A Brave New World

The Obama Administration says the US drilling moratorium is over, but implementation of “New Rules” might delay operations until mid-2011. While Interior Secretary Salazar was announcing the government was removing the ban on OCS drilling, Michael Bromwich of the Bureau of Ocean Energy Management (BOEM) said his agency will not be granting permits until the end of the year or whenever it deems appropriate safeguards are in place.

Unquestionably, Americans have witnessed one of the most catastrophic environmental events in US history and there absolutely needs to be a complete review of standards for operations in deepwater. But, the administration essentially shut down the entire GOM by slowing the permitting process over the last five months. The “good faith” removal of the moratorium by the administration might signal an end to the pain and suffering along the Gulf Coast, but, the onus now sits squarely with DOI and the BOEM to really lift the ban by expediting permits and rig inspections, and by reviewing and approving emergency response plans.

Hurricanes were not a factor this year, so the Gulf States and the administration dodged a bullet because no one really knows where the oil went nor could the people withstand another financial impact. The US is still in a serious recession as unemployment continues to hover around 9.6 percent and the economy is expected to grow by only 2 percent until the end of 2011. The Stimulus Package did little to create jobs in the US (most of the jobs were created overseas) and while alternative energy projects got lots money, the US economy runs on oil, pure and simple.

New Rules

DOI has published “New Rules” in the Federal Register, which will financially impact offshore operations and potentially delay permits to operate. The “Drilling Safety Rule” and “Workplace Safety Rule” are meant to strengthen equipment safety, well control systems and blowout prevention practices as well as improve worker safety by reducing human error.

Of course, the Drilling Safety rule will demand new standards for blowout preventers, well design, casings, cementing, and safety equipment, which will be inspected by independent inspectors assigned by BOEM. The Workplace Safety rule will enforce the development of management practices to reduce the human risk factor. And, CEOs are now required to put their names on company documents certifying their rigs comply with all safety and environmental laws and regulations.

The administration requested from Congress $29 million to get BOEM immediately up to speed on its oversight mandates. Additionally, $100 million was requested to hire new inspectors, draft enforcement and safety regulations and carry out new environmental studies. In fact, the Fish and Wildlife Services and NOAA have been recruited to join the BOEM in providing new environmental analyses of the GOM and Arctic, which will guide future leasing and development decisions.

In addition to funding the new rule mandates, the “Royal in Kind” program, which allowed oil and gas to be accepted in lieu of cash as royalty payments on federal energy resources, has been repealed. So, along with the capital requirements for compliance with the new regulations, oil companies will have to come up with more cash to pay its royalties.

Hold on to your pocketbooks because we all know where all the money is coming from. Major accidents lead to reviews and revisions of current practices, and the government has a fundamental responsibility to ensure it never happens again. The oil industry will be on probation for the foreseeable future, and exploration and production must be done safely. But, DOI and the BOEM must move the agenda along quickly. Getting the GOM back to work isn’t clear in Secretary Salazar’s comments, “Offshore drilling is inherently risky and we will only move forward when I am comfortable that we have significantly reduced those risks. The oil and gas industry needs to expect a dynamic regulatory environment as we bring offshore programs up to the gold standard we need to have.”

Show Us the Money and Jobs

The US GOM is one of the most important energy regions in the country and it has a highly developed infrastructure. The GOM accounts for 30 percent of the US total crude and 13 percent of natural gas production. Its refining sector processes over 40 percent of hydrocarbon developed as well as 30 percent of natural gas processing.
However, the US in September alone imported 60 percent or 346 million barrels of its usage at a cost of $26 billion. And, for the numbers freaks, that’s $602,720 per minute.

Let’s remember, the global economy has been really soft over the last couple of years, and the global demand for oil has been weak. In fact, OPEC slowed production to keep prices from falling over the past 18 months, but the world economy is awakening and experts predict a significant increase in demand overseas next year. Meanwhile, Americans stayed home during this year’s “summer driving season.” And, 2010 was the second lowest in summer fuel consumption since 2000.

This year’s federal budget deficit is expected to be the second largest in 65 years; at 9.1 percent of GDP, which was exceeded only by 2009’s 9.9 percent. The increasing deficits are attributable to weak government revenues and elevated spending on policies associated with the economic downturn. The unemployment rate is not expected to go down until 2014 when it is calculated to be at 5 percent.

The Obama administration needs to push on DOI and the BOEM to resolve many of its initial issues quickly regarding opening the OSC to drilling again. Permits for shallow water operations need to be expedited, which will begin to get the boats and people back to work.

A Real American Economic Recovery Plan

The US could be one of the great maritime nations in the world, but not a dime of assistance has been given to marine companies or shipyards. Maritime in America means military funding for the Maritime Security Program and getting rid of the poisonous Ready Reserve Fleet. If the administration wants a quick and solid economic recovery, it needs only look no further than the renewable marine highway running along the 95,000 miles of US coastline.

With the port infrastructure already in place, Obama need only repeal the Harbor Maintenance Tax, because it’s stupid to double tax containers moving within US ports. Really fund the American Marine Highways with $1 billion per year for the next five years to build more vessels and increase funding for Title XI to $1 billion, which will immediately increase activity in US shipyards.

The US marine and shipyard industries are in desperate need of governmental support. Building a strong maritime industry means jobs and revenue for the states and the Fed. The Obama administration sits at the precipice of stagnation or revitalization of this country’s infrastructure. Giving billions of dollars to fix the broken highways is really not the answer. Reopening the OSC to exploration and drilling will put Americans back to work. Building a strong US maritime industry will put thousands more Americans back to work. What’s not to understand?

We need leaders and visionaries that can see all around them. The BP oil spill may have had a more profound effect on this economy than ever expected. Perhaps, now the government can foresee that maritime investments mean more jobs and increased governmental revenues. Obama, Salazar and Bromwich should tour the commercial shipyards of the GOM. What they will see is an infrastructure that has already been built and is simply in need of some government stimulus to put it back to work.