A new study by IHS Cambridge Energy Research Associates shows the current (slow) pace of permitting for Gulf oil exploration and production continues to cost the country in jobs, government revenues and oil production.
“The moratorium last year halted drilling activity, but since the moratorium was lifted last October, oil activity has been slow to restart and this has had a negative impact on jobs growth and U.S. oil production,” IHS CERA managing director of global oil James Burkhard said yesterday on a press call. “There is what we call an activity gap under the new regulatory environment and this activity gap is created by the difference in the capacity of oil regulators to oversee oil exploration and development activity and the industry’s capacity to invest. What we found is congestion in the regulatory capacity that is holding back the creation of jobs and domestic oil production in the Gulf of Mexico.”
Specifically, compared to historical trends, pending oil exploration plans are up by nearly 90 percent, but approvals are down by 85 percent — and the approval process has slowed from an average of 36 to 131 days. Over the past year or so, the backlog of deepwater plans pending approval has increased by 250 percent. Drilling permits for both shallow- and deepwater have declined by 60 percent.
Aligning the permitting process with the industry’s production capacity could result in 230,000 American jobs and more than $44 billion in U.S. gross domestic product — all by 2012. That would mean more revenues for the federal government and less money going to foreign governments.
The employment effects would not be limited to the Gulf states. One-third of the jobs would be generated outside the Gulf region in states like California, Florida, Illinois, Georgia and Pennsylvania.
That’s especially significant at a time of high unemployment, as James Diffley, IHS Global Insight managing director of U.S. Regional Economics, explained.
“The unemployment rate in the U.S. has remained stubbornly stuck above 9 percent,” Diffley said on yesterday’s call. “Although technically we’re out of the Great Recession, recovery has been very slow, indeed, even more sluggish this summer. … There are still millions of lost jobs not recovered yet, as the 9-point-plus unemployment rate attests. This economy is in a desperate need of engines of growth to create demand, add jobs and generate incomes. Our analysis demonstrates that restoring the Gulf of Mexico is one such engine.”
The slowed pace of approvals has also likely cost the country in oil production. Since 1998, new discoveries in the deepwater Gulf of Mexico have, on average, contributed more than one billion barrels of additional oil reserves each year. Thanks to the moratorium and the slow pace of permitting, no new discoveries were made in the past 12 months. Discoveries that might have been made would be contributing to production for future years. The lack of discoveries will have significant implications for future supplies from the Gulf of Mexico (and, presumably, for oil and gas prices).
This should be a total no-brainer. The federal government needs to improve the permitting process, retaining whatever gains have been made in the way of added safety, but no longer sacrificing the economic benefits the Gulf has to offer a nation that desperately needs them.