U.S. Gulf Drilling Critical to U.S. Economy, Energy Security

The current drilling moratorium in the deepwater Gulf of Mexico and proposed legislation that would add increased regulations, costs and taxes to offshore drilling pose a threat to U.S. energy and economic security, according to energy advisors with the Deloitte Center for Energy Solutions.

Adding layers of regulation will make it more difficult to drill for and develop U.S. resources, and rules that create a punitive tax and royalty regime likely will result in companies investing in projects overseas. For smaller companies with no overseas operations, the consequence of added regulation and associated costs may mean going out of business.

Peter J. Robertson, independent senior advisor with the Deloitte Center for Energy Solutions and a former Chevron Corp. vice president, said it was important to learn lessons from the Gulf oil spill and enhance safety and environmental standards, but that the industry needs to learn these lessons "quickly and efficiently" and move forward with offshore drilling as the moratorium is creating uncertainty for oil and gas companies' capital investment plans.

Peter J. Robertson, independent senior advisor with the Deloitte Center for Energy Solutions and a former Chevron Corp. vice president

Despite the Macondo tragedy, the U.S. can't stop producing domestically, as new fields need to be brought online to maintain existing production, Robertson said. "The fact that the industry has drilled thousands of wells needs to be recognized."

Macondo tragedy, Deepwater Horizon

The energy industry and U.S. government also need to work together to ensure that smaller to medium sized companies can afford to work in the deepwater U.S. Gulf of Mexico. Legislation proposed by Congress that would limit exploration and production activity to larger companies would end the practice of spreading project risk by having multiple partners own interests in deepwater projects.

"If smaller companies cannot participate, drilling activity will decline, meaning less domestic production, fewer U.S. jobs and greater dependence on foreign oil imports," said Robertson.

Some legislation proposed, including a provision that would require all equipment used in deepwater drilling to be manufactured in the U.S., are impractical, said Robertson. Both Robertson and Tom Ridge, a Deloitte energy advisor and former Secretary of the U.S. Department of Homeland Security, fear that any legislation passed, while well-intentioned, will make it difficult to attain the U.S. policy goal of reducing dependence of foreign sources of energy.

Tom Ridge, a Deloitte energy advisor and former Secretary of the U.S. Department of Homeland Security

While legitimate concerns exist over environmental safety in deepwater drilling as well as in Marcellus shale drilling in Pennsylvania, "policymakers going forward must balance legitimate environmental, health and safety concerns with regulations that don't negatively impact jobs and efforts to develop domestic energy resources," Ridge said.

Marcellus shale

The industry has been proactive in setting up task forces to examine environmental and safety regulations, but industry and government should collaborate on how to deal with a potential oil spill the size of Macondo. Tension and posturing existed between BP and the government when the initial response to the BP oil spill began, but the clean-up process began to run more smoothly once roles and responsibilities were figured out.

"The government's approach is to be risk-averse, which means that legislation will attempt to eliminate all risk from offshore drilling" as it has with security on airlines by treating every passenger as a potential suspect. However, not all risk can be eliminated all from drilling operations, meaning that the possibility of failure in operations needs to be addressed.

"It's not a healthy approach to assume events like the BP oil spill won't happen when lifetime events seem to be happening every three to four years," said Ridge of recent catastrophic "black swan" events such as the Sept. 11, 2001 terrorist attack on the U.S. and the devastation wrought by Hurricanes Katrina and Rita.

U.S. dependence on foreign oil presents a threat the country's energy security and the nation's economic health. The country's dependence on oil from the Middle East, where Iran is on the verge of becoming a nuclear power, or countries such as Venezuela that are hostile to U.S. interests, and countries where national oil companies control most supply makes it vulnerable to shifts in the geostrategic picture.

The fact that oil tankers' route run through areas susceptible to terrorist activity such as the Strait of Hormuz means conflict in the region could have a significant impact on the global economy, said Gen. Charles Wald (Ret.) USAF, senior advisor at Deloitte.

Genereal Charles Wald (Ret.) USAF, senior advisor at Deloitte

The country's dependence on oil imports makes it difficult for the U.S. to have leverage over countries that wish to harm us or don't agree with us when we import oil they supply. If the U.S. weren't so dependent on imported oil from the Middle East, the country's military perspective also would be different, Wald said of the U.S.'s heavy involvement in the Middle East over the past two decades.

Wald believes it's important to develop renewable energy, but the world needs all the fossil fuels and other forms of energy it can get so the global economy can grow, adding that "decreasing access to acreage for drilling will place the U.S. in jeopardy from an economic standpoint."