US Offshore Drilling: Impact Assessment

Outer Continental Shelf (OCS): This is the region of United States offshore territory under federal government jurisdiction. It starts 3-9 miles offshore, depending on the state, and extends anywhere from 200 up to 350 miles offshore.

Technically Recoverable Resources: Crude oil resources that are technically recoverable, meaning there are technologies available to extract these resources.

Undiscovered Technically Recoverable Resources (UTRR): This is a subset of the Technically Recoverable Resources that have not been fully explored or quantified, but are believed to exist based on known geologic conditions.

Discovered Technically Recoverable Resource: This is the other subset of technically recoverable resources, and includes all oil identified through exploration, and includes all current and previous extraction

Economically Recoverable Resources: This is the portion of oil resources that can profitably be extracted from a given location. Oil market prices and changes in technology can impact the amount of resources that are economically recoverable

Since 1981, there has been a Congressional moratorium in place that has prohibited leasing of an increasingly large area of the US Outer Continental Shelf (OCS) for oil and gas drilling. The current prohibition puts the east coast, west coast, and eastern portion of the Gulf of Mexico off limits to new oil and gas drilling. The total area under the prohibition is roughly 85% of the US OCS in the lower 48 states. Here is a link to an excellent map of the US OCS, with a helpful depiction of the moratorium areas, leasable lands, and other useful information.

An executive ban on offshore drilling was also put in place in 1990 by George H. W. Bush, and was extended by President Clinton in 1998. However, in June 2008 George W. Bush has rolled back the executive ban, and called on Congress to do the same. The Congressional ban currently remains in place. However, it must be renewed on an annual basis, so it is possible that it could expire even if it is not actively rolled back.

In fact, the Congressional drilling moratorium is slated to expire at the end of September 2008. The net impact of the drilling moratorium expiration is assessed in the remainder of this article.

This page uses data derived from three recent assessments of oil production potential of the moratorium areas in the US outer continental shelf. The first is a study published by the Energy Information Administration (EIA), which is part of the US Department of Energy (DOE). The EIA Report, originally published in February 2007 assesses the impact of lifting the existing leasing and drilling restrictions upon US oil production through 2030. A second report from the U. S. Department of the Interior; Mineral Management Services (MMS) provides some very useful information about the estimated recoverable oil from restricted versus unrestricted areas of the OCS. A report published by the National Petroleum Council (NPC) provides some additional data on the production potential of the moratorium areas.

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For starters, it is important to note that even with current restrictions on OCS drilling, crude oil and condensate production in the OCS represents almost
27% of US total production. This high level of production is coming almost entirely from the western Gulf of Mexico with some offshore leasing and production activity occurring in the offshore regions of Alaska.

However, it would not be accurate to extrapolate the high level of production in the Gulf of Mexico to other portions of the United States Outer Continental Shelf. In fact, according to the 2006 MMS assessment, while the US OCS is estimated to contain 86 billion barrels of undiscovered technically recoverable resources (oil), only 18 billion reside in the portion of the OCS restricted to drillling activity. So, according to the US Government Mineral Management Service (MMS), only 20% of undiscovered oil in the OCS is believed to reside in the territory restricted by the Congressional Moratorium.

The MMS report also provides data for known oil reserves and expected future reserve increases, most of which are in the Gulf of Mexico, which is largely open to offshore drilling. Specifically of the 15.4 billion barrels of oil reserves and anticipated increases in oil reserves in offshore areas, nearly 14.0 billion barrels are in the Gulf of Mexico.

The EIA model for OCS production assumes that it would take 5 years from the date of lifting the moratorium to initial production in currently restricted drilling areas. In the EIA report, an estimate of future offshore production was developed using 2012 as the end date of the drilling moratorium. Under the EIA model, it was estimated that total US oil production in the 18 years after lifting the moratorium would be only 1.6 percent higher than if the offshore drilling ban was kept in place. In addition, in year 18, the increase in total US oil production due to the lifting of the drilling moratorium is estimated to be 0.2 million barrels per day. To put this increase into perspective, please note that the US currently imports over 12 million barrels of oil a day currently, so 0.2 million barrels a day is a comparatively small increase.

It is critical to note that the 2007 EIA report model assumed much lower crude oil prices than we have seen thus far in 2008. It would be safe to say that if prices for crude oil stays at prices in excess of $100/barrel, that production ramp up and total production in the moratorium areas would certainly be higher.

The National Petroleum Council report, identifies a much higher estimate of future production rates. Specifically, the NPC report estimates that 2025 production from the moratorium areas could reach 1 million barrels / day, or roughly 5 percent of current US consumption, and roughly 8 percent of current US petroleum imports.

While I think it is very difficult to accurately forecast the production rates in the moratorium areas decades into the future, I think the estimates noted in this section make it clear that lifting the offshore drilling ban will not cure our dependence upon petroleum imports.

There is one key point that I would like to emphasize:

There is a difference between technically recoverable oil and economically recoverable oil. No oil company in the world would spend 2 billion dollars in exploration and drilling activity if they believe they would only recover 1 billion dollars worth of crude oil. Now certainly, increasing crude oil prices will make a greater portion of the oil in the moratorium areas economically recoverable, but certainly not all of it. Also, it is worth noting that the oil fields in the moratorium areas tend to be smaller as noted by the EIA: ".... the average field size in the Pacific and Atlantic regions tends to be smaller than the average in the Gulf of Mexico, implying that a significant portion of the additional resource would not be economically attractive to develop at the reference case prices."

Based on the data presented in this page, I think that is is fair to conclude the following:

- There is a substantial amount of undiscovered oil that is currently inaccessible due to the Congressional drilling moratorium
- The vast majority of undiscovered, technically recoverable oil in the US offshore territory resides in areas not previously subject to the drilling moratorium
- By itself, oil production in the former moratorium areas can only modestly reduce our dependence upon foreign petroleum imports. It may be part of a solution, but is certainly not THE solution

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