The People of America's Oil and Natural Gas Indusry

U.S. Offshore Drilling Delays Likely; Russia to Drill in Cuba

Jane Van Ryan

Jane Van Ryan
Posted November 16, 2010

The Interior Department's plan to complete supplemental environmental reviews could prevent the U.S. government from holding a Gulf of Mexico lease sale next year, making 2011 the first year since 1965 that no Gulf leases would be sold for U.S. offshore oil production.

As API's Upstream Director Erik Milito explained to reporters yesterday, adding the supplemental reviews could lead to long delays. "Our concern remains how soon they'll be able to get this work done," he said.

Gulf of Mexico.jpg

Source: Bing Maps

Before holding the 2011 sales, the government plans to complete a Supplemental Environmental Impact Statement (EIS), gather public comments, and finalize the EIS. While the industry is hopeful that the work can be done quickly and adequately address any environmental concerns, it is quite possible that no sale will be held before 2012.

This means that there could be a two-year gap between the holding of lease sales. Combined with the recent moratorium on deepwater drilling, the current lack of permitting for offshore projects, and general regulatory uncertainty, the impact on the Gulf Coast economy, domestic oil and natural gas production, and especially jobs could be dire. Studies by Wood MacKenzie and IHS Global Insight indicate that tens of thousands of jobs are at risk when oil and gas production is taken off the table.

"The delay will depress the creation of new jobs at a time when too many people are out of work because of the economy and the moratorium impacts," Erik explained.

Meanwhile, Russia's Gazprom announced that it has purchased 30 percent of the Malaysian-owned exploration blocks in Cuba's offshore waters. Under the agreement, Gazprom's petroleum exploration arm Gazprom Neft will begin drilling next year.

So far companies from at least six countries have signed agreements to develop Cuban offshore resources as close as 50 miles from the U.S. coast, where they are not under the jurisdiction of U.S. safety guidelines. The 48-year-old trade embargo prevents U.S. companies from drilling in Cuban waters.


Update: At a hearing on Nov. 16, the Bureau of Ocean Energy Management, Regulation and Enforcement indicated the next lease sale might not occur until May 2012. The oil and natural gas industry is hopeful the work on the EIS can be accomplished quickly and adequately address any environmental concerns so leasing can occur in 2011.