August 2020

A stronger Gulf of Mexico means a stronger America

Calls to ban offshore oil and natural gas lease sales, or permitting, would devastate America’s economic and energy future.
Erik Milito / NOIA

Found along the countless roads and highways that sprout off Interstate 10 between New Orleans and Houston are thousands of companies, and hundreds of thousands of people, with a singular mission: safely producing American energy in the Gulf of Mexico (GOM). 

For more than six decades, offshore workers and companies have made up the fabric of communities, up and down the Gulf Coast and throughout America. America cannot take this success for granted. We are only a few short months removed from former Vice President Joe Biden saying “no offshore drilling” during his presidential debate with Senator Bernie Sanders (Indep. – Vermont). This attitude, which hopefully can be discounted as election year rhetoric, shows that there is an appetite to halt U.S. oil and natural gas production and exploration permanently. 

My organization, the National Ocean Industries Association (NOIA), commissioned the firm Energy & Industrial Advisors Partners (EIAP) to quantify the economic impact of the GOM oil and natural gas industry, and model what would happen if policymakers banned its future. 

The data are clear: The GOM is a vital driver of America’s energy and economic success.

2019 to 2040: Establishing an energy & economic baseline. The year, 2019, provided a powerful snapshot of the GOM’s oil and natural gas potential. Finally hitting an upswing from the historic 2014-2016 oil price collapse, the GOM hit record highs in oil production before the Russia-Saudi price war, and demand destruction from Covid-19, bottomed out prices. So, 2019 provides a strong look at what the GOM could and should look like, free from the impacts of an unexpected and unprecedented crisis. 

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On average, the GOM produced more than 2.3 MMboed in 2019. To produce this homegrown energy, dozens of operators and producers relied on thousands of suppliers, services, specialists and other experts. Gulf of Mexico oil and gas production supported more than 345,000 jobs and contributed $28.7 billion in GDP.  Amazingly, the GOM oil and gas industry supply chain stretched through all 50 states. 

Likewise, the Gulf was a powerful generator of revenue for the U.S. government. More than $5.4 billion were generated for federal, state and local coffers in 2019. Of those revenues, more than $353 billion were disbursed to Gulf Coast states and communities via the GOMESA revenue sharing program. More than $1 billion were distributed to the Land & Water Conservation Fund, a legacy-defining program of American conservation that is funded virtually entirely by offshore oil and gas production each year, Table 1.

Modelling a permitting and leasing regime that mirrors today’s regulatory environment, the study projects a bright trajectory for the Gulf through 2040. Oil and natural gas production is slated to peak at 2.8 MMboed in 2032, with production in 2040 hovering around 1.9 MMboe, similar to production levels just a few short years ago. What makes this sustainment of production levels so impressive is that the study only estimates production for the Central and Western GOM—not the Eastern GOM, which is under moratorium until 2022, or other areas of the U.S. Outer Continental Shelf, outside of the Gulf. 

The jobs and economic outlook for 2040 remains bright. The industry is expected to support tens of thousands of jobs, with employment reaching 367,000. The offshore oil and natural gas industry is expected to contribute $31.1 billion to GDP and generate more than $30.0 billion in industry spending. 

Continuing its incredible record of filling government coffers, the expected federal revenue take hits $6.7 billion in 2040, after peaking at $8.4 billion in 2033. This would mean more than $375 million are disbursed back to Gulf Coast states through GOMESA (assuming no legislative changes to GOMESA) and more than $1 billion generated annually for the Land & Water Conservation Fund, beginning in 2022, Table 2.  

What does a Gulf of Mexico leasing ban look like? The 2020 presidential campaign trail and progressive groups in Congress have advocated for several proposals that would lock away America’s offshore energy resources. At one point, virtually the entire field of Democratic presidential hopefuls supported some sort of ban on oil and gas lease sales in federal lands or waters. Recently, former Vice President Biden—the lone Democratic presidential candidate—has said that he would ban offshore leasing and drilling. Unfortunately, a leasing ban could be as simple as an administration choosing to not hold any new offshore lease sales. 

