Wednesday, April 14, 2010

How Much Oil Is Really Off the Atlantic Coast?

You Can’t Always Get What You Want

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Obama's decision to open the Atlantic Ocean to drilling may not yield the results everyone imagines.

President Obama's March 30 decision to open up vast tracts of the Atlantic Ocean to oil and natural-gas exploration triggered the predictable range of responses: drilling advocates, including Republican lawmakers, offered tepid approval, while environmentalists complained. But lost amid the political debates—did Obama secure conservative Democrats' support for energy legislation? Could Republicans still run on "Drill, Baby, Drill?"—was a question with more practical impact: What's down there?

We really have no idea. The entire East Coast has been off limits from all drilling-related activity since 1981. That's the last time any data was collected on the area, using seismic equipment that's outdated compared to today's advanced methods. More accurate data is likely to lead to more accurate drilling and fewer "dry wells" that don't produce oil. But it could also revise downward how much we think is out there. The Interior Department's Minerals Management Service (MMS) estimates there could be as much as 10 billion barrels of oil and natural gas in the mid- and south Atlantic. But that's only at a 5 percent level of confidence. Ask them what they're 95 percent confident of, and the estimate drops to fewer than 2 billion barrels, or about 100 days of oil at our current rate. So, not much. "We really don't know a lot about what's down there," Interior Secretary Ken Salazar admits. "It may be nothing, it may be a lot."

What's sure is that it'll be decades before we ever find out. The general consensus is that the Atlantic Ocean is not nearly as geologically complex as the Gulf of Mexico, where a mile-thick layer of salt has trapped billions of barrels of oil and gas. Companies have only begun tapping into those resources in the last few years, thanks to advances in deepwater drilling technology. Those advances may come in handy over the next couple decades as companies plumb the depths of the Atlantic, but only if there's oil down there. The oil lobby and its congressional allies reluctantly applauded Obama's move while railing against his decision to keep off limits the entire Pacific Coast, where there's thought to be considerably more oil and gas, 22 billion barrels by the rosiest of estimates. But energy companies may never have access to Pacific coastal waters. The 1969 oil spill off the coast of Santa Barbara launched the modern American environmental movement, and in the eyes of many, the area remains "too special" (Salazar's words) to touch.

The first true test of the new Obama oil plan will take place 50 miles off the coast of Virginia, in a 2.9 million-acre triangle of water that the state is anxious to see drilled. Starting with former governor (now Democratic National Committee chairman) Tim Kaine's administration in 2006, Virginia has aggressively worked to open up its coast to exploration and now stands first in line to hold a lease sale, where oil companies submit sealed bids on tracts based on what they think is down there. Virginia initially pushed for that to happen in 2011, but it's been pushed to 2012 since the Interior Department first has to conduct an environmental impact study. That will likely take a year or more and result in a 1,000-page document for Salazar to sign. Lawsuits from environmental groups could follow if they deem the report insufficient, which would hold things up even further. Whenever the report does go through, the lease sale will follow shortly thereafter.

What's unclear is whether oil companies will have time to commission seismic testing before the lease sale is done. An Interior official, speaking on background, says that it's "not likely" they will. Salazar echoes this: "[Companies] may have to go with whatever information is out there right now." This could seriously reduce the amount of money the lease sale generates, as companies aren't likely to shell out big bucks based on 30-year-old data. Typically, lease sales generate hundreds of millions in revenue, which in the Gulf of Mexico gets split between the federal government and the coastal states Louisiana, Mississippi, Texas, and Alabama. For example, a combined 4.5 million acres of water split into three separate lease sales between August 2008 and March 2009 netted $1.3 billion, 37.5 percent of which ($480 million) went to state coffers.

Virginia wants half of whatever oil companies pay to lease the waters off its coast. Virginia Republican Rep. Bob Goodlatte has made that a key demand of the energy legislation he introduced a week before Obama made his announcement. As of now, though, there is no revenue-sharing agreement in place for East Coast states, and Salazar has made it clear that they shouldn't expect one, a point he says he emphasized in a recent meeting with Virginia Gov. Bob McDonnell. There's speculation that any revenue-sharing deal would be tucked into a national energy bill to curry support for addressing climate change from Southern coastal states. Goodlatte says that any attempt to bury a revenue-sharing deal in a cap-and-trade bill "would be a major dealbreaker" for Virginia's support of developing its offshore resources. This sets up an intriguing game of chicken between the Obama administration and pro-drilling advocates in Virginia, including the state's two Democratic senators, Mark Warner and Jim Webb, who both oppose the cap-and-trade language included in the energy bill passed by the House last year. Depending on which one blinks, we might not see oil come out of the Virginia coast after all.

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