Deepwater oil drilling back in biz

Nearly two years after an explosion on an oil platform killed 11 workers and sent millions of gallons of oil gushing into the Gulf of Mexico; deepwater drilling has regained momentum in the gulf and is spreading around the world.

The announcement of an agreement by BP and lawyers representing individuals and businesses hurt by the disaster represented something of a turning of the page, though BP and its drilling partners continue to face legal challenges.

After a yearlong drilling moratorium, BP and other oil companies are intensifying their exploration and production in the gulf, which will soon surpass the levels sustained before the accident.

Drilling in the area is about to be expanded into Mexican and Cuban waters, beyond most US controls, even though any accident would almost inevitably affect the United States shoreline. Oil companies are also moving into new areas off the coast of East Africa and the eastern Mediterranean.

The reason for the resumption of such drilling, analysts say, is continuing high demand for energy worldwide.

“We need the oil,” said Associate Director of the Rice University energy programme, Amy Myers Jaffe. “The industry will have to improve and regulators will have to adjust, but the public will have to deal with the risk of drilling in deep waters or get out of their cars.”

Domestic oil exploration and gasoline prices are emerging as important issues in the presidential campaign. While candidates have sparred over the reasons for rising prices, there is little disagreement over the call for more drilling, onshore and offshore.

“The price of gasoline is becoming a genuine crisis for many American families,” said the former House speaker and a candidate for the Republican nomination, Newt Gingrich, appearing on CNN. “If it continues to go higher, it will crater the economy by August.”

President Barack Obama, while in New Hampshire, countered Republican charges that he was to blame for the rising pain at the pump. “We’ve opened millions of new acres for oil and gas exploration, and approved more than 400 drilling permits since we put in place new safety standards in the wake of the gulf oil spill,” Obama said. Gas prices are averaging $3.76 a gallon, while crude oil futures settled at $106.70 a barrel recently.

Exploration in deepwater fields remains dangerous because of high temperatures and high pressure when drilling 6,000 feet or more under the sea floor, and accidents continue to occur, most notably in 2011 off the coasts of China and Brazil.

But despite the risks, the deepwater drilling trend is spreading in the Mediterranean and off the coast of East Africa after a string of huge discoveries of natural gas.

The new oil platforms will help supply growing demand in China, India and across the developing world. At the same time, turmoil in North Africa and the Middle East threatens operations in established fields that the world has relied on in recent decades.

For a time after the BP spill, the drilling moratorium ordered by the Obama administration caused a decline in gulf production, but a reversal has occurred. Forty rigs are drilling in the gulf today compared with 25 a year ago. BP has five rigs drilling in the gulf, making it one of the most active drillers there. That is the same number BP operated before the accident, and it plans to have three more rigs drilling in the gulf by the end of the year.

Challenge from green activists

The Energy Department recently projected that gulf oil production would expand from its 2011 level of 1.3 million barrels a day, still nearly a quarter of total domestic production, to 2 million barrels a day by 2020.

Last December, the Obama administration conducted its first offshore auction since the BP spill, granting leases for more than 20 million acres of federal waters – bigger than West Virginia. The leases are worth $330 million to the federal government and have the potential to produce 400 million barrels of oil. BP successfully bid for 11 of the 191 available drilling blocks.

Environmentalists challenged the auction of exploration rights, so far unsuccessfully, which precedes applications and approvals for actual drilling permits.

By the Obama administration’s accounting, 61 drilling permits for wells in more than 500 feet of water were granted in the 12 months ending Feb 27, only six fewer than were permitted in the same period in 2009 and 2010 before the BP explosion.

“The political discourse about energy has really changed over the last two years,” said an,  oil historian and author of “The Quest,” a book about energy security Daniel Yergin. Despite the BP accident, he added, “There’s a new focus on how US oil production should increase both onshore and offshore.” If there has been any disagreement, it has been over how fast to expand the drilling.

Rep Edward J Markey, D-Mass, said the Obama administration had put in place significantly tougher offshore drilling requirements, but they have been resisted by Republicans in the House, who have passed legislation to hasten review of drilling plans and open new areas to development.

“The Republicans and the oil industry are maintaining the speed-over-safety mentality that led to the BP disaster in the first place,” said Markey, who has been critical of the Obama administration’s response to the spill and to what he called a dangerous overuse of chemical dispersants in the gulf. “We now understand the lessons, but Republicans have blocked all new safety laws,” he said. “Not one has been put on the books.”

Republicans argue, loudly, that Obama is not doing nearly enough to expand drilling. The Republican majority in the House has passed legislation to speed lease sales on public lands while pressing to open the Atlantic and Pacific coasts – which have been largely politically untouchable since the Santa Barbara oil spill in 1969 – to extensive oil and gas development.

“This is a president who does not understand energy,” said the former governor of Massachusetts, Mitt Romney, while campaigning for the Republican presidential nomination last week in Fargo. “He is the problem. He is not the solution.”

The expansion of deepwater drilling is happening despite accidents in offshore fields, though none have compared to the BP spill. A well operated by Conoco Phillips and a Chinese state company leaked more than 3,200 barrels of oil and fluid into China’s Bohai Bay last June, producing a 324-square mile slick.

A comparable spill occurred in November from an appraisal well in Brazil’s Campos basin operated by Chevron. Federal investigators threatened fines and even prison terms for Chevron officials, but a federal judge declined to grant an injunction suspending Chevron’s Brazilian operations and those of the oil rig contractor, Transocean, which was the company that owned and operated the Deepwater Horizon.

Nevertheless, the Obama administration reached an agreement with the Mexican government to open a new tract to offshore drilling, some of it in water more than 6,000 feet deep, despite persistent questions about the strength of Mexican oil industry regulation.

Skeptics worry that a major accident in Mexican waters – like the 1979 blowout of the Ixtoc I well in the Bay of Campeche – could foul American shorelines and set back operations for years.