Impacts of Increased Access to U.S. Offshore Oil and Natural Gas Resources
I recently looked into the prospect of additional offshore U.S. oil and natural gas resources. Lifting the moratorium would increase access to oil and gas fields in the Outer Continental Shelf (OCS) of the Pacific, the Atlantic, and the eastern Gulf of Mexico. President Bush recently lifted the executive moratorium, which was set to expire in 2012. The Congressional moratorium comes in the form of an annual appropriations rider. It must be renewed year to year by a vote in the Congress. The current 2008 ban is set to expire on September 30th, 2008 – the end of the federal government’s fiscal year – unless Congress approves a bill extending the ban and the president signs it into law. This post looks at the impact of increased access to offshore areas, based on estimates made by the U.S. Energy Information Administration and the Minerals Management Service.
The first thing that jumped out at me in Table 10 is that most of the technically recoverable, undiscovered offshore oil and natural gas resources are currently open to oil and gas companies for leasing and drilling. These areas are located mostly in the western and central Gulf of Mexico.
The Outer Continental Shelf (OCS) leasing program is administered by the Minerals Management Service (MMS), an agency within the US Department of the Interior responsible for oil and gas leasing in the US offshore. MMS estimates that there are currently 85.9 billion barrels of oil and 419.9 trillion cubic feet of natural gas that are technically recoverable from all federal offshore areas, including 26.6 billion barrels of oil and 132 trillion cubic feet of gas offshore Alaska.
The oil and gas offshore Alaska is available for leasing and development. Therefore, the total portion of technically recoverable, undiscovered, offshore oil and natural gas that is available for leasing and development from all federal offshore areas, including offshore Alaska, is 67.5 billion barrels oil (79%) and 342.4 trillion cubic feet gas (82%). The offshore moratorium denies access to the other 21% of oil and 18% of gas from federal offshore areas.
In addition to the technically recoverable, undiscovered oil and natural gas resources estimated in Table 10, as of October 2, 2006 there were 3,911 active oil and natural gas production platforms on the Gulf of Mexico’s Federal OCS as illustrated in the following figures.
Active Oil & Gas Platforms in Western Gulf of Mexico
Active Oil & Gas Platforms in Eastern Gulf of Mexico
In the U.S. EIA’s Annual Energy Outlook 2007, an “OCS access case” was prepared to examine the potential impacts of lifting Federal restrictions on access to OCS oil and natural gas resources in the Pacific, the Atlantic, and the eastern Gulf of Mexico. The OCS access case assumes that the current moratoria will expire in 2012, leasing will begin by 2012, and oil and natural gas production will begin by 2017.
Offshore oil production (Figure 20) is projected at 2.4 million barrels per day by 2030 in the OCS access case compared with 2.2 million barrels per day (mmbpd) in the reference case. EIA notes that oil prices are determined on the international market, so any impact on average oil wellhead prices would be insignificant in the OCS access case.
Offshore natural gas production (Figure 21) is projected to increase 18% (0.6 trillion ft^3 per year) in the OCS access case by 2030, and the average wellhead price of natural gas is projected to decrease slightly: $0.13 / MCF (2005 dollars per thousand cubic feet) by 2030.
One precaution, the OCS access case in Figure 20 and Figure 21 only account for off-shore production in the U.S. However, domestic on-shore production is more predominant than offshore — over 3/4 of the natural gas and over 1/2 of the oil produced in the U.S. are projected to come from onshore fields even in the OCS access case.
Total domestic production in the U.S. (i.e. offshore and onshore) is projected at 6 million barrels per day of oil, and 19 trillion ft^3 per year of natural gas, by 2030; so the overall projected increase in domestic production — 0.2 mmbpd more oil and 0.6 trillion ft^3 more gas — would only provide the U.S. with approximately 3% more oil and 3% more natural gas by 2030.
One other precaution according to the EIA summary, the average field size in the Pacific and Atlantic regions tends to be smaller than the average in the Gulf of Mexico. This implies that a significanct portion of the newly available fields in the OCS access case would provide less attractive return on investments than fields that are already available for exploration in the western and central Gulf of Mexico.
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EIA: Retail Prices
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