A GOM oil and gas leasing ban would not only hurt the Gulf Coast but would devastate the rest of America. It would initiate a domino effect of national security consequences for the U.S. and our allies around the globe through a transition in energy production from the U.S. to foreign regions.

Under an offshore oil and gas leasing ban, expected Gulf of Mexico oil and natural gas production would drop from 1.9 MMboed to 0.9 MMboed by 2040, Table 3. One million boed of American energy production would disappear. As independent research by agencies, such as the U.S. Energy Information Administration, has shown, oil and natural gas is still expected to make up most of the American and global energy consumption in 2040. Locking away American oil and gas output only serves to outsource production. Countries that do not share American environmental and safety regulations and standards will be more than happy to make up the energy difference for American consumers. Simply put, stopping oil production in the U.S. does not put an end to oil production, it only shifts it to other nations with weaker environmental oversight and performance. 

Corresponding with the drop in American offshore production will be a substantial reduction in American jobs and economic performance. A GOM leasing ban would cost nearly 200,000 jobs. Part of this economic and energy collapse would entail a capital spending reduction of $18.0 billion annually. Countless communities throughout the U.S. would be hurt by a GOM leasing ban.

Naturally, such substantial drops in spending and employment would impact government revenues, which are projected to be reduced from $6.7 billion per year in the baseline to $3 billion per year by 2040.  Likewise, contributions to the LWCF are projected to fall from over $1.3 billion on average in the baseline to just over $600 million.

What does a Gulf of Mexico drilling ban look like? By comparison, the harm of a leasing ban would seem relatively limited compared to a world with a blanket GOM ban on permitting or drilling. Through a permitting ban, the U.S. Department of the Interior would stop issuing permits for drilling and other offshore activities. Lawsuits could challenge this decision, but they would take years to work through the courts, time that many companies do not have.

While a leasing ban would still allow for existing production and projects to theoretically continue, a permitting ban would halt almost all offshore activity. Companies would have zero ability to apply for the permits necessary for any exploration or production activity. Compounding the damage, companies would not seek out new leases without the ability to secure the permits required to develop them.

For starters, GOM oil and gas production levels, which have been an American energy anchor for decades, would collapse from 1.9 MMboed in 2040 to a historically low level of 332,000 boed, Table 4. A drilling ban would create an 83% reduction in oil and gas production, and fundamentally reshape America’s energy security and energy leadership on the global geopolitical stage. 

Obviously, no new drilling means fewer jobs and investment are needed. Cratering production would take employment and spending with it. By 2040, annual spending would drop by $25 billion to a low of $4.8 billion. Jobs supported by the offshore oil and natural gas industry—which are high-paying and accessible—would fall by 286,000 by 2040. Only 80,000 jobs would be supported in 2040, if a permitting ban was applied to the Gulf. Jobs would be destroyed throughout the entirety of the United States over the 2020-2040 time period.  

Likewise, the oil and gas industry, which has long been a vital source of government revenue and helps to alleviate the tax burden of everyday Americans, would stop being a source of revenue and funding for key programs. About $5.6 billion in annual government revenues would disappear by 2040. Furthermore, state revenue sharing under GOMESA is projected to fall to an average of around $273 million per year, compared to around $374 million in the baseline. While contributions to the LWCF are projected to fall from over $1.3 billion on average in the base case to just over $585 million. By the year 2040, annual revenues for state revenue sharing will fall by $214 million, and LWCF funding will fall by nearly $1 billion.

On a related note, the Great American Outdoors Act recently passed both the House and Senate. It seeks to fund the maintenance of our national parks through revenues derived from offshore oil and gas development. That money simply won’t exist, if policies are adopted to end this development activity. Likewise, the Land & Water Conservation Fund provides funding for park and recreation programs in every state, and that funding will dry up by blocking offshore production.

