Expanding domestic production will reduce our dependence on foreign oil and natural gas and significantly reduce the billions of dollars we send abroad each year. As our reliance on oil and natural gas will necessarily continue for the foreseeable future, we can no longer rule out the value of our own significant proven oil and gas reserves nor the value of a future significant discovery anywhere in or off the shores of the United States. Doing so will create new investment and new jobs here at home.
New federal and state partnerships are needed, and new revenue-sharing models must be developed to build local support for environmentally sound energy exploration and production.
Our dependence on imported oil has risen from less than 40% in the 1970s to more than 60% today. Government policies have put the most promising domestic oil and gas prospects off limits to exploration and production.
High oil and gas prices, our growing reliance on imported oil, and price volatility clearly demonstrate the imperative to change course and expand domestic oil and gas production.
The Outer Continental Shelf (OCS) is an area of some 1.76 billion acres submerged off the United States’ coasts controlled by the federal government. Approximately 97% of the OCS is under federal moratoria preventing any exploration or production of oil and natural gas. The U.S. Department of the Interior (DOI) estimates that the OCS contains 86 billion barrels of oil and 420 trillion cubic feet of natural gas. Because exploration is prohibited on the vast majority of the OCS, these estimates are primarily based on survey projections and are likely quite conservative. Additionally, about 83% of federal lands onshore containing some 28 billion barrels of oil and 207 trillion cubic feet of natural gas are under moratoria or severely restricted.
In the 26 years since the OCS moratoria were put into place, the technology utilized to extract oil and gas has evolved, significantly reducing the environmental impact of producing the resources. Advanced multidimensional seismic imaging allows a much higher degree of accuracy in locating oil and gas deposits, which reduces the amount of drilling necessary while increasing the amount of resources recovered. Pressure gauges and safety valves incorporated into offshore production facilities diminish the possibility of spills. These technologies have reduced the spillage rate to just 0.001%.
States have authority over oil and natural gas production within state coastal waters, which are generally those areas within three nautical miles of the coast. By law, Texas and Florida are treated differently; the seaward boundary for Texas is 9 nautical miles, and the seaward boundary for Florida in the Gulf of Mexico is also 9 nautical miles. States retain all rights to revenues generated from oil and gas production in state waters, including royalties. Some coastal states have resisted new exploration and production in offshore areas of the federal OCS in part because the states’ share of revenues resulting from offshore production is generally far less than if the exploration and production were occurring on federal leases onshore.
Anything beyond the state boundary is by law federal land. Oil and natural gas production in offshore federal land is regulated under the Outer Continental Shelf Lands Act.
Under Section 8(g) of the Act, the federal government only shares 27% of revenues from oil and natural gas production occurring within 3 nautical miles of the state boundary. Under the Gulf of Mexico Energy Security Act, signed into law in 2006, selected Gulf of Mexico states are eligible to receive 37.5% of revenues collected from specified lease sales in the Gulf of Mexico.
New federal-state partnerships to expand upon already advanced and environmentally sound exploration and production, along with new revenue-sharing models to more equitably share the federal revenues derived from offshore development, should be pursued to assist in opening new domestic oil and gas fields to exploration and production. Specifically we are advocating for every state to be eligible to receive 37.5% of the revenue from all leases on the OCS off its coast.
It is important to recognize that the energy business is capital intensive. A new offshore production platform typically costs in excess of $500 million to construct and hundreds of millions of dollars per year to operate. Offshore drilling rigs are leasing for as much as $750,000 per day. Exploration and production investment decisions have always involved significant resource, technology, economic, and political risks. Such investments typically proceed without the certainty that future oil prices will allow recoupment of costs. Actually bringing an oil or natural gas prospect to production is tremendously time consuming and expensive, requiring millions, and in some cases billions, of dollars in investments and multiple licenses and permits for a single project. This is the primary reason calls for “use it or lose it” requirements are ill-founded and do not recognize that awarding leases to industry for exploration is merely the first step in a lengthy and capital intensive process that often does not result in the production of oil or natural gas.
