The Fuse

Opening Federal Lands to Drilling to Bolster Energy Security

by Matt Piotrowski | May 19, 2016

The U.S. is blessed with an abundance of natural resources, and this has been clear with the remarkable rebound in oil and gas production seen this decade. But in order to achieve greater energy security, it’s important that the country prioritizes its potential in this area, particularly with output gains stalling with oil prices being so low.

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Securing America’s Future Energy (SAFE), in its National Strategy for Energy Security released Thursday, lists a number of recommendations for policymakers to act upon to tap resources in federal areas such as the Outer Continental Shelf (OCS), the Gulf of Mexico, the Atlantic, and Alaska.

Even though the domestic boom has come from unconventional production, conventional resources on federal lands should not be ignored given their vast potential in supporting the U.S. oil and gas industry, providing jobs, and improving energy and national security.

SAFE argues that even though the domestic boom has come from unconventional production, conventional resources on federal lands should not be ignored given their vast potential in supporting the U.S. oil and gas industry, providing jobs, and improving energy and national security, particularly since they can be developed without harming the environment. “With the appropriate policy support, it can cement its status as an energy superpower for the foreseeable future, notwithstanding the current oil price environment,” SAFE asserts in the report.

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Using revenues from the newly developed regions, the U.S. should set up an Energy Security Trust Fund for advancing energy technology and infrastructure to diversify the transportation sector and bolster alternative fuels.

In SAFE’s view, growing U.S. oil production will have widespread impacts including bolstering private investment in the short run, which would help the beleaguered industry, while improving energy security over time. During the first half of this decade, with the growth of shale, the benefits of higher domestic supply were visibly apparent—job creation, an improved trade balance, and less reliance on crude imports.

Opening the OCS

The most promising resource base is in the Outer Continental Shelf (OCS), which includes areas in the Gulf of Mexico, the Atlantic and Pacific Oceans, and Alaska.

The most promising resource base is in the Outer Continental Shelf (OCS), which includes areas in the Gulf of Mexico, the Atlantic and Pacific Oceans, and Alaska. SAFE recommends that the Department of Interior (DOI) revise its Five-Year program for the period 2017-22 to give more access to the OCS. The most recent assessment from the DOI puts reserves at a massive 90 billion barrels. For a variety of reasons, including environmental and local opposition as well as national political matters, many areas in the OCS have remained off-limits despite the promise of this resource base. Under the revised plan, state legislatures should have the opportunity to opt into the program, and those that do would have their portions included in at least one lease sale during the five years.

One of the biggest concerns with offshore drilling is environmental damage, which was thrust into the spotlight in 2010 with the Deepwater Horizon spill in the Gulf of Mexico. SAFE’s recommendations addresses the issue, calling on the DOI to set up safety metrics for the industry, and any companies that do not meet certain performance metrics would not be eligible for new leases until they regain compliance. The different indicators used to measure companies’ performance include spills, discharges of chemicals and inspection violations.

Safety measures have improved greatly since the Deepwater Horizon spill, and the accident can serve as a guide to what measures the industry and regulators can take in order to keep a similar disaster from occurring.

Opponents will point to the Deepwater Horizon spill as evidence that opening up more offshore areas to drilling is not a good idea because of the potential environmental damage. But safety measures have improved greatly since then, and the accident can serve as a guide to what measures the industry and regulators can take in order to keep a similar disaster from occurring. Offshore safety has increased significantly over the decades, as the following graphic shows. This progress that can be built upon as more areas are opened to drilling.

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Opening the Arctic

Another recommendation for bolstering U.S. domestic supply, and in turn energy security, is supporting increased production in the Arctic. Access to this region has been limited over the years because of harsh conditions, but improvements in technology, reduced ice cover, and the industry searching for more resources have brought more attention to the area. The United States Geological Survey (USGS) says the Arctic holds some 525 billion bbl of oil, with roughly 80 percent of which is untapped. Some 20 percent of the Arctic’s resources are in the U.S., with about two-thirds of this offshore. The main areas include the Chukchi Sea, Beaufort Sea, and Hope Basin.