The Gulf of Mexico offshore family. In addition to its quantitative portion, the study also looks at the many types of companies needed to produce energy in the GOM. About 2,400 companies throughout all 50 states—just a small snapshot of the entire industry—are identified as part of the offshore supply chain, Fig. 1. In addition, EIAP and NOIA interviewed a number of NOIA member companies to show what exactly goes into building the Gulf of Mexico offshore oil and gas industry and its supply chain. 

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Nine companies with a diverse range of size, scope, focus and operations told their powerful stories about working in the Gulf. The companies profiled in the study include:

  • Danos
  • Fugro
  • Kosmos Energy
  • New Industries
  • Pharma-Safe
  • American Pollution Control
  • Jackson Offshore Operators
  • Morrison Contractors
  • Oceaneering.

Each of the interviewed offshore energy companies is incredibly diverse in what it does and how it goes about doing it, but there are still common threads throughout their stories. For starters, each of the interviewed leaders is proud to be part of the U.S. oil and gas industry. 

The offshore industry provides wonderful opportunities for high-paying, stable jobs that are accessible. Lee Jackson, CEO of the minority-owned marine transportation company, Jackson Offshore Operators, highlighted the employment opportunities that the offshore industry offers, saying, “Even at entry-level, the average income can be anywhere between $45,000 to $60,000 annually, all the way up to a captain and chief engineer, that can make in excess of $170,000 per year. These jobs are good-paying jobs. They absolutely are.” 

Providing economic opportunities is just the start of what our industry provides. While most people grasp the correlation between more energy production and lower energy prices, our industry does more than improve the affordability of filling up your gas tank at the pump. Our industry is building the modern world. From MRI machines to house paint to modern medicine, the products that are derived from oil and natural gas are making a better tomorrow. The more oil and natural gas we safely and responsibly produce, the higher we can elevate the world’s standard of living. 

As Earl Childress, Senior Vice President for Oceaneering, puts it, “When you look at the actual hydrocarbon demand profile, so much is about day-to-day things that people don’t consider where they truly originate–rubber, plastics, asphalt, etc. Natural gas, gasoline for cars, and jet fuel for planes aren’t the only products derived from oil and gas production… This is the piece that the general public misses. It's not only about powering cars.”

It is also clear that the offshore oil and gas industry is an incredible pillar for countless communities across America. Kosmos Energy Senior Vice President, and Head of Gulf of Mexico Business Unit, Richard Clark spoke at length about his company’s U.S.-focused social investment programs. Kosmos is extremely active in a variety of activities, ranging from improving the quality of STEM education to building cross-cultural understandings to tackling acute hunger and chronic food insecurity.

Likewise, Paul Danos, owner executive of the family-run and family-owned Danos, is proud of the results of their employee-driven non-profit organization, the Danos Foundation. “The Foundation spearheads volunteer activities, provides support for employees in need,

and administers grants to non-profits within our communities,” explains Danos. Through the Foundation, we’ve been able to make a positive impact on the communities where we live and work.”

Not only does our industry strive to be the best neighbor that it can be, the offshore industry is also a dedicated steward of the environment. Beyond being a source of government revenues for the LWCF and other conversation programs, our industry leads in taking care of its backyard. 

Chet Morrison, founder and CEO of Morrison Contractors, says, “we are a mature industry that is focused on the health, safety and environmental aspects of our business; we're responsible citizens. Our clients are real people that enjoy being part of the South Louisiana heritage. We are blessed with a wetland paradise and respect the responsibilities that come along with preserving that for our children.” 

No matter the size or scope of their companies, these industry leaders are also clear that their companies add tremendous value to the economy. From multi-national, multi-billion-dollar corporations to individually owned companies that call Louisiana home, every offshore company has an impact on countless companies and jobs throughout the nation. 

Whether you are talking about Oceaneering’s $600-million supply chain that requires raw materials, high-end electrical distribution equipment, electronics, hydraulic control, and large fabrications, or the 100-employee medical supplier Pharma-Safe, about which owner Lanis Belaire says, “we estimate that more than 2,000 people are directly affected by our activity levels,” Gulf of Mexico companies lift up businesses and communities throughout America. 

