest platforms were built. As proof, very little oil spilled into the Gulf after Hurricanes Katrina and Rita. Although the storms destroyed 111 production platforms and seriously damaged 457 pipelines, the Interior Department’s Minerals Management Service (MMS) found only six hurricane-related oil spills of at least 1,000 barrels — none of which damaged shores or wildlife.

Since 1991, tankers have still spilled three times as much oil as offshore platforms and more than twice as much as pipelines. And when tankers leak, run aground or founder and sink, they tend to do so in port or near shore, resulting in more severe environmental damage. Thus, because platforms and pipelines are less prone to spills than tankers, increasing oil produced in the OCS and delivered through pipelines to shore could be environmentally beneficial.

U.S. energy security would also benefit from new OCS production. The United States has become too dependent upon foreign nations for a majority of its oil. Many of these countries are politically unstable, have governments hostile to U.S. interests or have economies where political calculations rather than market demand dictate the pace of exploration and development.

And, while demand for natural gas is increasing, U.S. production is falling. Both utility customers — who’ve faced skyrocketing electric bills in recent years — and the domestic chemical manufacturing industry, which needs natural gas to refine chemicals, have suffered from this increasing gap between supply and demand.

Indeed, high natural gas prices are the principal reason why 70 U.S. chemical facilities closed in 2004, and why only one new chemical plant is being built in the United States — while more than 120 plants costing more than $1 billion each are under construction worldwide.

The payoff for opening the OCS could be huge. The MMS has estimated the OCS contains more than 85 billion barrels of oil, quadruple current U.S. reserves, and more than 419 trillion cubic feet of natural gas. Of these reserves, between 21 billion and 41 billion barrels of oil and 94 trillion to 164 trillion cubic feet of natural gas lie in areas where production is currently banned.

In fairness, production in the OCS now is a net loser for coastal states. The federal government receives all the royalties, leases and taxes; states bear most of the risks. If spills occur, the states lose tourist revenues and their coastal environments suffer, thus most coastal states have fought to continue the moratoria.

The House bill would change this calculation. It lifts the leasing ban beyond 100 miles from state shores; allows new production between 50 miles and 100 miles of state shores, unless a state acts to block new leases; and permanently bans exploration and production within 50 miles of state shores unless a state chooses to opt-out of the restriction. In exchange, states that choose to allow drilling off their shores would share the revenue with the federal government.

Initially, coastal states would get 25 percent of the proceeds. Beginning in 2010, however, their share of revenue would increase 5 percent per year, but never exceed 75 percent.

Ending the OCS moratoria would be one of the most effective actions Congress could take to ensure long-term economic growth while decreasing America’s vulnerability to foreign powers. Doing so would likely benefit the environment too, a bonus that should weigh heavily in favor of the Senate adopting the House’s plan.

H. Sterling Burnett is a senior fellow with the National Center for Policy Analysis.

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