The Fuse

Obama Administration Flip-Flops on Atlantic OCS Lease Sales

by Leslie Hayward | March 15, 2016

In a major reversal, the Obama Administration switched tactics today on offshore drilling on the Atlantic Outer Continental Shelf (OCS), changing its previously announced plan to allow for bidding on Mid-Atlantic OCS blocks during the 2017-2022 planning period. The move has pleased environmentalists and angered industry, which was promised an “all-of-the-above” energy policy by the Obama administration, but is seeing tighter regulatory structures and limits on access to new territories as Obama’s second term winds down.

Interior Secretary Sally Jewell made the announcement today via Twitter, writing, “BREAKING → Next 5-year offshore proposed plan protects the Atlantic for future generations.” According to a press statement from the Department of Interior, “After an extensive public input process, the sale that was proposed in the Draft Proposed Program in the Mid- and South Atlantic area has been removed from the program. Many factors were considered in the decision to remove this sale from the 2017-2022 program including: significant potential conflicts with other ocean uses such as the Department of Defense and commercial interests; current market dynamics; limited infrastructure; and opposition from many coastal communities.”

“We heard from many corners that now is not the time to offer oil and gas leasing off the Atlantic coast,” said Jewell. “When you factor in conflicts with national defense, economic activities such as fishing and tourism, and opposition from many local communities, it simply doesn’t make sense to move forward with any lease sales in the coming five years.”

Today’s decision follows a number of years of uncertainty about whether leasing in the Atlantic OCS would be permitted, following extensive debate over opening areas off the coasts of Virginia, North and South Carolina and Georgia to oil drilling. The plan would have kept rigs 50 miles off the coast and would not have started until 2021, at the earliest.

Many have noted that Atlantic drilling is not a compelling prospect in the current oil price environment. Jewell added, in a call with reporters, that current oil prices were not a factor in the decision to foreclose selling Atlantic OCS drilling rights, but that “overall market trends” were.

In particular, concerns from the Department of Defense (DOD) are understood to have played a significant role in the decision. The Pentagon has argued that drilling in the region would undermine military exercises and disrupt missile testing along the coast. According to the Washington Post, the Pentagon recently confirmed that it submitted information to the Department of Interior regarding areas where offshore energy development would conflict with its activities.

Industry described the opportunity to conduct seismic research without subsequent lease sales an “empty gesture,” citing the fact that comprehensive surveys cost over $100 million.

Interior’s decision is likely to come as a disappointment to the eight companies seeking permission to conduct seismic research (also known as geological and geophysical surveys) in the Atlantic OCS to map the basin’s oil and gas resources. The scope of oil and gas resources in the area is highly uncertain, as testing and mapping hasn’t been conducted since the 1980s, and research methods have seen significant technological advancements in the decades since. In 2013, then Secretary of Interior Kenneth Salazar mentioned, “There is significant interest in doing seismic exploration in the Atlantic. The information we have is 30 years old.” At the time, his comments reflected the fact that no upcoming lease sales were confirmed or scheduled, and industry described the opportunity to conduct seismic research without subsequent lease sales an “empty gesture,” citing the fact that comprehensive surveys cost over $100 million. It’s unclear if oil companies will still take an interest in purchasing seismic research without any upcoming lease sales.

According to the American Petroleum Institute’s (API) President and CEO Jack Gerard, “This decision stunts the safe and responsible path to securing the domestic energy supplies future generations of Americans will need. This also wipes out an opportunity to create scores of additional new jobs for Americans along the Atlantic coast and nationwide, while also erasing millions more in revenue to the government. Expanding offshore development is a key part of that equation.”

In 2010, EIA forecasted that production from the Atlantic, Pacific, and Eastern Gulf of Mexico OCS areas would add 500,000 b/d to offshore production through 2035—far below API’s estimation of 1.3 mbd from the Atlantic OCS alone.

API conducted a study in 2013 on the economic impacts of offshore drilling on the Atlantic OCS, with projections on likely energy production. API’s assessment of likely oil and gas production in the region far exceeded EIA’s expectations for the forecast period. In 2010, EIA forecasted that production from the Atlantic, Pacific, and Eastern Gulf of Mexico OCS areas would add 500,000 b/d to offshore production through 2035—far below API’s estimation of 1.3 mbd from the Atlantic OCS alone. API reported that oil and gas development on the Atlantic OCS from 2017 and 2035 would have the following economic impacts:

  • Create nearly 280,000 new jobs along the East Coast and across the country.
  • Result in an additional $195 billion in new private investment.
  • Contribute up to $23.5 billion per year to the U.S. economy.
  • Add 1.3 million barrels of oil equivalent per day to domestic energy production, which is about 70 percent of current output from the Gulf of Mexico.
  • Generate $51 billion in new revenue for the government.

In the southern Atlantic states, public opinion on offshore drilling is divided, with desire for economic growth counterbalanced by environmental concerns.