Exploring New Oil Frontiers

18 April 2010 (Last Updated April 18th, 2010 18:30)

New legislation is opening up the US east coast to drilling, exploration and production. Ozge Ibrahim investigates how this will rapidly change the US exploration landscape forever.

Exploring New Oil Frontiers

In a speech to officials at an air force base at the end March 2010, President Barack Obama announced that he would be opening vast tracts of the US's coastline for oil and gas exploration. Obama made it clear that with resources running out it was becoming even harder to ensure energy security to the world's largest consumer. "We're going to need to harness traditional sources of fuel even as we ramp up production of new sources of renewable, home-grown energy," he said.

Following the announcement, US oil and gas companies revealed their plans to investigate previously unexplored areas. US major ConocoPhillips responded to the president's move by saying that it was forging ahead with plans to explore its drilling leases off the Alaskan coast, on which it had spent $506m two years ago. A company spokesman said that Obama's plan would allow it to proceed – a US Appeals Court ruling last year ordered an environmental review of the Chukchi Sea and the neighbouring Beaufort Sea areas in Alaska.

Anglo Dutch major Royal Dutch Shell was also quick off the mark. Just a few hours after the announcement, Shell announced its plans to start drilling in the Arctic Sea, north of Alaska, within weeks. Chief executive of Shell's North America business Marvin Odum said that Shell was "absolutely ready to drill in terms of infrastructure and manpower", and signalled that activity could begin within ten weeks.

"Ideally we would aim to drill two to three wells this summer in the Chukchi and Beaufort seas," he said, adding that the company wanted to make full use of the ice-free period in the Alaskan summer. BP, which is a key operator on Alaska's North Slope, has also welcomed Obama's decision saying it would evaluate opportunities for further exploration work as they arise.

"President Barack Obama will open vast tracts of the US's coastline for oil and gas exploration."

Industry observers have also welcomed the move, which many feel is long overdue. Managing director of Douglas Westwood energy business analysts Steven Kopits said, "The permitting of increased offshore drilling has symbolic importance as it suggests a more positive stance by the Obama administration towards the oil and gas sector, which has felt marginalised during the administration's first year.

"It also, for the first time, demonstrates the administration's awareness that energy policy extends beyond renewables, efficiency and climate," he added.

Environmental opposition

Climate and eco matters are however very high on the agenda of a lot of national and international groups that have campaigned to keep US waters off limits to oil and gas explorers for decades. While Obama's decision to allow offshore drilling has been welcomed by oil and gas producers, local and international environmental groups have been left angry at the reversal of policy designed to protect the area's wildlife and fragile eco-systems.

Greenpeace executive director Phil Pradford responded to Obama's decision by claiming the president's strategy was not moving with the times: "China and Germany are winning the clean energy race, while Obama has just staked our future and economy on an outdated fossil fuel that will take years to extract and will cause far more harm than good ... It's time to tell President Obama that we need to move forward into a clean energy future and away from ocean and climate destruction," he said.

But using fossil fuels and moving towards cleaner energies are inextricably connected, according to Kopits, who believes that drilling for oil and gas will also benefit the country's renewables industry, which is lagging behind that of its European counterparts. "Offshore oil exploration and production may have a beneficial effect on the fledgling offshore wind sector, which represents the primary renewable resource on the east coast. As companies serving the offshore oil and gas sector can also serve offshore wind projects, prospective costs for offshore wind could fall by billions of dollars in the region," he said.

A future rich in gas

Oil and gas producers and service companies gathering at Houston's Offshore Technology Conference (OTC) event in May 2010, will no doubt be talking about technology that can assess resources from the south Atlantic shelf, quantities of which remain largely unknown. The opportunities for increased employment will also be welcomed by national employers across the industry, which has been hit by The US's rapidly rising levels of unemployment following the global economic crisis.

Under Obama's proposals, oil companies will be able to explore off the Atlantic Coast from Delaware to Florida and 125 miles beyond Florida's shore in the eastern Gulf of Mexico. They will not therefore be able to drill on the west coast or New England.

"Under Obama's proposals, oil companies will be able to explore off the Atlantic Coast from Delaware to Florida."

The plan could, over time, give multinational energy companies access to the seabed along much of the eastern seaboard from Delaware to Florida, in eastern areas of the Gulf of Mexico and off the North Slope of Alaska. The sensitive Bristol Bay area, which includes Alaska's richest fishing grounds, will remain off limits for the time being.

The Gulf of Mexico is thought to contain up to 40 billion barrels of oil and up to 200 trillion cubic feet of natural gas, according to the Minerals Management Service.

It says as many as 63 billion barrels of oil and 294 trillion cubic feet of natural gas could lie within eight leases in the Arctic and Atlantic oceans set to be awarded between 2012 and 2017. It is this gas that will be the focus of much of the exploration activity, according to Kopits.

"The true test of the administration's commitment to improving the country's energy supply will come in the arena of natural gas. Innovations in gas shales may allow the US to both materially improve its energy independence and lower energy prices on an order of a magnitude greater than the best case scenarios for oil production from the southern Atlantic coast of the US," he said.

The OTC event will take place 3-6 May 2010 in Houston, Texas, US.