The United States Geological Survey (USGS) says the Arctic holds some 525 billion bbl of oil, with roughly 80 percent of which is untapped.

Despite the challenges of exploring and drilling in the Arctic, these areas need to be developed now in order for the volumes there to contribute to U.S. domestic output in the 2030s and 2040s. Like development in the OCS, activity in the Arctic needs to proceed in an environmentally safe manner. The SAFE report recommends that regulators evaluate equipment and ice management techniques every two years. Based upon regulators’ findings, they will decide whether the drilling season, which is short due to ice and permit restrictions, can be extended.

Furthermore, given how capital intensive projects are in the Arctic and the limited duration of the drilling season, lease terms should be extended beyond ten years. “Production in the Arctic takes time not only because the drilling season is relatively short, but also because the oil fields are remote, large, topographically complex, and less heavily analyzed and assessed than those in areas like the Gulf of Mexico,” the report says. “There is little seismic data available about the offshore Arctic, and obtaining permits and collecting data could take several years.”

The report notes how other countries, such as Norway and Greenland, allow for longer lease times, and currently Russian producers have asked Moscow to extend their lease times to 10-15 years.

Opening ANWR

The fight to open the Arctic National Wildlife Refuge (ANWR) was one of the main conflicts surrounding energy and oil drilling in the 1990s and the 2000s, but it has faded as a priority with the growth of shale.

The fight to open the Arctic National Wildlife Refuge (ANWR) was one of the main conflicts surrounding energy and oil drilling in the 1990s and the 2000s, but it has faded as a priority with the growth of shale. However, given its vast resources, with approximately 7.7 billion bbl of technically recoverable reserves there, SAFE’s report recommends tapping these resources. Although ANWR is an environmentally sensitive area, the industry can use recent advancements in technology to access resources there and leave only a minimal footprint. The biggest promise in this area comes from long-range extended reach drilling (ERD), which is common among drillers accessing reservoirs in remote or environmentally sensitive regions.

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The DOI can restrict surface activity so it won’t hurt ecosystems. Given the sensitivity of drilling in ANWR, the best way to proceed is through an extremely limited fashion, chiefly through a pilot project.

Establishing an energy security trust fund

An Energy Security Trust Fund has found support in the past, most notably in 2013 when President Barack Obama backed the idea in his State of the Union address that year.

A key recommendation from SAFE’s report is setting up an Energy Security Trust Fund that supports research and development of technologies that would foster competition and fuel diversity in the transportation sector. The idea has found support in the past, most notably in 2013 when President Barack Obama backed the idea in his State of the Union address that year. Since the U.S. underinvests in energy-related R&D, establishing a fund of this kind would go a long way in helping explore solutions for reducing reliance on oil, which fuels more than 90 percent of the transportation sector. To fund this research, revenues from production on currently inaccessible federal lands and water would be used.

The Fund’s top priorities should be research in resources and technologies that have been mostly under the radar but have the potential to break oil’s stranglehold in the transportation sector. Some of these include PEV battery range, CNG tank capacity, and hydrogen fuel cells.

Supply is one part of the energy security puzzle

Until oil’s monopoly is broken, the U.S., the largest consumer of oil in the world, will need to develop its domestic supplies, or risk needing to import more from foreign producers.

Improving energy security takes time and requires a number of bold actions. Taking measures to reduce demand through greater fuel economy and diversity in the transportation sector are key steps. But until oil’s monopoly is broken, the U.S., the largest consumer of oil in the world, will need to develop its domestic supplies, or risk needing to import more from foreign producers, some of whom are politically unstable. The U.S. shale revolution has turned the global oil market on its head, but given how the country’s unconventional resources have taken major hits during the price downturn, more domestic supply is needed to ensure these gains are captured in the long-term.

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