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Abu Dhabi, UAEMonday 23 April 2018

US oil exploration back on agenda in pursuit of 'energy dominance' 

With oil prices rising and spending returning, many companies will likely take a look at exploring new parts of the US offshore

An oil drilling rig off Seal Beach, California. Eugene Garcia/EPA
An oil drilling rig off Seal Beach, California. Eugene Garcia/EPA

For a government pursuing “energy dominance”, being able to drill for oil and gas at home is essential.

On January 4, the Trump administration moved to open nearly all the US’ offshore areas to exploration. But a policy designed to overawe China, Russia and Saudi Arabia is apparently not enough to dominate Florida.

The United States is almost unique in the world in banning petroleum exploration in most of its waters. Only the western and central Gulf of Mexico - one of the world’s most important deepwater producing areas - and a sliver offshore southern Alaska, are open. There is some limited production off southern California from old leases but no new exploration, and the last licensing off the Atlantic and Pacific coasts was in 1983-84.

The US’ oil and gas boom of the past few years has been driven entirely by onshore drilling in shale formations, plus some developments in the Gulf of Mexico. Now, the US interior secretary, Ryan Zinke, has launched a policy to open nearly all the closed offshore areas. This would bring the US into line with other countries, which permit exploration under stringent safety standards, except in very scenic or environmentally sensitive areas such as Norway’s Lofoten Islands, Australia’s Great Barrier Reef or Abu Dhabi’s Bu Tinah island.

The industry has not really been clamouring to explore new parts of the US offshore but, with oil prices rising and spending returning, no doubt many companies will take a look. The most interesting area is the eastern Gulf of Mexico, off Florida, where the Destin Dome gasfields were discovered between 1987-95 but have never been developed.

Other attractions come on the east coast. Until the supercontinent Pangaea began to break up 175 million years ago, the US Atlantic seaboard was attached to Mauritania and Senegal in north-west Africa, where American explorer Kosmos has recently made large gas finds. Analogous geology in Georgia or the Carolinas would find a ready market, attractive tax system, infrastructure, skilled workers and (relative) political stability. Meanwhile, Alaska has the greatest potential, particularly for oil, but is remote and costly.

Environmentalists have predictably objected to the interior department’s plan. But in terms of climate change, the location where oil and gas are produced is pretty much irrelevant, and more US gas would continue pushing down use of coal, the dirtiest fossil fuel. Expanding production would largely displace oil and gas from somewhere else, possibly higher-carbon such as Canada’s oil sands.

The big problem with the Trump administration’s approach to climate is not expanded hydrocarbon production, but the lack of any attempt to curb carbon dioxide emissions or encourage cleaner technologies.

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The coastal states are more worried by the dangers of an accident sullying tourism and fisheries. In principle, with sensible precautions, the risk of disasters would be very small. Gas developments in particular do not pose the threat of oil spills. But Mr Zinke has been pushing to recombine the government agencies responsible for offshore safety and for awarding licences to explore, whose separation in 2010 was a direct response to their conflict of interest and failure of oversight in the case of the deadly 2010 Deepwater Horizon spill, known as Macondo.

The administration’s cavalier attitude to regulation is problematic. US oil companies have been short-sighted in pushing for deregulation at any cost, and permitting cowboy operators to sully their reputation. The shock of BP’s 2010 Macondo oil spill has faded remarkably quickly. It was an earlier oil slick off California, the 1969 Santa Barbara accident, that triggered the offshore ban in the first place.

Americans’ return to buying gas-guzzling 4x4s again highlights the hypocrisy of expecting their appetite to be sated by other countries or inland states, with natural beauties of their own. Massachusetts, opposed to drilling, is also noted for its 16-year block on what would have been the US’ first offshore wind farm.

Mr Zinke announced last Tuesday that he was removing Florida from the leasing plan because of its “unique” tourism. This came in response to a conversation with governor Rick Scott, a Republican, who supported offshore exploration in 2010 but now faces an anti-drilling Democratic challenger in this year’s elections.

Now the governors of all the west coast states, including California, and nearly all the east coast states, several with Republican governors, have spoken out against offshore exploration. That leads just three states with sizeable coastlines outside the Gulf of Mexico to support the plan, Alaska, Maine and possibly Georgia. Attempts at offshore leasing will face lengthy legal challenges, encouraged by the capricious decision to leave out Florida.

Even excluding legal snarl-ups, it would take at least four years to make any discoveries and another four to bring them into production, well beyond the life-span of even a second Trump administration. Oil finds could in principle be developed with self-sufficient offshore facilities but gas would require pipeline landing points in an adjacent state.

Policies that could reach out across America’s partisan divide are in short supply today and energy is one place they might be found. It is a pity that a sensible measure, part of a somewhat coherent strategy, risks being undermined by the administration’s disdain for regulation and climate action, and its short-sighted political expediency.

Robin Mills is CEO of Qamar Energy, and author of The Myth of the Oil Crisis