Congress passed a
1,700-page energy bill last year and has since introduced hundreds
of additional energy bills. Unfortunately, most of these measures
will not bring down oil and natural gas prices. In contrast, the
Deep Ocean Energy Resources Act of 2006 (DOER Act, H.R. 4761),
would expand domestic offshore oil and natural gas production and
is a strong step towards more affordable and stable energy
A Short History of Offshore Energy
Many of America's
offshore areas are off-limits to energy production. Beginning in
1982, Congress restricted more and more of these areas through
annual Department of the Interior appropriations. Interior has
authority over the Outer Continental Shelf (OCS), which includes
most areas more than three miles offshore. Congress chose to deny
the agency the funding needed to conduct leasing of new offshore
areas to oil and natural gas companies.
By the 1990s,
these off-limits areas comprised 85 percent of the OCS-almost
everywhere except the central and western Gulf of Mexico-and the
congressional moratoria became a standard feature of each year's
Interior appropriations bill. A recent effort in the House to
exclude natural gas from the moratoria was defeated but garnered
over 200 votes. This is the first sign that support for the annual
restriction on new drilling is losing strength in the face of high
President George H.W. Bush in 1990 issued a presidential directive
restricting new exploration and drilling. As with the congressional
moratoria, the presidential directive effectively banned new energy
production off the Atlantic and Pacific coasts, parts of offshore
Alaska, and the eastern Gulf of Mexico.
At the time, oil
and natural gas were only one-third the current price, and so the
need for this additional energy was not seen as significant. In
1998, President Clinton extended these restrictions through
Thus, the central
and western Gulf of Mexico is now the only offshore area where
drilling is allowed, and that area was dealt a severe blow last
year by Hurricanes Katrina and Rita. At the peak of damage,
one-quarter of domestic oil and gas production was unavailable.
Politics, not geology, is the reason that America has put so many
energy eggs into this one hurricane-prone basket. A key lesson from
the hurricanes is that if America were to allow offshore drilling
(and related refining and pipeline infrastructure) elsewhere,
Americans would not only have greater supplies and lower prices
overall, but would also be less vulnerable should a natural
disaster strike any one particular area.
alone in the world as the only nation that has placed a substantial
amount of it domestic oil and natural gas potential off-limits. It
is not certain how much energy is in these restricted areas, but
preliminary estimates from the Department of the Interior suggest
the presence of 19 billion barrels of oil and 84 trillion cubic
feet of natural gas.
As it is, this equals several years of total American oil and gas
consumption (7 billion barrels and 23 trillion cubic feet annually)
and is enough additional supply to reduce prices for decades to
come. Moreover, such preliminary estimates in poorly explored
frontier areas have often proven low by a wide margin. For example,
the trans-Alaska pipeline recently transported its 15 billionth
barrel of oil to market, more than twice some initial estimates of
Alaskan reserves. And drilling in the central and western Gulf has
already yielded more energy than initially believed to exist there,
and the region is still a long way from running out. Off-shore
reserves in now-restricted areas could be far higher than the
Department of the Interior's initial estimates.
The DOER Act
The DOER Act would
not repeal the current restrictions but would give coastal states
that want offshore drilling the power to opt out of the
restrictions. The bill makes permanent the moratorium on energy
production within 50 miles of the coastline, unlessa state
legislature explicitly votes to end the restrictions and allow
drilling. The requirements are slightly different for drilling
between 50 to 100 miles; states could also forbid it but would have
to affirmatively pass legislation to that effect. Only beyond 100
miles would states have no authority to stop drilling. In effect,
each coastal state could act to either allow or prohibit oil and
gas production within 100 miles of its shore. By way of contrast,
drilling beyond 20 miles cannot even be seen from the shore.