The community leadership, environmental stewardship and economic growth provided cannot last, if policymakers throw away the keys to the Gulf. Each executive warned that the benefits of a strong GOM would disappear overnight, if leasing or permitting bans were enacted. Leasing and permitting bans would mean fewer American jobs, dirtier energy production and a new era of American energy insecurity. 

As Richard Clark explains, “We have one of the lowest carbon footprints for oil and gas extraction in the world. If we don’t allow production in the Gulf of Mexico, we will be forced to import oil from areas with lax environmental regulations, which would defeat the objectives of those who seek to ban offshore activity.”

What is next for America?America needs a strong Gulf of Mexico, now more than ever. The world is continuing to grapple with the unprecedented Covid-19 pandemic. Unemployment recently rose at a rate comparable to the Great Depression, and large swaths of the economy, including the oil and natural gas industry, remain devastated.

The offshore oil and gas industry is not composed of a few mega-corporations and no one else. Each offshore facility depends on hundreds of companies, and thousands of workers, to keep it going. From buoy specialists in Maine to personal protective equipment manufacturers in Minnesota to software companies in Florida and automation experts in Connecticut, every state has jobs and economic investments that are part of the Gulf Coast energy community.

The diverse ecosystem of companies supported by the GOM should not have their future ended through executive branch fiat. Policymakers should, instead, preserve the key U.S. competitive asset that is the Gulf.

In the GOM, companies have access to world-class infrastructure and follow some of the most robust environmental and safety standards in the world. Since 2014, the region has trailed only Guyana as being the most productive, prospective offshore region. Continued investment translates to continued American energy, continued high-paying jobs, and continued national security. The Gulf of Mexico can remain a prolific basin for decades to come and continue to be an energy and economic driver.

Our industry can be a solution to many of the problems facing the world today. Through accessible and high-paying jobs, many of which only require a high school diploma and on-the-job training, our industry can provide the jobs our nation so desperately needs right now. Our industry provides an alternative to foreign, state-backed production that can increase prices on consumers, on a whim. And for a world that needs climate and environmental progress, our industry shows that you can increase production while lowering emissions and strengthening the environment. 

Offshore oil and gas innovation and technological advancement also means our industry is positioned to play a substantial role in the development of the U.S. offshore wind sector. The same companies that fabricate offshore facilities, provide vessel support services, engineer subsea solutions, and perform marine construction activities for the offshore oil and gas industry have the strength and expertise to play similar roles for U.S. offshore wind. Our economy relies upon an all-of-the-above energy portfolio and our offshore industries, working together, stand ready to responsibly generate energy for decades to come, raising our standards-of--living through homegrown, reliable and affordable energy.  

As the U.S. rapidly approaches an energy cross-roads, we must recognize that a stronger Gulf of Mexico means a stronger America. 

About the Authors
Erik Milito
Erik Milito ERIK MILITO is president of the National Ocean Industries Association (NOIA), having taken the helm of the association on Nov. 1, 2019. He has extensive experience in implementing strategic outreach and public relations platforms for high-profile issues on behalf of the energy industry. He is a seasoned spokesperson and lobbyist, testifying before Congress on key energy issues on numerous occasions. Mr. Milito comes to NOIA from the American Petroleum Institute (API), where he served for the previous 17 years, most recently as vice president, Upstream and Industry Operations, covering regulatory, legislative and technical matters related to U.S. oil and natural gas E&P. Before that, he served as managing counsel at API, covering a wide range of legal issues. From 2000 to 2002, Mr. Milito served as a career attorney in the Solicitor’s Office of the U.S. Department of the Interior. He served on active duty in the U.S. Army as a judge advocate from 1995 to 2000, and in the U.S. Army Reserve from 2000 to 2004, before resigning at the rank of Major. He holds a Juris Doctor from Marquette University Law School, and a BBA degree from the University of Notre Dame.
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