Electric Vehicles: Driving Reduced Demand for Offshore Oil, Part 1 of 3 – “The Risks of Offshore Drilling Outweigh Potential Benefits”

Chris Carnevale | April 16, 2018 | Electric Vehicles, Offshore Drilling

This is Part 1 of our blog series, “Electric Vehicles: Driving Reduced Demand for Offshore Oil,” which shows that given the advancements in vehicle electrification, expanding offshore drilling for oil and natural gas into protected areas is intrinsically risky and unnecessary. The first  part of the series explains the risks of offshore drilling and why it would harm the Southeast region. Part 2 of the series, coming tomorrow, explains the advancement of vehicle electrification in the U.S. Part 3 of the series, coming Wednesday, will provide analysis demonstrating that the amount of oil that could be produced by opening all of our nation’s currently protected offshore areas is projected to be offset by the rise of electric vehicles in the U.S., thus lessening oil demand. Additionally, a set of policy recommendations is provided as means to expedite this transition to an electrified fleet, and protect our coastal communities and oceans. This series commemorates the 8th anniversary of the Deepwater Horizon Tragedy and Earth Day. To learn more, please see the recording of the webinar that summed this series up here.

Part 1: Risks of Offshore Drilling Outweigh Potential Benefits

Overview

The Trump Administration’s proposed offshore drilling areas in the lower 48 states.

In 2017, the Trump Administration announced that the United States would pursue an agenda of “energy dominance” and to that end would greatly expand the nation’s offshore oil and natural gas drilling program. In January 2018, the first draft of this new program was released, setting forth a timeline for unprecedented expansion of offshore drilling, encompassing 90 percent of the nation’s offshore area. The new proposal even includes many areas that lack significant oil or gas resources and areas with longstanding opposition to nearby offshore drilling.

The risks associated with permitting offshore oil and natural gas drilling in protected offshore areas outweigh the benefits. Hundreds of thousands of citizens, 190 East Coast local governments, more than 1,200 elected officials, almost all the Atlantic state governors, and an alliance representing over 41,000 businesses and 500,000 fishing families have officially and publicly called for no offshore oil and gas drilling and/or seismic airgun exploration for oil and gas in the Atlantic and Eastern Gulf of Mexico.

Expanding Offshore Drilling Would Threaten Jobs and Revenue

Advocates for offshore drilling claim that expanding the industry to new areas would create jobs and generate revenue. However when compared to the existing regional economies, these assertions fall apart. There is the potential for some amount of job and revenue creation associated with expanded offshore drilling, but it is critical to understand that any economic development from offshore drilling is a direct threat to many existing jobs and revenue streams that rely on an oil-free, clean coast.

The Southeast coast offers a high quality of life to residents and visitors alike, due in large part to the scenic beauty and recreational value of our beaches and marshes. These assets form the foundation of a robust tourism economy that employs approximately 665,000 coastal residents and generates more than $35 billion in the regional economy (sources 1, 2, 3) .They also serve as a primary reason why thousands of people choose to move to the Southeast coast each year, representing additional economic development.

Yet this economic engine would be threatened by offshore drilling from the inevitable oil spills and the expanding industrial infrastructure along the coast.

Major oil spills, like the Deepwater Horizon disaster on April 20, 2010, while not frequent, are catastrophic.

Picture courtesy Wolfram Burner

On the Gulf Coast following the Deepwater Horizon tragedy, many tourism-based businesses, such as hotels, restaurants, and tour companies reported extreme difficulty getting by in 2010, due to the sharp decline in numbers of tourists and associated revenue lost from lodging, food and beverage, and other tourism-related products and services.

The seafood industry also plays a critical role in our region’s culture and society. Many of the Southeast’s heritage foods are based around seafoods that would be threatened by oil spills. Some of the Deepwater Horizon impacts on seafood included decreased catch rates of oysters by 54 percent, blue crab by 42 percent, and shrimp by 33 percent, meaning a loss of hundreds of millions of dollars of revenue to the regional seafood industry in 2010, compared with the prior year.

Many of the tourism and seafood industries reliant on the Gulf of Mexico eventually recovered from the Deepwater Horizon tragedy within a couple years, however for many small business owners, one bad season can make the difference between staying in business or not.

The economic risks of offshore drilling extend beyond the catastrophic oil spills. While large oil spills are high-risk, low-frequency events, the industrialization of the coast that accompanies offshore development, such as pipelines and refineries, blights the coast and deters tourism even in the absence of sensational oil spills. Analysis shows that coastal counties on the Gulf coast without such infrastructure generate twice as much tourism revenue per capita as counties that host such infrastructure.