Historically, the primary advantages of the U.S. oil and natural gas regime in federal lands and waters have been lease-contract sanctity, stability of terms, and globally competitive government take. Without these, even favorable fiscal terms lose their power to promote exploration for and development of a nation’s resources.
For example, some have advocated for the imposition of a negative “windfall profits” tax on oil companies. This would be unwise and counterproductive, as it would curtail the amount of capital available for new exploration and production and ultimately curtail domestic production while increasing prices for the consumer.
Making available new areas for exploration will rationalize company investments in new technologies like multidirectional drilling that can recover more oil and gas from a field, or increase precision and efficiency and continue to reduce the environmental footprint of production. Additionally, efforts must be made to ensure the resources that are produced are more readily transported to market. To that end, the State of Alaska and industry should be encouraged to build and operate the Alaska Natural Gas Pipeline to transport natural gas from the North Slope of Alaska to the continental United States.
We must also utilize our significant reserves of liquid fuels derived from coal, oil sands, and oil shale as well as expand infrastructure to enable greater access to these resources located throughout North America. According to DOE, the United States has recoverable reserves of coal equivalent in energy value to nearly 6 trillion barrels of oil; oil shale amounting to more than 2 trillion barrels of oil equivalent; and heavy oil and oil sands equal to another 154 billion barrels of oil equivalent, some portion of which can be converted to liquid fuels such as gasoline and diesel. To understand the enormity of the remaining U.S. hydrocarbon endowment of nearly 8,300 billion barrels of oil equivalent, consider the fact that we have consumed just 197 billion barrels of U.S. oil since the first domestic oil well was drilled in Pennsylvania in 1859.
Unfortunately, much like the moratoria on energy development on the OCS, there is also a legal prohibition against the federal government leasing much of this land for exploration for oil shale. Keeping these lands off limits is stunting the investments necessary to improve the technology to extract these valuable resources in an environmentally responsible manner. It is also simply taking another domestic resource off the table for the American consumer.
Admittedly, only a portion of these resources are recoverable, and the potential environmental impact of production requires that care be exercised. However, the abundance and strategic value of these resources requires us to continue to improve methods to economically extract them with a minimum of adverse impacts to the environment.
Therefore, in addition to the recommendations related to carbon capture and sequestration outlined elsewhere in this Blueprint, we believe that a sustained and enduring federal R&D effort be undertaken—in partnership with private industry, universities, and national laboratories— to evaluate technologies and practices to minimize the impact of the development of these underutilized fuels on the land and water resources of the United States. We should also evaluate technologies and practices to reduce the energy intensity and carbon footprint of these fuel sources.
As a significant amount of these resources are located on federal lands, we recommend a clear and consistent regulatory framework to incentivize their safe and clean development.
Another potential source of significant amounts of domestic natural gas is methane hydrates, an icelike substance containing natural gas, found beneath the ocean floor and in the Arctic permafrost. The United States Geological Survey estimates there are some 317 quadrillion cubic feet of methane gas stored in hydrates in the United States. This represents more than 1,600 times the amount of conventional natural gas reserves estimated in the United States. More R&D is necessary to more accurately locate this resource and economically produce it with minimal geologic impact or release of GHG emissions. However, the moratorium preventing exploration and production of traditional natural gas on the OCS also acts to thwart work to develop methane hydrates.
There is also a legal prohibition primarily aimed at preventing the U.S. military from being able to obtain transportation fuels from coal-to-liquids (CTL) technology due to concerns over resulting GHG emissions. Ensuring the military is able to fuel its vehicles from domestic energy sources should be a strategic imperative, and we recommend this prohibition be repealed. Moreover, this prohibition also serves to limit access for U.S. consumers to transportation fuels refined from the Canadian oil sands, which is estimated to be the second largest oil reserve in the world.