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Economic Largess From Atlantic Offshore Drilling Disputed in Enviro-Backed Report

The Obama administration's proposal to allow limited offshore natural gas and oil drilling in the Mid- and South Atlantic area, now under fire by some coastal communities and legislators, is facing more scrutiny after a study challenged industry claims that drilling would be a boon to the region.

A draft strategy for offshore leasing issued early this year by the Department of Interior's Bureau of Ocean Energy Management (BOEM) would, for the first time, open a portion of the Mid- and South Atlantic Outer Continental Shelf (OCS) from Virginia to Georgia (see Daily GPIJan. 27). The draft leasing plan for 2017-2022 is part of a multi-year process to develop a final federal offshore leasing program (see Daily GPI, June 13, 2014).

Atlantic drilling long has been a contested issue, with critics and supporters offering compelling research to make their points. An industry-backed study prepared by Quest Offshore Resources Inc. found that leasing in the Eastern Gulf of Mexico, and the Atlantic and Pacific coasts could raise $20 billion-plus in revenue and create almost 840,000 jobs by 2035 if leasing were to begin in 2018 (see Daily GPINov. 19, 2014). The Quest study was commissioned by the National Ocean Industries Association (NOIA) and the American Petroleum Institute.

However, the Southern Environmental Law Center (SELC) contradicted Quest's economic analysis for what it termed the "South Atlantic" region, consisting of Georgia, North Carolina, South Carolina and Virginia. Proposed drilling offshore those four states may offer little to no economic benefit and could put some sectors at risk, according to research by the Center for the Blue Economy (CBE) of The Middlebury Institute of International Studies at Monterey, CA.

"The oil and gas industry has widely cited the Quest report to boast the economic benefits of drilling in the Atlantic, but the report presents too optimistic a view of the gains to the regional economy and fails to place oil and gas activity in the context of the larger ocean economy that may be vulnerable to disruptions from oil and gas,"  said CBE's Director of Research Charles S. Colgan.

The existing "ocean economy" of the four states, including industries such as tourism, recreation and commercial fishing, accounted for 249,000 jobs in 2012.

"This total is larger than the number of oil and gas jobs estimated by Quest for 2035," Colgan said. "The region's ocean economy paid $7.515 billion in wages and contributed $14.5 billion to the economies of the South Atlantic region. The largest sector in employment in 2012, with 171,159 jobs, was tourism and recreation."

Any predicted employment and economic gains have to be weighed against possible losses to the existing economies that could be caused by industrial growth onshore and routine contamination, as well as the threat of major oil spills associated with the petroleum industry, according to the CBE research. Quest assumed that lease sales would be held annually beginning in 2018, but BOEM has proposed only one lease sale in 2021 (No. 260). Also, Quest assumed that production would begin in 2026, but it "would likely not begin until at least 2029 under the actual proposal," Colgan said.

Also discounted were Quest's projected revenues for individual states from offshore leases and production. The projected revenues are based on assumed revenue-sharing agreements with the federal government that don't exist and they fail to acknowledge the history of difficulty in establishing revenue sharing in Congress, Colgan said. "The Obama administration has opposed revenue sharing, and Congress has historically been extremely reluctant to share revenues with the states. Moreover, current rules designed to reduce the deficit create a very different fiscal environment for the federal government than when revenue sharing was established for the Gulf States a decade ago."

NOIA President Randall Luthi took issue with CBE's findings and questioned SELC's motives. The Quest report "was never intended, nor could it have been expected, to predict federal policy in 2015. Thus, the SELC report misses the forest for the trees; the fact remains that Atlantic oil and gas activity holds the potential to add tens of thousands of jobs and billions of dollars in revenue and investment to Atlantic states."

Quest estimated "the potential for jobs, economic activity and government revenue that could be generated from Atlantic development, assuming reasonable government policies supporting energy development are in place," he added. "No one can predict future government policy, but with the Atlantic lease sale proposed for 2021, stakeholders have over five years to get a revenue sharing agreement in place for all coastal states, complementing the lion's share of economic benefits that will be derived from jobs, direct investment and gross domestic product growth."

