November | December 2014

 

 

 

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From the Expert:
Offshore Drilling: It’s not About the Oil

By Doug Myers, CSG Senior Energy and Environment Policy Analyst
It’s unclear how states will be affected by President Obama’s plans to open up parts of the East Coast, the Gulf of Mexico and the northern coasts of Alaska to offshore oil drilling. What is clear, however, is this: Unless changes are made to the proposal, states will not receive any of the royalties from the oil production off their shores.
Obama announced plans March 31 to open up the Outer Continental Shelf to offshore drilling leases from Delaware down to central Florida; along the eastern Gulf of Mexico, 125 miles off the coast of Florida; and in the Chukchi and Beaufort seas of northern Alaska.
The Department of Interior’s Minerals Management Service estimates anywhere from 39 to 63 billion barrels of oil are economically recoverable from the areas to be included in the program, scheduled to run between 2012 and 2017. Although it will be years before there is an actual increase in production —it typically takes between five and 10 years after a lease has been awarded for production to begin—the administration hopes increased oil production will help reduce the nation’s reliance on imports. 
What do states stand to gain or lose from expanded offshore drilling? 
Since the Outer Continental Shelf is beyond their boundaries, states will not receive any royalties from offshore drilling.  The Associated Press reports that some states have expressed interest in pursuing revenue-sharing with the federal government, which would also require congressional consent.  The oil industry finds revenue-sharing appealing because the industry hopes that states will push for additional lease sales once they start getting oil money. But many in the U.S. Senate oppose revenue-sharing and believe the money should remain with the federal government..Regardless who receives the royalties, it will be years before oil production begins.  Environmental impact statements have yet to be developed and public hearings yet to be held to determine the feasibility of drilling in the proposed areas..  And much of the Eastern Gulf is subject to a congressional moratorium until 2022, which will require congressional action to unlock.  So it is likely that only a portion of the estimated resources will be available for recovery.
Although the Obama administration cited energy independence as the primary reason to advance offshore drilling, some speculate there were other considerations. The main reason, according to  Greenwire, an online energy and environment policy news source, is because the president hopes to garner votes for the climate change legislation being drafted by a bipartisan group of senators.
And this trade-off might not work.  States such as New Jersey and Delaware are concerned about the impact on their shorelines if there’s an oil spill off the Virginia coast. In addition, several senators wrote a letter to climate change supporters in their chamber warning that if expanded offshore drilling is included in climate change legislation, they won’t support it.
Obama hopes that by meeting in the middle and carefully seeking compromises from both sides of the aisle, Republicans and Democrats will be satisfied and he can get his climate change legislation through the Senate. 

 

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