The debate over drilling on the Outer Continental Shelf (OSC) has recently taken on a greater prominence with legislators because of record-high energy prices and a desire to lessen U.S. dependence on foreign oil.

Since a disastrous oil spill in 1969 off the coast of Santa Barbara, California, a congressional moratorium, renewed annually, has barred exploration and drilling on the OSC save for certain parts of the Gulf of Mexico. But there is renewed interest in this area as an untapped source for domestic energy supply, particularly an eastern stretch known as Lease 181, which is believed to be rich in natural gas.

In February 2006, the Minerals Management Service (MMS) proposed leasing new offshore oil and gas exploration areas in the eastern Gulf of Mexico, as well as areas covered by drilling moratoria off the coast of Virginia and in Alaska's North Aleutian Basin. The following month, a coalition of gas industry CEOs lobbied Congress for easier access to federal lands and waters for drilling. In June, the House of Representatives, by a vote of 232 to 187, passed legislation that would end the moratorium on offshore oil and gas drilling, arguing that greater domestic production is needed to help bring down soaring energy prices. In mid-July, Senate Republican leaders recently reached a deal with Gulf Coast senators, some of the strongest opponents of offshore drilling, that would lift the moratorium on OSC drilling, given certain conditions.

Although the new bill has passed several significant obstacles, it must overcome a few more before being ratified. Opponents of OSC drilling include environmental groups and other legislators from Gulf Coast states. Environmental groups are concerned about the hazards that deep-sea wells would have on the local marine ecology, as well as the potential for a destructive oil spill. Gulf states are particularly concerned about the negative environmental impacts of OSC drilling. These states, especially Florida, rely heavily on the tourism industry along their coasts and worry how offshore drilling might hurt their valuable beaches. An additional objection has been raised by the Pentagon, which routinely run military exercises in the Gulf area—the addition of oil rigs would limit the space for these exercises.

As a compromise, Gulf states have asked for certain provisions to the legislation allowing OSC drilling. Louisiana has asked to receive 50–75% of the federal revenue received from oil and gas produced off its coast; the state currently receives 5%. Florida has asked that a moratorium on drilling 125 miles off its coast be extended through 2022.

Important differences between the House and Senate versions of the bill also need to be worked out before President Bush could sign anything into law. Moreover, the White House has said it is unhappy with the House bill giving states a greater share of the royalties from offshore oil and gas production in federal waters, which Gulf state politicians argue is necessary for restoring coastal areas devastated by last year’s hurricanes, as well as years of erosion from—ironically—oil and gas infrastructure construction

With so many issues still contested, the prospect of offshore drilling is far from being realized. But high energy prices and potential new revenues will keep OSC drilling as a priority for the U.S. Congress.

Raul Dary

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raul.dary@globalinsight.com

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