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House Passes Offshore Drilling Bill, Senate Up in the Air

By Jen Alic | Wed, 03 July 2013 22:17 | 0

For the second time, the US House of Representatives has lifted the moratorium on oil and gas drilling off the coast of Virginia and expanded offshore drilling in general--and this time there is (perhaps false) optimism in the air that it will squeak past the Senate thanks to two Democrats who have jumped on the offshore bandwagon.

On 28 June, the House approved legislation that lifts the moratorium on drilling offshore Virginia and expands it countrywide, including off California’s coast. The legislation would also divide hydrocarbon revenues among coastal states.

Last year, we saw this same story unfold, but then stymied by the Senate.

The legislation—the Offshore Energy and Jobs Act—would usher in a five-year offshore leasing regime to launch oil and gas drilling off the Pacific coast.

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Environmentalists are opposed to offshore drilling here because of the fragile ecosystem in the Chesapeake Bay, and Democrats are not on board with this, either—for the most part. This time around, in the House, only 16 Democrats voted in favor. (The vote was 235-186).

Republicans are focusing on the job-creation potential here, estimating that drilling operations would result in 18,000 new jobs for Virginia, plus a nice chunk of revenues (37.5%) for state projects. This diversion of revenues from the federal government has gone a long way in bringing states on board and a similar set-up is in place for states along the Gulf of Mexico (remember, Gulf of Mexico leasing will see another round next month).

Maryland, Delaware and North Carolina will also benefit from this revenue split, which will be based on how many wells are operating within 200 nautical miles of its coastline and distance from drilling platforms.

Republicans are also hitting home the wider economic benefits—and playing to prices at the pump for summer drivers.

“The first domino is the jobs that are created on the offshore rigs. But if you ride on Highway 90 from Lafayette, La. ,down toward New Iberia and Houma, La., you’re going to see on both sides of the road, business after business that is supporting the offshore industries,” according to Rep. Jeff Duncan, R-South Carolina. 

What’s different this time around in the Senate? New faces, thanks to 2012 elections. We’ve got two new Democrats on the Senate who are offshore drilling fans and who have replaced two Democrats that were staunchly opposed, fearing a repeat of the 2010 oil spill which could destroy the fishing industry, among other things. (Republicans are certain that the necessary safeguards could keep this from happening.)

It was the Deepwater Horizon oil spill that shelved plans for drilling offshore Virginia in the first place. Back around the year 2000, there were already federal government plans in the works to develop Virginia’s offshore oil and gas assets, but leasing was delayed until 2017 because of the oil spill.

Democrats largely disagree that this legislation would safeguard anything at all.

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“The bill […] would allow Big Oil to put drilling rigs off the Atlantic, Pacific and Alaskan coasts without enacting key drilling safety reforms that we know should be there following the BP Deepwater Horizon disaster,” Rep. Rush Holt, D-New Jersey, said in a statement.

So let’s assume this legislation makes it past the Senate—then what? It would also have to pass with enough support to be able to overturn a presidential veto, which Obama has clearly threatened.

What the Obama administration and environmentalists don’t like is that the legislation removes area-specific environmental impact assessments, and calls for a general overview of drilling implications for coastal areas that are not geographically or geologically related. (Sort of a one-size-fits-all environmental study.)

The estimates are that production would begin in 3-5 years, and revenues. But we’re not confident this will get past the Senate, and less likely past an Obama veto.

By. Jen Alic of Oilprice.com

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Jen Alic
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