Offshore energy: uncertain future made bright with right federal policies

To the surprise of energy and political pundits, the United States leads the world in discovery and production of oil and natural gas. Technological advancements, like horizontal drilling and hydraulic fracturing, have revolutionized American energy production. Now, US consumers are reaping the benefits of an energy revolution spearheaded by the US oil and natural gas industry. Offshore, the energy industry continues at the forefront of technological advances rivaling the space industry, making it possible to produce energy in previously impossible areas. America’s offshore oil production is at an all-time high and we are just scratching the surface of what is possible. The right federal policies can truly unleash an offshore energy renaissance.

Safety

The rise in technological innovations have generated advances in safety. After the 2010 blowout in the Gulf, the industry and federal regulators launched a robust safety review, resulting in more than 100 new or strengthened safety and environmental standards. Where old regulations set up the usual bureaucratic roadblocks against deploying new technologies and effectively preserved the status quo, industry reforms have prioritized innovation, efficiency and safety.

The Bureau of Safety and Environmental Enforcement (BSEE) is revamping safety regulations to better align with technology. Reforms include: a new inspection program that identifies facilities and operations that have a high-risk profile; increased inspection time for offshore facilities, not just paper records; an expanded reporting program that includes confidential reporting of near-miss episodes, and early equipment failure, identifying risks before they turn into problems.

BSEE reviewed the 2016 Blow Out Preventer (BOP) and Well Control Rule, addressing concerns that certain requirements were overly prescriptive, did not increase safety, and in some cases could instead actually increase risk. Industry recommended that BSEE replace the prescriptive drilling margin requirement with a performance-based standard, align its proposed BOP revisions with the 21-day testing interval outlined in API Standard 53 4th Edition, and that Real Time Monitoring be applied to operations using subsea BOPs and surface BOPs from a floating rig defined by API Standard 53.

Access

Today, offshore energy development is safer than ever and US oil and natural gas operations are the world’s gold standard for safety and environmental protection. And yet the US is one of the only nations to keep the majority of our offshore energy resources off limits to development.

Currently, a full 94% of the US outer continental shelf (OCS) is locked away and, with it, up to 90 Bbbl of oil and 327 tcf of natural gas. This short-sighted policy leaves the US energy dependent on a small area of our outer continental shelf. The Trump administration’s proposed five-year leasing plan, the centerpiece of the America First Offshore Energy Strategy, seeks to unlock that potential and unleash hundreds of thousands of jobs.

While the United States has an abundance of oil and gas and industry has the technology and the know-how to tap these valuable resources, we are still years away from any new leasing under a final version of the 2019-2024 National Oil and Gas Leasing Program. Meanwhile, other countries are reacting to the demand for energy. Large new oil and gas discoveries off Canada, Brazil, Guyana, and Mexico are a result of those countries promoting offshore oil and natural gas exploration and development. For example, Nova Scotia sponsors its own offshore geological surveys and studies, and passes the data to industry free of charge.

Seismic

By contrast, the last surveys made of the Atlantic seaboard’s offshore oil and gas resources were conducted in the 1980s. However, last year, after a ridiculously long wait of more than 1,200 days, Incidental Harassment Authorizations (IHAs) were finally issued to five companies eager to conduct the first seismic surveys in US Atlantic waters in more than 30 years. It now appears that four of the five companies that filed requests with BOEM for permits to survey the mid-Atlantic OCS could soon proceed.

Those 1980s surveys of offshore resources in the Atlantic resulted in estimates of 4.7 Bbbl of oil and 37.5 tcf of natural gas. However, since today’s surveying technology is exponentially more sophisticated than technology used 30 years ago, there is good reason to believe those projections were far too low. That certainly was the case in the Gulf of Mexico, where the oil and natural gas produced from the region far surpassed estimates made in the 1980s.

Regulatory and royalty reform

With companies looking globally for exploration opportunities, the United States must continue to evaluate how to keep the Gulf of Mexico and the remainder of the OCS attractive in light of competition from Brazil and Mexico. In addition to increased access to the OCS and more lease sales, the US needs a regulatory regime that encourages offshore energy development. Companies need a clear and stable regulatory environment to turn raw resources into the energy that powers our daily lives.

A first step has been taken. In 2017, the Trump administration lowered the shallow water royalty rate from 18.75% to 12.5%. The deepwater royalty rate, special case and end-of-well life royalties should be re-evaluated in light of recent studies comparing other countries total government take and incentives.

Other federal policies that should make a difference in 2019 include a round of discussion on the new air quality permitting; another stab at a consistent logical supplemental bonding and financial assurance program; and continual improvement in the rigs-to-reefs process.

Winds of change

Global energy demand is expected to increase by 28% by 2040, driven by economic growth in the developing world, and studies have projected that traditional energy sources will meet about 77% of this demand. The US Energy Information Administration (EIA) estimates that the world will need nearly $40 trillion in new energy investment by 2035 to keep up with demand.

The US oil and gas and industry has the technology and the know how to tap these valuable resources. To keep up with growing energy demands, we need all forms of energy, including offshore wind. With strong winds, a shallow continental shelf and close proximity to population centers, the Atlantic seaboard is driving strong interest in offshore wind development, and the offshore oil and gas supply chain stands to benefit. As we saw with Deepwater Wind’s Block Island Wind Farm, the participation of companies that traditionally service the offshore oil and gas industry is a win-win for everyone involved. Wind companies get the unrivaled expertise and skill of companies operating in the Gulf of Mexico, and in turn these service companies tap a new, and much needed, revenue stream.

The face of the offshore energy industry is changing. New technologies are driving efficiency and safety gains and furthering linkages to other forms of energy production. NOIA believes that the right federal policies can benefit both consumers and the offshore energy industry and that is the message we deliver to Washington every day: the offshore industry can provide the energy certainty our nation needs. •

The author

Randall Luthi is the President of the National Ocean Industries Association (NOIA), an offshore energy trade group located in Washington, D.C.

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