NOIA and other proponents of offshore energy development "strongly support legislation that will ensure revenue sharing for Atlantic states," Luthi said. "What is important to note is that the groups claiming that revenue sharing will be difficult to achieve are the very groups that are actively lobbying Capitol Hill against revenue sharing legislation; if these groups truly supported coastal communities they would support revenue sharing efforts in Washington, DC. Their tactics are disingenuous at best."

Research by the CBE "also misses the mark in failing to recognize the long-standing compatibility of offshore oil and natural gas with tourism and fishing," the NOIA president said. "The Gulf of Mexico contributes 20% of our domestic oil and natural gas production, while the recreational fishing industry employs about 150,000 along the entire Gulf Coast and contributes over $7 billion to states and local economies. In addition, Gulf Coast communities host tens of millions of visitors each year and support a $20 billion tourism industry."

What SELC did, Luthi said, was to continue a "pattern by opponents of offshore opportunities of throwing up red herrings in an attempt to stop all exploration activities, including seismic surveying, which could provide vital information to make informed science-based energy decisions in the future. Energy policy should not be based on the misguided narrative that today's oil and gas market conditions will be tomorrow's reality. History shows that the offshore oil and gas business is much more concerned with long-term market conditions, measuring its project time horizons in decades."

Still, the energy industry faces opposition to opening the Atlantic offshore to drilling from coastal communities, as well as legislators on both sides of the aisle.

Earlier this month seven House members, six Democrats and one Republican, asked BOEM Director Abigail Ross Hopper to retract the record of decision to allow geological and geophysical (G&G) activities, including seismic surveying, of the Atlantic OCS. Last year the Obama administration approved the use of sonic sensors and air guns to conduct seismic studies in Atlantic waters (see Daily GPIJuly 21, 2014Feb. 27, 2014).

The house members asked for BOEM to prepare a new programmatic environmental impact statement based on the "many studies that show harm to fisheries and marine mammals" because of human-produced noise, including seismic airgun testing." The letter was sent by Mark Sanford (R-SC), Bobby Scott (D-VA), Donald S. Beyer Jr. (D-VA), John Carney (D-DE), Matt Cartwright (D-PA), Kathy Castor (D-FL) and David Cicilline (D-RI).

"We have several concerns about the G&G activities proposed for the Atlantic off our shores," they wrote. "The seismic information gathered by the companies will be proprietary, and any information gathered in the Atlantic about offshore energy resources will not be available to states, the public or other companies. Therefore, states will not gain information from seismic airgun testing that would enable them to make a cost-benefit analysis as to whether the risks posed by offshore drilling would outweigh any benefits derived from offshore energy extraction."

The House members said there was a "significant body of peer-reviewed science" demonstrating that seismic airgun testing would displace fish, cause catch rates of some commercial fish to plummet and disrupt feeding/breeding behaviors in endangered whales. "Opposition to seismic airgun testing is widespread and growing," they said. "Close to 90 towns, cities, and counties along the Atlantic coast have passed resolutions opposing seismic testing and/or offshore oil drilling."

The seismic tests and oil/gas drilling "will put the coastal economy and way of life at risk," said the House members, as the coast is industrialized and there are "daily impacts and regular spills from oil drilling activities and possible catastrophic accidents like the Deepwater Horizon disaster..."

Although many of the tourist-centric cities along the Atlantic Coast have passed resolutions opposing drilling, the governors of Georgia, North Carolina, South Carolina and Virginia have voiced support.

North Carolina Gov. Pat McCrory (R) said there was "widespread" support" for offshore drilling in his state. The governor "continues to support a multi-faceted energy strategy that will create jobs and help with our country’s energy independence," a spokesman said. "The governor's first goal is to find out what resources are available in a safe, environmentally responsible way."

South Carolina's Republican Gov. Nikki Haley "believes offshore exploration should be done in a way that protects, and never compromises, our environment, our ports and tourism industry," said a spokeswoman. "But as she has worked with members of the congressional delegation and the state's General Assembly on this critical economic development issue, she's also been clear: exploring offshore for energy is critical to our future because it means jobs, energy independence from other countries and security for our state."

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