As an inducement,
states that allow coastal energy production would, for the first
time, share in the revenues from OCS leases and royalties. These
revenues have ranged from $4 to $8 billion in recent years and
would increase once new areas are opened up. Companies pay up-front
for leasing rights on offshore parcels and then ongoing percentage
royalties once energy is being produced. Under the DOER Act, states
that allow offshore drilling would eventually receive 75 percent of
the royalties out to 12 miles and 50 percent beyond that.
all revenues from OCS drilling go to the federal government. This
stands in contrast to the revenue-sharing scheme for drilling on
onshore federal lands, which are split evenly between the state and
the federal government. The DOER Act would treat offshore revenues
more like onshore revenues. As well, a portion of the state and
federal proceeds would be allocated for coastal protection and
Common Criticisms Are Off the
The DOER Act has a
great deal of common sense on its side. In these times of high
energy prices and political uncertainty in so many oil producing
nations, America should make better use of its own substantial
energy resources. And allowing each coastal state to decide its own
drilling policy is far more equitable than the current
one-size-fits-all federal ban on drilling in new areas.
Nonetheless, the bill has substantial opposition. Their most
frequently repeated criticisms are off the mark:
poses great risks of oil spills. The last major offshore oil
spill in America occurred off of Santa Barbara in 1969. Critics of
offshore drilling still refer to this incident, but much has
changed in the interim. Drilling technology has greatly advanced in
recent decades, and any new drilling will have to comply with
strict safeguards that did not exist then.
According to the
National Academy of Sciences, "[I]mproved production technology and
safety training of personnel have dramatically reduced both
blowouts and daily operational spills."
Currently, only 1 percent of oil in North American waters came from
offshore oil wells, far less than that attributable to natural
seepage from the sea floor.
Hurricane Katrina provided another reminder that fears of oil
spills are overblown and anachronistic: Despite 170-mile-per-hour
winds and massive waves striking many platforms, there was not a
single significant offshore oil spill.
Myth: The bill
would break the budget resolution. The DOER Act would split
between participating states and the federal government offshore
revenues that currently go only to the federal government. The
Congressional Budget Office's (CBO) initial analysis of the bill
concluded that, over the next 10 years, $11 billion in federal
revenues would be lost.
For this reason, the Bush Administration and others raised concerns
that the bill would break the budget resolution and increase the
deficit. In response, the sponsors of the bill reduced the revenues
going to states, which are now projected by CBO to cost to $3
billion over 10 years.
To be sure, under
DOER, a smaller proportion of the current offshore revenues would
go to Washington. However, by opening up new areas, the DOER Act
will, over time, lead to increased production. Depending on the
amount of new energy produced, the federal government may not lose
future revenues, and states will certainly gain them.
the impact on federal offshore revenues, the DOER Act will also
result in increased individual and corporate income tax receipts
from an expanding oil and gas industry. CBO ignored this revenue.
And most important of all are the overall economic benefits of
lower oil and natural gas prices. This is particularly true of
natural gas because U.S. natural gas prices are higher than those
in most of the rest of the world and several natural gas-dependent
industries like chemicals and fertilizer production have already
been forced overseas.
won't benefit from new drilling. Critics focus on the very low
end of the range of estimated resources in restricted areas and
also point out that drilling in non-restricted areas continues
unimpeded. But even the low-end estimates-19 billion barrels of oil
and 84 trillion cubic feet of natural gas-represent a substantial
increase in domestic energy production. In tight oil and gas
markets, like those of recent years, even modest additions of
supply can make a significant difference in prices.
While true that
drilling in the central and western Gulf continues, the
persistently high prices of oil and natural gas are strong evidence
that current (and expected future) production from these
non-restricted areas is limited and unlikely to be enough to
provide price relief. Simply put, America must make better use of
the oil and gas available to it to impact prices-and that includes
drilling in the vast areas currently off limits. This is
particularly true given that demand for energy is expected to
increase by 1 percent annually in the decades ahead.
America has substantial
domestic offshore oil and natural gas reserves that will remain
unused under current law, and yet Congress has done nothing so far
to reduce energy prices. The DOER Act would allow increases in the
supply of domestic oil and gas and thereby improve the prospects
for a more affordable energy future.
Lieberman is Senior Policy Analyst in the Thomas A. Roe
Institute for Economic Policy Studies at The Heritage