Shell Green Canyon 2016 oil spill
Shell’s 2016 Green Canyon spill is indicative of the many lesser-known oil spills each year in the Gulf, adding up to millions of gallons per year. Photo courtesy US. Coast Guard.

Looking beyond aesthetic considerations, pollution intrinsic to the offshore oil and gas industry, including routine discharges and unintentional spills, threatens the vitality of our coast. Thousands of smaller spills, amounting to millions of gallons of oil occur each year in the Gulf of Mexico, where offshore drilling is long-established. Given the challenging environment offshore, spills can be difficult to fix and may last a long time, such as the ongoing spill from the Taylor Energy Mississippi Canyon 20-A platform, which has been releasing hundreds of thousands of gallons of oil into the Gulf since 2004 and will likely never be repaired.

Offshore Drilling Development Can Cause Land Loss and Worsen Coastal Flooding

In addition to the pollution caused directly by offshore oil and gas operations, it also can lead to coastal land subsidence, the sinking of the land, worsening coastal flooding. Louisiana is losing a football field’s worth of wetlands every 45 minutes, largely due to the construction and operation of navigation, drilling, and pipeline canals to service the oil and gas industry. Additionally, research shows that depletion of underground oil deposits actually likely causes the nearby land to sink. The State of Louisiana estimates that it will take $50 billion to restore its wetlands, which will not be paid for by the oil and gas companies that caused the damage.

Courtesy Florida Sea Grant

Expanding Offshore Drilling Would Hurt American Families’ Health

Perhaps worse than the direct economic damage that a major oil spill can cause is the harm to the health of nearby residents and workers.

During the cleanup of the Deepwater Horizon blowout, more than 50,000 cleanup workers were exposed to hazardous chemicals on a daily basis, resulting in chronic debilitating conditions, and possibly increased risks of cancer and other life-threatening diseases. Additionally, many Gulf residents suffered considerable mental health degradation, with sharp increases in anxiety and clinical depression, largely related to the loss of income from the spill. For the first year after the spill, between one-third and one-half of the population of Baldwin County, AL and Franklin County, FL met the criteria for clinical depression (compared to a 10-11 percent baseline). A year later, about 20 percent of the population was still depressed. Among people with direct income loss from the spill, more than 83 percent had clinically significant depression and more than 89 percent had clinically significant anxiety one year after the spill.

Expanding Offshore Drilling Would Not Lower the Price of Fuel, Increase Energy Independence, or Boost Security

The claims supporting offshore drilling are exaggerated and do not stand up to the facts. The primary reason why a large scale expansion of offshore drilling would fail to deliver lower fuel prices and increased energy independence or provide national security benefits is that opening new areas to oil production wouldn’t realistically boost overall domestic oil supply by great enough amounts to make a significant difference.

U.S. oil resources by region. Source: U.S. Energy Information Administration, 2018 Annual Energy Outlook Oil and Gas Module

The vast majority of the nation’s oceans simply don’t contain that much oil. For example, a 2017 Energy Information Administration (EIA) report calculated that the Atlantic, Pacific, and Eastern Gulf offshore regions, which are currently off limits to drilling, contain just 4.9 percent of the nation’s entire technically-recoverable crude oil resource, including onshore and offshore areas. At the same time, two-thirds of the total technically-recoverable crude oil off of all of the lower 48 states are located in the Central and Western Gulf–where drilling is already allowed.

Moreover, it is doubtful that increasing leased acreage would even boost near or medium-term production. Oil companies do not need more offshore acreage to increase oil production. A 2012 report found that of the acres already leased to oil companies, 7 out of every 10 offshore acres and 56 percent of onshore acres are sitting idle without active development or exploration. With these leased areas sitting idle, what is the rush to lease more offshore acreage? Vastly expanding the area of permissible offshore drilling would neither lower fuel costs nor boost energy independence and security at a substantial level.

Oil prices are set on the international market. The United States produces 15 percent of the world’s petroleum, meaning that even large increases or decreases in U.S. production have relatively minor impacts on global supply and dampened effects on domestic price of fuel. To the extent U.S. oil production does affect the global price, about 18 percent of U.S. oil production is offshore and 82 percent is onshore, so the large majority of any cost effect would be from onshore production, not offshore.

