Sunday, July 4, 2010

Myths from the right about the disaster in the gulf

Mr. Priest is Director of Global Studies in the C.T. Bauer College of Business, University of Houston, and author, most recently, of The Offshore Imperative: Shell Oil’s Search for Petroleum in Postwar America (Texas A&M Press, 2007).

A new narrative reverberating in right-wing political circles blames the Deepwater Horizon disaster on a favorite scapegoat: the federal government.

But this narrative does not feature the Minerals Management Service, the Interior Department agency whose compromised oversight of the industry may have permitted BP to take excessive risks in deepwater drilling,

Rather, government environmental restrictions on drilling onshore and in shallow water allegedly forced the oil industry to move into deepwater, and it was none other than President Bill Clinton who gave Big Oil the fiscal incentives to turn this move into a headlong rush.

Both parts of this new story are myths.

The idea that environmental regulations forced the industry into deepwater, as proclaimed by Sarah Palin and echoed by pundits, is a whopper. The offshore industry set its sights on drilling in one thousand feet of water before significant federal environmental laws and regulations existed (many of these were implemented by that radical leftist, Richard Nixon). The closure of the Atlantic and Pacific coasts to drilling in the 1980s did force the industry to concentrate its efforts in the Gulf of Mexico. However, oil companies would have moved into deepwater by the 1990s wherever they could, in which case the current disaster might have happened elsewhere, perhaps even closer to shore. The continental shelf drops off so quickly on the Pacific Coast that in places one can almost drive a golf ball into deepwater from the beach.

Big Oil drills in deepwater because that is where the largest remaining oil fields are and where the oil flows most prolifically. Despite intensive exploration onshore and in shallow water, U.S. oil production has been declining since 1970. Old fields are being exhausted and newly discovered fields in explored areas are getting smaller. That decline would be occurring even if the environmental movement had never existed.

The federal government did give the oil industry a boost into deepwater, but it happened first under President Ronald Reagan and his Secretary of Interior, James Watt, not Bill Clinton. In 1983, Watt introduced “area-wide leasing,” which gave oil companies access to greater offshore acreage at much cheaper lease prices. During the 1980s, Shell Oil led the industry in acquiring huge numbers of deepwater leases, which it could readily afford thanks to area-wide leasing.

In 1994, first production from Shell’s “Auger” prospect, in 2,860 feet of water on tracts obtained in one of the first area-wide sales in 1984, transformed the economic picture of deepwater. Auger revealed that deepwater reservoirs were much more productive than most people in the industry had anticipated. They form in turbidite sandstones capable of producing as much as 40,000 barrels per day from a single well, compared to 1,000-2,000 barrels per day from a good well in shallow water on the continental shelf.

The signing of the Outer Continental Shelf Deepwater Royalty Relief Act (DWRR) by Bill Clinton in 1995 did provide extra incentive for deepwater exploration, but it did not “catalyze drilling in deep waters in the Gulf of Mexico,” as Dick Morris recently asserted. Area-wide leasing and the Auger announcement were all the industry needed to embark on a scramble for leases and deepwater drilling in the Gulf. By exempting a certain amount of deepwater production from royalty payments, DWRR merely sweetened the deal for companies already poised to make huge investments.

It is absurd to blame the Gulf oil spill on “environmental extremism” (Palin) or “misguided policies begun by the Clinton Administration” (Morris). The historical roots of deepwater exploration can be traced back to Reagan and Watt, who introduced reforms that encouraged the industry’s expansion. Subsequent administrations fell in line to ensure that the industry enjoyed a large degree of self-regulation in drilling for deepwater treasures. As domestic oil production declined elsewhere, politicians in both parties signed on to support the development of this promising new area. That support lowered federal revenues from offshore leases and constrained government oversight.

Today, Louisianans are among the loudest voices blaming the Obama administration for failing to contain spreading crude oil from the blowout. They have a right to be angry at their impending economic and environmental losses. But that anger would be more fairly directed at their state’s politicians and the voters who elected them. Louisiana’s congressional delegation led the charge in the 1990s for DWRR and reduced regulation of drilling in the Gulf. Tellingly, former Louisiana senators, John Breaux and Bennett Johnston, now are lobbyists for the oil and gas industry.

Until April, admiring analysts often attributed the astonishing development of deepwater reserves in the Gulf of Mexico to technological innovation enabled by minimal government intervention. Now that something has gone wrong and an uncontrolled volcano of oil in 5,000 feet of water threatens the Gulf Coast, are Americans really supposed to believe that it’s all the fault of environmentalists, bureaucrats, and Democratic presidents?

Gulf spill won’t dampen U.S. appetite for oilThe peak oil crisis: the real gulf crisis

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