Date ArticleType
5/11/2016 Member News
Removing Mid-Atlantic from offshore leasing will have consequences

Removing Mid-Atlantic from offshore leasing will have consequences  

Thursday, May 5, 2016

The Obama administration’s decision to remove the Mid-Atlantic region from its offshore oil and gas program was not unexpected but it will have consequences, and the issue is certain to return. While the McCrory administration works toward energy independence through its all-of-the-above energy strategy, Obama has kicked the can down the road for another five years.

Given the forces unleashed by nearly two years of declining oil prices and the cutbacks underway in the global oil and gas industry, the stage is being set for another run-up in oil prices similar to what we have witnessed many times in the past. As Yogi Berra famously said, “It’s like déjà vu all over again”.

Market dynamics was cited as a key factor in the decision. It’s true current market conditions are soft, but how long will they stay that way? Given all the factors involved, we can’t say definitively where oil prices will be in five or 10 years, but they are likely to be higher than today. The longer oil prices remain low, the greater the risk of a large price increase in the future. A return to $85 a barrel oil would cost American consumers $385 billion per year in higher oil costs, with associated impacts on income and growth.

Large-scale transitions from carbon fuels to renewable energy are expected to take decades. In most forecasts, fossil fuels will continue to supply about 80 percent of the world’s energy in 2040. Oil remains the dominant fuel, followed closely by natural gas. Given these trends, it’s important to focus on the big picture.

The U.S. is one of the largest energy-producing and consuming countries in the world, a leader in technology, and an important player in global energy and environmental issues. U.S. energy policy is driven by our simultaneous desires for economic growth, environmental protection, and national security in a dynamic and often unpredictable marketplace.

Fundamental differences exist between these objectives, and the tradeoffs necessary to reach a workable compromise are often difficult and sometimes impossible to achieve, especially in the current political environment. The road ahead is likely to be rocky and unpredictable, and successful navigation of these waters will require tradeoffs and enlightened compromise.

Obama’s decision certainly sends the wrong signal to the market. In this environment, we at least owe it to ourselves to know what we have to work with. If new seismic surveying data shows there are no commercial deposits in the Mid-Atlantic, policy makers and the industry need to know so they can focus their attention and resources on other prospects.

Given the long lead times required to lease, explore, develop and license production from new fields, it is extremely important that we have a better understanding of the scale of the resources off our coast. If we don’t act, history may repeat itself and we may once again be in for some unpleasant surprises, like déjà vu all over again.

John Brodman is a retired Deputy Assistant Secretary for International Energy Policy at the U.S. Department of Energy. He is currently a member of Gov. Pat McCrory’s Energy Policy Council.