Making Good News Better: American Oil & the Outer Continental Shelf

Not surprisingly, the Hastings bill to amend the Outer Continental Shelf Lands Act to force DOI to conduct lease sales passed the full House on a vote of 235-186 on the eve of the July 4 recess. It joins a very long list of House-passed bills – dead in the Senate – that would either increase domestic energy production, or rein in the EPA’s ideologically driven war on fossil fuels.

By Richard Bornemann | November 7, 2013

October brought some very good news to American energy consumers. The numbers are wonderful, almost breathtaking. We’ve defeated the fashionably Malthusian theories of “peak oil” and the supposed “finiteness” of fossil fuels in a market economy. But there’s other news that we haven’t really heard – and federal policies that we’ve not pursued – that could make a more noticeable dent in heating bills and prices at the pump.

We’ll put off quibbling for a moment, while we take a well-deserved victory lap for the first time since OPEC, and later Iran, left us with enduring tremors from an embargo and a revolution.

According to a recent report released in New York by the PIRA Energy Group, the U.S. is slated to end 2013 as the world’s biggest supplier of crude oil and other liquid hydrocarbons. At 12.1 million barrels a day, we will edge out both Saudi Arabia and Russia, and retain the worldwide lead “at least through 2030.”

It’s an amazing story made possible by the combination of an old technology, hydraulic fracturing (“fracking”), and a relatively new one, horizontal drilling. PIRA says that the combination of these two technologies will account for just over one-third of U.S. crude production in 2013. And, just think, most members of the scarcity lobby had probably never even heard of these technologies, as recently as five years ago.

We’re Cushioning the Word

So, why hasn’t our new bounty done much for us in the prices we pay? After all, crude futures prices on the New York Mercantile Exchange are still around $98 a barrel – certainly below the all-time high of $144 we saw in July 2008, but still way too high to ease our daily lives.

Part of the reason is that our domestic production boom is providing a cushion on both the demand and supply side of world-priced oil. Our production surely grows, but global consumption is growing faster in places like India. China itself edged out the U.S. last month to become the world’s largest buyer of oil in international markets.

On the supply side, we see how tightened U.S. and European Union sanctions against Iran have taken more than 1 million barrels a day off the world market. Other OPEC members are just a mess, like Nigeria, where kidnappings, sectarian violence, theft, and strikes depress production. Libya is its own daily story of disruption, impacting world market as foreseen by some experts.

The point is that a lot of our new production helps compensate for the world, but it’s still not high enough yet, to bring us some dramatic domestic benefits from our own boom.

Unopposed Revolution

The new American oil and gas revolution has succeeded so far because it’s largely avoided America’s biggest landlord, the federal government itself. Almost all of the new shale-derived oil and gas has come from private property, or from county or state-owned lands. But the federal government owns about 30 percent of all U.S. real estate, and more than that in the oil-producing West, and above 60 percent of everything in Alaska, on-shore and off.

And, when it comes to America’s oil-rich Outer Continental Shelf – roughly defined as starting from 3 miles out from any state’s ocean coastline – the federal government owns all of it – every one of its 1.71 billion acres, in four major regions: the Atlantic OCS; the Gulf OCS; the Pacific OCS; and the Alaska OCS.

What’s There?

Well, we don’t really know because no new exploratory drilling has been allowed for many years. But let’s look at the federal government’s own (very dated) estimates, put out in 2011 by the Department of Interior’s (DOI) Bureau of Ocean Energy Management (BOEM). According to BOEM’s analysis of what’s located outside of known oil and gas fields in the U.S., we have an estimated mean of 88.6 billion barrels of undiscovered technically recoverable oil and 398.4 trillion cubic feet of natural gas under the OCS. That’s a lot, and it’s certainly a conservative estimate, given that it’s based on little more than extrapolations and modeling. And, for some perspective, consider, again, OPEC member Nigeria, where the whole country’s estimated reserves – on-shore and off – come to only 37 billion barrels.

The Ban

Eighty-seven percent of the OCS has been subject to either a statutory moratorium or, more recently, to administrative blockages to exploration. It all started when President Reagan was persuaded to sign DOI appropriations legislation for FY 1982, which blocked DOI from leasing certain areas off the California coast. But then the moratorium spread, through new annual appropriations bills, signed by succeeding administrations, to cover some 87 percent of the entire OCS. The first President Bush even signed an executive order, in 1990, to extend the moratorium for 10 years. A 1998 Clinton executive order would have kept it in place through 2012.

The Ground Shifts

Crude oil prices reached record highs in July 2008, and that summer brought our first national visit to $4 a gallon gasoline. That made the Bush 43 White House brake, and finally defy its fears of the “big oil” label that had been assigned to it by its critics. President Bush rescinded the executive orders, and even the Democrat Congress felt the summer drumbeat of Newt Gingrich’s campaign to Drill Here, Drill Now, Pay Less. The public seemed to love it.

So, Congress allowed the last of the annual DOI appropriations moratoria to simply expire on October 1, 2008, and the OCS became mostly open again, as a matter of law, for the first time since 1981. (Portions of the eastern Gulf Coast remain off limits until 2022, under the separate Gulf of Mexico Energy Security Act of 2006.)

And Then Shifts Back

President Obama did offer in March 2010 to open some of the Atlantic OCS for leasing, from the northern tip of Delaware to the central east coast of Florida. Even northern Alaskan waters were considered. But even that meager offer expired with the explosion in the Gulf of Mexico of the Deepwater Horizon a month later. Ideology took over, and allowed most of the ban to come back, this time administratively, under the DOI’s leasing authority under the Outer Continental Shelf Lands Act.

The DOI released, in June 2012, its 5-year Outer Continental Shelf Oil and Gas Leasing Program for 2012-2017. The program called for a mere 15 potential lease sales, mostly in already-active areas of the Gulf, with 3 sales considered for the Beaufort and Chukchi Seas in northern Alaska.

Other than the new potential Alaska leases, almost everything else stayed closed to new leasing, including all the Atlantic and Pacific OCS areas. All of it, like before.

It’s as though the clock were turned back to September 2008, and that changes to the law since then had mostly never happened. DOI decides the law by deciding what lease sales to offer.

A Path Forward

Rep. Doc Hastings (R-WA) chairs the House Natural Resources Committee, and he’s never sat still for ideology-based resource lockups. Under his leadership, in fact, the full House passed in June HR 2231, legislation that would amend the Outer Continental Shelf Lands Act to force DOI to conduct lease sales “including at least 50 percent of the available unleased acreage within each Outer Continental Shelf planning area considered to have the largest undiscovered, technically recoverable oil and gas resources . . . ” And, DOI’s 5-year leasing program has to make available any OCS planning areas that are estimated to contain more than 2.5 billion barrels of oil or 7.5 trillion cubic feet of natural gas. Importantly, all affected coastal states would get a cut of the leasing revenues.

Not surprisingly, the Hastings bill passed the full House on a vote of 235-186 on the eve of the July 4 recess. It joins a very long list of House-passed bills – dead in the Senate – that would either increase domestic energy production, or rein in the EPA’s ideologically driven war on fossil fuels.

But voters opted for divided government in last November’s elections, and we have at least another year to go before we see what kind of path forward emerges. What can’t be disputed, though, is that the resources are there to make a good situation much better.

Richard Bornemann has provided strategic legislative and regulatory counsel to American energy and surface transportation companies of all sizes for more than 20 years. He is an energy and environment analyst for the Selous Foundation for Public Policy Research, and author of American Energy Independence: A Policy Review 1973-2012. Mr. Bornemann is also a contributor to SFPPR News & Analysis.