U.S. President to Push for New Domestic Oil and Gas Exploration

President George W. Bush will today ask Congress to approve the lifting of a moratorium placed on oil and gas exploration across vast regions of the United States. The move comes just days after oil prices reached a new high of just under US$140/b and the average U.S. retail price of gasoline (petrol) hit a new record of US$4.08/gallon, and repeats a long-standing effort by the president to open up the country’s federal Outer Continental Shelf (OCS) areas to upstream oil and gas activities. Record energy prices are but one driver of the latest push; a desire for increased U.S. energy security and less dependence on Middle Eastern oil has also played a part.

The moratorium has been in place since 1981 and affects the Atlantic and Pacific coasts, as well as the eastern Gulf of Mexico (GOM), offshore Florida. Drilling is also prohibited in the Arctic National Wildlife Refuge (ANWR), where petroleum reserves are thought to be present in abundance. In all, upstream oil and gas activities are prohibited across approximately 574 million acres of federal waters despite estimates pointing tentatively towards the presence of around 18 billion barrels of oil and 77 tcf of natural gas. At the same time, domestic production of crude oil is in long-term decline, with current output running at around 5.1 million b/d after having peaked at 9.64 million b/d in 1970.

Upstream Struggle

Opposition to opening up the OCS has been long-standing, particularly among Democratic lawmakers, and based primarily on the fear of further environmental disasters typified by experiences such as the Exxon Valdez oil spill, or pipeline ruptures on Alaska’s North Slope. The industry’s operational performance in offshore production has, however, been good, indirectly prompting Republican lawmakers to question the continued relevance of the drilling ban at time when oil and fuel prices are hitting new records. Senator John McCain of Arizona, the presumptive Republican nominee for the presidential elections at the end of the year just yesterday enumerated his limited support of such a policy, while Senator Obama of Illinois, the presumptive Democratic nominee, has come out against the proposal.

Although Bush is pushing for lifting the drilling moratorium, his voice alone offers no guarantees toward this goal; support from Congress is absolutely essential, which raises questions of how much influence the president still has. Bush could decide to lift a largely symbolic executive ban on OCS drilling that was first introduced by his father George H. W. Bush, but no decision has yet been taken concerning this. The president will likely speak in very general terms when he asks Congress to lift the ban, and will in all probability eschew being overly prescriptive in which specific areas to open up. His position with regard to ANWR in Alaska is, however, well known.

Outlook and Implications

The United States goes to the polls in November, and what happens next could have direct implications for the next president. Both McCain and Obama have been under intense pressure to explain their energy policy positions more clearly. McCain supports lifting the drilling moratorium, though is apparently hesitant when it comes to the ANWR, preferring to keep it off-limits perhaps in an effort to tread the middle ground. McCain has also suggested lifting gasoline (petrol) taxes over the U.S. summer period to help consumers with their soaring fuel costs. However, the idea has widely been greeted with derision as the resulting subsidy would only encourage demand, potentially leading to even higher prices. In other words, the policy would be ineffective at best and counterproductive at worst. Obama meanwhile is against new drilling, arguing that approving such a policy now would not bring additional volumes of oil to market for at least five years.

Unfortunately there are no quick-fix solutions to the problem of high energy prices. Bush has but a few months left in office, so the move to push for new domestic exploration now effectively represents a last-ditch attempt to influence a course that has otherwise proved unnavigable till now. Given past legislative performance on the issue, any ensuing debate will likely be contentious, fractious, and slow, but high oil prices have led to growing calls for more domestic exploration, suggesting that general attitudes may slowly be shifting with regard to the moratorium as it currently stands. Given successful operation over many years of production platforms in the central GOM, offshore areas in the eastern GOM could reasonably be expected to be opened up to upstream activities eventually. The same could be expected of small areas offshore Alaska that appear to be particularly promising, such as the Beaufort Sea, though regulation here is likely to be stricter to minimise the chance of an environmental disaster. Opening up the Atlantic and Pacific coasts would be more difficult given the level of opposition that exists among populations in many coastal states. For its part, however, the ANWR will in likelihood remain off-limits for longer, and perhaps even indefinitely.

The 44th president of the United States will have to lead the country during a time of unparalleled challenges and opportunities, from pushing forward with new nuclear build, to assuring that the renewable and alternative energy industries continue to receive government support, to reducing carbon emissions in a bid to help against climate change, to ensuring that the entire energy value-chain from production to consumption becomes more efficient and cleaner, but, above all, to ensuring that domestic markets continue to be well supplied with fuel and power. All this will take place against an international context of strong oil and gas demand growth, especially from Asia, with oil production becoming increasingly difficult and expensive as reserves become harder to find and extract. Although opening up the OCS to new exploration will not alter the overall long-term picture for oil and gas output, it would certainly provide markets with some much-needed medium-term guidance as to future U.S. production, and so reduce some of the volatility that has characterised energy prices over the last few years. It would also ease the gradual transition away from the so-called Petroleum Age, but the full benefits of opening up the OCS would not be felt unless the policy were also a key component of a wider-ranging, highly integrated energy strategy.

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