The People of America's Oil and Natural Gas Indusry

The Moratorium Ruling and Jobs

Jane Van Ryan

Jane Van Ryan
Posted June 23, 2010

Reaction to Judge Feldman's ruling against the deepwater drilling moratorium came swiftly yesterday. Environmental groups and many Democrats attacked the decision, while Republicans in general supported it and called it encouraging.

But no one predicted that it would put energy workers back to work immediately.

"This is certainly not going to put the drilling rigs back drilling," Chris John, president of the Louisiana Mid-Continent Oil & Gas Association, told the Times-Picayune. "The practical reality of this decision is that it really doesn't change anything from an operational standpoint in the Gulf of Mexico."

The fact is there is too much uncertainty for oil companies and rig owners to commit to U.S. deepwater drilling now. The White House has announced it will file an appeal to the Fifth Circuit Court of Appeals in New Orleans. Interior Secretary Ken Salazar says he'll draft a new moratorium containing language that won't be overturned by the courts. The Gulf of Mexico has become a risky place to make investments.

"No one ever expected political risk in the Gulf of Mexico, but that's exactly what they've got now," Michael Lynch, a consultant on rig contracts, said to The Wall Street Journal. Lynch is one of several industry analysts who said they can't recall any other rig-contract disputes involving U.S. politics going to court.

The impact of the moratorium and the understandable reluctance to drill in the Gulf's deep and ultra-deep waters could have a lasting impact on U.S. consumers. About 30 percent of the nation's oil production and 13 percent of its natural gas production comes from the Gulf of Mexico. About 80 percent of Gulf oil and 45 percent natural gas come from deepwater wells.

A long-term delay in new drilling activity could lead to a loss of oil and natural gas production equal to 350,000 barrels of oil per day by 2015, according to Wood MacKenzie.

Plus, the trend toward deepwater drilling worldwide is going to continue. In the past several years, some of the largest oil fields have been discovered in the Gulf's deep waters, off the coast of Brazil in subsalt regions, and in the coastal areas of Nigeria, Angola, Ghana, and the Philippines. In the United States, many onshore areas are off-limits.

"[The industry doesn't] have access to reserves elsewhere," says Fadel Gheit of Oppenheimer. "Why do you think companies go to this very deep water? They'd rather drill onshore, But it's obviously not available...." (The Washington Post)

The oil and natural gas industry agrees it's essential to understand and correct the causes of the Deepwater Horizon accident, but any action that denies access to energy resources and destroys the jobs and livelihoods of hundreds of thousands of Gulf Coast workers is disastrous. An extended moratorium would cause significant harm without moving toward the nation's ultimate goals--increasing safety or improving industry procedures.