Executive viewpoint

The Department of the Interior’s 2019–2024 National Oil and Gas Leasing Draft Proposed Program (DPP) could not come at a better time. The economy is growing faster than expected. In the U.S., many economists have revised their economic outlooks, as the tax bill and regulatory reforms appear to be already strengthening the U.S. economy. Groups like the International Monetary Fund are also nudging up their forecasts for global growth, in part due to optimism in the American economy. The quickening growth of the global economy means that more people are going to need more energy, faster.

In fact, the U.S. Energy Information Agency (EIA) predicts that fossil fuels will still supply nearly 80% of U.S. energy demand in 2050. Likewise, EIA predicts that a growing global middle class is expected to increase global energy demand 28% by 2040, and that fossil fuels will still meet 77% of that demand.

More development now. Increased offshore access will enable the U.S. to provide consumers with safe, affordable and reliable energy, even as energy demands rise. We cannot wait until there is a crisis, such as $4/gal gasoline at the pump, to begin the process of opening up new offshore areas for exploration and development. Energy is like any other resource that our modern lives depend upon; we must produce today to avoid panic tomorrow. With 94% of the U.S. outer continental shelf (OCS) currently closed to development, we must act now.

Getting the ball rolling sooner, rather than later, is particularly important for offshore exploration and development. Even after new offshore leases are awarded, it can take up to ten years from the time an exploration plan is submitted until the first oil or natural gas is produced. Environmental assessments, plan reviews, exploration wells, more development and production plans, certifications and more environmental analyses are all required steps that must be completed before production begins.

While the U.S. is still years away from any new leasing under a final version of the 2019-2024 National Oil and Gas Leasing Program, other countries are recognizing the growing demand for energy and are capitalizing on it. Canada, especially along its Atlantic seaboard, has been aggressive in promoting offshore oil and gas exploration and development. Nova Scotia sponsors its own offshore geological surveys and studies, passing the data to industry, free of charge. Mexico has been doing the same and has invited industry to propose specific blocks that companies would like to see included in lease sales. In fact, Mexico sold the rights to 19 offshore oil fields for $525 million earlier this year. Likewise, Ireland is encouraging exploratory drilling, and Brazil has restructured terms for offshore leases to attract more investment.

Staying competitive. With companies looking globally for exploration opportunities, the United States must continue to evaluate how to keep the Gulf of Mexico (GOM) and other parts of the U.S. outer continental shelf attractive in light of competition from Brazil and Mexico. The results of recent sales on the Mexican side of the GOM demonstrate that the United States cannot tread water by offering the same acreage, time and time again, without additional incentives. The good news is that as commodity prices and market conditions have slowly improved, the Trump administration has worked to safely reduce regulatory burden and also incentivize industry investment by offering a 12.5% royalty rate for shallow-water leases. The results of the March Gulf-wide OCS lease sale showed an upward trajectory when compared to the August Gulf-wide sale. If the Secretary of the Interior decides to exercise his authority to extend the 12.5% royalty rate to deepwater leases, as recently recommended by the Royalty Policy Committee, future Gulf lease sales could continue that upward trajectory.

If the U.S. does not seize the opportunity to lease, explore and develop its offshore resources, it could lose its market share and cede energy leadership. Russia is standing by, ready and willing to assume leadership, if the U.S. does not lead the way in energy production. Anti-energy policies in the U.S. have already resulted in Russian LNG being offloaded in Massachusetts just this winter. In an effort to turn this tide, 39 U.S. Senators signed a bipartisan letter to Treasury Secretary Steven Mnuchin and Deputy Secretary of State John J. Sullivan, opposing a new pipeline from Russia into Germany, saying it “will make American allies and partners in Europe more susceptible to Moscow’s coercion and maligning influence.”

Benefits to the U.S. economy. Beyond the geopolitical considerations, offshore development creates jobs, grows the economy and provides tangible benefits that make a difference in the lives of ordinary American families. A recently released series of studies by Calash Americas looks at economic growth, if the U.S. opened up three off-limit areas: the Atlantic, the Pacific and the eastern Gulf of Mexico. Within 20 years of initial leasing, access to these areas could create nearly 730,000 jobs, generate $538 billion in spending, and contribute $615 billion to the U.S. economy. Every American, and every policymaker, can embrace these benefits.

The U.S. is at a pivotal crossroads. The recently released DPP proposes opening up 90% of the U.S. OCS for exploration and development. The world will continue to need more energy, and the DPP gives the U.S. a chance to be proactive in developing the right energy policies today, instead of waiting until it is too late.