Trump aims to expand U.S. offshore drilling, despite low industry demand

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U.S. President Trump displays an Executive Order on the administration's energy strategy at the White House in Washington

By Valerie Volcovici

WASHINGTON (Reuters) – U.S. President Donald Trump signed an executive order on Friday to extend offshore oil and gas drilling to areas that have been off limits – a move meant to boost domestic production but which could fall flat due to weak industry demand for the acreage.

The order could open up swathes of the Atlantic, Pacific and Arctic oceans, as well as the U.S. Gulf of Mexico, that former President Barack Obama had sought to protect from development after a huge BP <BP.L> oil spill in 2010.

“We’re opening it up….Today we’re unleashing American energy and clearing the way for thousands and thousands of high-paying American energy jobs,” Trump said as he signed the order.

Trump had campaigned on a promise to do away with Obama-era environmental protections that he said were hobbling energy development without providing tangible benefits, pleasing industry and enraging environmental advocates.

But the executive order, called the America-First Offshore Energy Strategy, comes as low oil prices and soaring onshore production have pushed industry demand for offshore leases near their lowest level in years, raising questions over the impact.

A Reuters review of government data showed the amount of money that oil companies spent in the central Gulf of Mexico’s annual lease sale dropped more than 75 percent between 2012 and 2017. Dollars bid per acre and the percentage of acreage receiving bids both declined more than 50 percent.

The figures were similar in the western Gulf of Mexico, the only other zone that got offers for leases during that period, according to the figures from the U.S. Bureau of Ocean Energy Management.

“The Trump administration’s hasty move today toward expanding offshore oil drilling … defies market realities and is as reckless as it is unnecessary,” said David Jenkins, president of Conservatives for Responsible Stewardship, a non-profit conservation group.

“Why on earth would someone choose to push drilling in the riskiest and most expensive places on the planet when the current oil glut will make such ventures unprofitable for the foreseeable future?” he said.

The president of the American Petroleum Institute trade group welcomed the order in a statement, while an API official said the order could help the industry over the long term. The official did not respond to a request for comment directly about current offshore lease demand.

“In order to meet U.S. energy needs, it is important to keep options open for the long term, so industry can start planning for and determining where the best prospects are and then make those investments the global economy will require over time,” the official said, asking not to be named.

The order directs the U.S. Department of Interior to review and replace the Obama administration’s most recent five-year oil and gas development plan for the outer continental shelf, which includes federal waters off all U.S. coasts.

Weeks before leaving office, Obama had banned new oil and gas drilling in federal waters in the Atlantic and Arctic oceans, protecting 115 million acres (46.5 million hectares) of waters off Alaska and 3.8 million acres in the Atlantic from New England to the Chesapeake Bay.

LEGAL BATTLE LOOMS

In addition to requiring a new five-year drilling plan, the order reverses Obama’s decision to place certain parts of the Arctic permanently off limits to drilling. It also requires Commerce Secretary Wilbur Ross to review previous presidents’ designations of marine national monuments and sanctuaries.

Jill McLeod, a partner at international law firm Dorsey & Whitney, said Trump’s order was a positive signal to the oil industry but was unlikely to trigger a surge in exploration in the near term given the costs.

“The lifting of the ban does not necessarily make drilling in the Arctic a compelling proposition,” she said.  

Environmental groups, including Oceana and the Center for Biological Diversity, criticized the order and promised to fight it in court. Democratic senators also opposed the order, saying it could threaten the fishing and tourism industries.

Friday’s order came on the heels of a separate decree by Trump this week triggering a review of federally managed land to determine if they were improperly designated as national monuments by former presidents. The move is intended to expand federal areas available for development.

(Editing by Richard Valdmanis and Leslie Adler)

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