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Contract rights for offshore oil drilling along the West Coast of the U.S. has not been sold since 1984. But with a new directive from the White House, that could soon change in the face of renewed urgency for investment in oil extraction.
Bloomberg reported April 26 that President Donald Trump and his administration would announce a new plan within days to dramatically expand coastal drilling operations in American waters. According to anonymous sources, this would involve an order for the Department of the Interior to review locations for offshore oil and natural gas rigs in territory previously considered off limits to such activities. This would include Pacific coastline as well as areas of the Arctic Ocean in Alaska and the Atlantic Ocean. These areas were previously banned from offshore drilling by former President Barack Obama.
Asked about the anonymous reports, Secretary of the Interior Ryan Zinke did not deny them.
"We're going to look at everything," Zinke said according to Bloomberg. "A new administration should look at the policies and make sure the policies are appropriate."
Offshore drilling has long been a political pain point among the U.S. public and lawmakers, but the California coast has a particularly bad reputation in this regard. In 1969, an offshore oil well in the Santa Barbara Channel suffered a blowout, spilling up to 100,000 barrels of crude oil into the sea over a 10 day period. At the time, the spill was the largest ever in U.S. waters, and the event was instrumental in sowing the seeds of the modern environmental activist movement, according to the Los Angeles Times.
In 1981, Congress enacted a moratorium on the sale of new contracts for offshore drilling activities in all American coastal sites, with the exception of parts of the Gulf of Mexico and Alaska. While the last drilling contract along the West Coast was sold in 1984, about 40 rigs have still been operating on longstanding leases signed before the moratorium.
Now, however, the drilling ban is something of an open question. The 1981 act expired in 2008 and was not renewed. Offshore drilling activity expanded after this point, although the Obama administration was tepid with its support of such activity. In 2014, the federal government made a formal request for public comment on the possibility of selling new drilling contracts off the West Coast. The request was roundly and quickly rejected by voters and lawmakers from California, Oregon and Washington.
Producers may scramble to meet future demand
With such a fraught history, the new administration may find it nearly impossible to get new exploration and drilling sites up and running. And although oil stockpiles are currently brimming and being sold at historically low prices, some energy analysts believe this situation will soon end.
A report from the International Energy Agency dated March 6 argued global oil supply will begin to fall beyond 2017, eventually lagging behind total demand around 2020.
"In the next few years, oil supply is growing in the United States, Canada, Brazil and elsewhere but this growth could stall by 2020 if the record two-year investment slump of 2015 and 2016 is not reversed," the report explained. "While investments in the US shale play are picking up strongly, early indications of global spending for 2017 are not encouraging."
Offshore projects would also make a dent in these projections, assuming they are approved. The IEA estimated that the bulk of new oil supply in the next three years will come from U.S. producers, regardless of a major expansion in drilling investment. Meanwhile, worldwide demand for oil will grow to approximately 100 million barrels per day in 2019, based on current growth rates. Much of this new demand will most likely come from China and India. But the IEA also noted that supply growth remains dependent on market price, too. For example, if crude is priced near $80 per barrel, supply growth will be much more rapid than if current prices near $50 per barrel remain constant.
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