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Thursday, May 6, 2010

U.S. Offshore Oil and Gas Resources: Prospects and Processes

Marc Humphries
Analyst in Energy Policy

Robert Pirog
Specialist in Energy Economics

Gene Whitney
Section Research Manager

Access to potential oil and gas resources under the U.S. Outer Continental Shelf (OCS) continues to be controversial. Moratoria on leasing and development in certain areas were established by Congress (beginning in 1981) and by the President (beginning in 1990). These moratoria were largely eliminated in 2008 and 2009, although a few areas remain legislatively off limits to leasing. The 111th Congress may be unlikely to reinstate broad leasing moratoria, but some members have expressed interest in protecting areas (e.g., the Georges Bank or Northern California) or establishing protective coastal buffers. Pressure to expand oil and gas supplies and protect coastal environments and communities will likely lead Congress and the Administration to consider carefully which areas to keep open to leasing and which to protect from development. 

On April 2, 2010, the Obama Administration announced Preliminary Revised Program (PRP) for the remainder of the 2007-2012 OCS Leasing Program. The PRP would eliminate five Alaskan lease sales (sales 209, 212, 214, 217, and 221). Further, President Obama withdrew the North Aleutian Basin Planning Area from oil and gas leasing consideration until June 30, 2017—the duration of the next five-year leasing program. The announcement presents eight planning areas that will be scoped for leasing in the 2012-2017 OCS Leasing Program which include the Mid- Atlantic, South Atlantic, Gulf of Mexico (Eastern, Central, and Western), and the Chukchi Sea, Beaufort Sea and Cook Inlet of Alaska. Several areas around Alaska, the North Atlantic, and the entire Pacific coast were not included in the scoping announcement. 

Consideration of offshore development for any purpose may raise concerns over the protection of the marine and coastal environment. Historical events associated with offshore oil production, such as the large oil spill off the coast of Santa Barbara, CA, in 1969, cause both opponents and proponents of offshore development to consider the risks and to weigh those risks against the economic and social benefits of the development. However, both technology and regulatory oversight have improved since that event. But the recent oil spill which occurred on April 20, 2010, in the Gulf of Mexico has brought increased attention to those offshore drilling risks. 

Exploration and production proceed in stages during which increasing data provide increasing certainty about volumes of oil and gas present. Prior to discovery by drilling wells, the estimated volumes of oil and gas are termed undiscovered resources. The Minerals Management Service (MMS) conducts assessments of undiscovered technically recoverable resources (UTRR) on the U.S. OCS. The statistical certainty of these assessment estimates varies by region because the availability of geologic data varies widely by region. For example, the extensive exploration and production histories of central and western Gulf of Mexico and southern California provide a comparatively greater amount of geologic data to use for assessments. In contrast, much of the remainder of the U.S. OCS has seen little exploration and production of oil and gas. 

One characteristic of the U.S. oil market, as well as of world oil markets, is that the access to supply tends to be sequential. Normally, the first source of oil used by a nation is domestic production, if available. Typically, the next source of supply is imports from countries not party to the Organization of the Petroleum Exporting Countries (OPEC). Finally, residual demand is met by OPEC. The ultimate impact of oil and gas development in offshore areas will depend on oil and gas prices, volumes of resources actually discovered, infrastructure development, and restrictions placed on development, all of which currently carry significant uncertainties.

Date of Report: April 26, 2010
Number of Pages: 33
Order Number: R40645
Price: $29.95

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