Furthermore, as a counterpoint to overly optimistic scenarios for future offshore oil production, U.S. onshore drilling has increased rapidly in recent years, lowering the cost of oil and gas and greatly reducing oil imports. Because of technological advances like fracking and horizontal drilling, between 2008 and 2015, domestic crude oil production nearly doubled, while natural gas production increased by a third. With such an increase in production without drilling in protected areas, what is the need to jeopardize these treasured places?

Arguments about boosting American energy independence and security contain an implicit assumption that any newly produced oil would stay in the U.S. to grow the domestic supply. However, oil producers successfully lobbied the government to lift the ban on crude oil exports in 2015, so any potential oil produced in an expanded offshore drilling program could simply be sent overseas instead of increasing domestic supply.

Changing Oil Economics Could Lead to Stranded Assets and Legacy Environmental Pollution Sources

A perspective widely shared across much of the oil industry and among some financial analysts is that a combination of more stringent fuel efficiency standards, the electrification of vehicles, and the emergence of shared autonomous vehicles will bring down overall oil demand over the next couple decades.

For example, industry consultancy firm DNV GL expects global oil demand to peak by 2022, and offshore oil production to swiftly decline as a result. DNV GL says, “Offshore oil production is likely to gradually decline over the forecast period, from today’s level at 26Mbpd (million barrels per day) to less than half that amount in 2030,” with “investment in new capacity of this kind declining from now, and at a rapid pace until 2030.”

The reduction in demand for oil would hurt oil companies’ bottom line and their profitability would be further jeopardized by credit markets that would be hesitant to invest in a shrinking industry.

Should certain oil companies not heed the writing on the wall and continue to invest in oil infrastructure and assets, including wells, pipelines, or onshore infrastructure, for areas newly opened to offshore drilling, these investments risk becoming stranded assets and abandoned as their profitability disappears. A preview of this scenario is already playing out in the Gulf of Mexico, where at least 27,000 stranded wells are now abandoned in the Gulf, creating legacy environmental risks that last for decades.

Offshore Drilling Policy Recommendations

Given the great risk and uncertain reward presented by opening new offshore areas, we recommend the following policies:

  1. The Department of Interior should cease the development of the 2019-2024 Five Year Program and continue implementing the 2017-2022 Program. The 2017-2022 Program was developed after two years of thorough analysis by the U.S. Department of the Interior, thoughtfully gathering comments from citizens, elected officials, businesses, and the military, and evaluating the appropriateness of offshore drilling in certain areas in the context of those opinions. This process made clear that offshore drilling is not appropriate or desired for the Atlantic coast and therefore the Atlantic was removed from consideration. To quickly disregard these opinions and put the Atlantic and Eastern Gulf back on the table is unfair to the many participating stakeholders in the 2017-2022 process.

  2. The Department of Interior should deny permits for seismic airgun exploration in the Atlantic. With no pressing need or economic viability for Atlantic drilling, there is no need for seismic airgun exploration. Given the technology’s intrinsic risk to wildlife, any potential data gained through the surveys cannot be justified.

  3. Congress should extend the moratorium on oil and gas leasing in the protected portion Eastern Gulf of Mexico beyond its planned expiration in 2022, as well as defer seismic airgun exploration and Atlantic leasing. The bipartisan Coastal Economies Protection Act (H.R. 2252) would achieve these goals and should be supported.

  4. Congress should reinstate the ban on crude oil exports. Any increase in domestic drilling cannot be claimed to increase energy independence or security until the crude oil export ban is reinstated.

  5. Local and state governments should pass resolutions to oppose offshore drilling and seismic airgun exploration. Dozens of sample resolutions can be found at http://stopthedrill.org.

  6. Local and state governments should pass laws and ordinances to ban the infrastructure that accommodates nearby offshore drilling. While states and municipalities cannot govern what happens in federal waters off their coast, they can make sure that offshore oil does not travel over their jurisdiction by preventing infrastructure that would transport offshore oil or otherwise facilitate offshore drilling. For example, the New Jersey Legislature passed in April 2018 a law to prohibit infrastructure in state waters or onshore that would accommodate offshore drilling, as well as instructed the state environmental agency to deny Coastal Zone Management Act consistency reviews for any permits for nearby offshore drilling-related development. Similar bills have been introduced in South Carolina, Rhode Island, New York, and California.

Chris Carnevale
Based in Charleston, South Carolina, Chris is SACE’s Coastal Climate and Energy Manager and South Carolina State Affairs Liaison. His work focuses on building a critical mass of support for…
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