Trump’s free rein on offshore drilling fails to lure Big Oil
Summary: US President Donald Trump is not known for understatement.....
So, when he threw open American waters for oil and gas drilling last week, and like his taste in home furnishings and Christmas decorations, there were no half-measures involved.
His predecessor in the White House slapped a drilling ban on 94 per cent of the US outer continental shelf, the offshore area between coastal state waters and the deep ocean.
The Trump administration’s new draft proposals would make 90 per cent of those waters available for drilling, from California’s shining Pacific to the icy seas of Alaska and from the glittering Atlantic off New England to new and as yet undeveloped portions of the Gulf of Mexico.
The Obama-era ban “deprives our country of potentially thousands and thousands of jobs and billions of dollars in wealth”, Mr Trump claimed as he pitched his plan for an offshore exploration blitz as part of a broader push to stoke the fires of GDP growth to above 4 per cent.
Unsurprisingly, oil and gas companies cheered the proposals, which could open up huge new deposits of oil and gas beneath American waters.
Environmentalists shuddered, but is the President’s plan really going to trigger an offshore drilling boom? Right now, it’s far from clear. And don’t hold your breath for anything to happen any time soon.
The issue is not merely the 18 months or so that it will take to finalise the proposals.
There were signs already that the plans might unravel this week as Florida became the first state to push back, declaring it would not allow drilling in its waters, amid fears about the impact on its powerful tourism industry. That’s a significant blow, as waters in the Gulf of Mexico off the Florida panhandle are thought to be rich in oil and gas, with similar geology to areas further west, off Texas, Louisiana and Mississippi, where drilling is permitted.
Florida is unlikely to be the only state to resist. The governors of New Jersey, Delaware, Maryland, Virginia, North Carolina, South Carolina, California, Oregon and Washington have all signalled their opposition.
And rigid political resistance from coastal states is not the only challenge. Even at the best of times, offshore oil exploration is an expensive and hazardous business. With oil prices stranded below $US70 a barrel, few oil and gas companies are rushing headlong into big offshore projects in frontier regions. While the industry has looked at areas such as the US east coast for years, companies are still feeling the pinch from an oil price crash that began in 2014 because of a global glut that has eased only recently.
Despite a recent price rebound, they are reluctant to shell out, especially the giant sums required to open up new areas devoid of existing pipelines and other infrastructure. Energy consultancy Wood Mackenzie estimates $US37 billion ($47bn) will be spent on exploration globally this year, down more than 60 per cent from 2015.
In the US, the lion’s share of this is being channelled into lower-risk areas such as the onshore Permian Basin, the shale-rich region that straddles West Texas and New Mexico where huge deposits of relatively cheap and accessible hydrocarbons have been discovered. Understandably, oil companies with cash to spare are more likely to invest there than in unproven, little-explored regions offshore.
Oil companies are well aware of the political risks of pumping billions into new projects where a ban could be reapplied if there is a change in government. That’s not to say it won’t happen eventually, but an offshore American drilling boom is unlikely to take off soon unless oil prices jump dramatically higher.