As offshore oil lags, so does the economy

David Holt President, Consumer Energy Alliance
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With each passing day it becomes clearer that the responsible development of our nation’s energy resources is one of our nation’s greatest economic opportunities. This is easily noticed in a recent study by Merrill Lynch which showed the economic benefits of domestic oil and natural gas development are fast approaching $1 billion a day and may be keeping the U.S. out of another recession.

While this is good news, continuing this North American “energy revolution” requires a predictable regulatory and permitting environment that provides a consistent, transparent framework for safe and responsible energy development. Unfortunately, independent reviews show the opposite is happening.

A recent report by the Cox School of Business at Southern Methodist University makes this painstakingly clear. The study found that Washington “has done little to make needed improvements to the regulatory governance of one of the nation’s most important sources for fossil fuel production: the Gulf of Mexico.”

The study found that between February 2011, when the administration finally lifted its moratorium on deep-water drilling, and March 2012, only 32 permits were approved for unique wells specifically permitted to reach oil or natural gas reserves. For comparison, between 2005 and 2010, the federal government approved an average of 545 offshore permits each year. It’s no wonder the number of “active” rigs in the Gulf has fallen from an average of 27 just a few years ago to 18 today.

The sum total of these actions is a significant reduction in oil supplies being developed in the Gulf. According to the U.S. Energy Information Administration, the difference between expected production in 2012 and 2008 is a staggering 30%. With each rig not in place, each permit not issued, and each barrel of oil foregone, hundreds of jobs all across the U.S. economy and millions of dollars in economic potential are lost.

Unfortunately, the problem doesn’t end there. In fact, it appears the Gulf of Mexico could be the beginning of difficulties in developing oil and gas resources on federal lands.

Last month, the Department of Interior released its final proposed five-year Outer Continental Shelf leasing plan, which dictates U.S. offshore investments through 2017. The plan seeks to delay previously proposed lease sales off the coast of Alaska as well as in the Mid- and South-Atlantic. The administration cancelled these lease sales, which enjoyed broad bipartisan and public support, with little to no input from other stakeholders, some of which is legally required. At a moment when we should be looking for every opportunity to safely produce more domestic energy, the administration unilaterally declared a five-year timeout.

This is troubling, as the importance of oil and natural gas production to our economy simply can’t be overlooked. In a Gulf Coast Survival Team study finalized last year, IHS-CERA showed fully returning the pace of oil and gas plan and permit approval activity to levels that support the oil industry’s capacity to responsibly explore and operate in the Gulf of Mexico would add $44 billion to U.S. gross domestic product while supporting nearly 230,000 jobs. An additional $22 billion in new wages and compensation would also be realized. It’s important to note this doesn’t account for lost opportunities from cancelling lease sales on the East Coast or off the coast of Alaska.

In a capital-intensive industry like energy production, companies need a predictable regulatory environment with a commensurately predictable level of permitting. Absent this environment, they will seek opportunities elsewhere, leaving the American consumer and economy holding the bag.

While the current administration claims to support an “all-of-the-above” energy approach, a robust oil and gas industry must be part of an overall, comprehensive equation, along with long-term development of nuclear, wind, solar, geothermal and a host of other possible energy sources. I can’t help but wonder why the administration, judging by its actions, seems to favor slowing down the industry that has almost single-handedly kept our struggling economy afloat.

Considering what’s at stake, it’s a question worth asking. America’s consumers and businesses that rely on safe, affordable energy — from the steel industry, to agriculture, transportation, small business, restaurants and retail — all want to know.

David Holt is the president of Consumer Energy Alliance.