The U.S. energy reserves offshore are 101 billion barrels of oil, 480 trillion cubic feet of natural gas, enough oil to end all imports for 25 years, and the value of oil and gas to the U.S. Treasury in taxes and royalties from producers is a combined $4.5 trillion W. Jackson Coleman, Managing Partner of EnergyNorthAmerica, LLC, an energy consulting firm told the United States Senate Committee on the Judiciary concerning “The Risky Business of Big Oil: Have Recent Court Decisions and Liability Caps Encouraged Irresponsible Corporate Behavior?”
Offshore Oil and Gas and our National Debt
The approximate daily oil consumption in the United States is 20 million barrels, with about 60%, or 12 million barrels per day, imported. Our largest source of foreign oil is Canada, but the majority of our imported oil comes from other nations. Our yearly amount of imported oil totals more than 4.2 billion barrels. As of the time of the last Department of the Interior Offshore Oil and Gas National Assessment of offshore oil and gas resources in 2006, just over 14 billion barrels of oil had been produced from the federal offshore and more than 15 billion barrels of already discovered oil reserves were available to be produced.
Further, the National Assessment estimated that exploration and production activities in the federal offshore would, in the mean case, eventually produce an additional 86 billion barrels of currently undiscovered oil – assuming the offshore lands containing this oil are reasonably made available for leasing and production. These two amounts combine to an expected future production from the federal offshore of 101 billion barrels – sufficient to eliminate all oil imports by the United States, at current levels, for almost 25 years.
Similarly, the National Assessment estimated that just over 153 trillion cubic feet of natural gas have been produced from the federal offshore and that more than 60 trillion cubic feet of already discovered natural gas were available to be produced. Further, the National Assessment estimated that exploration and production activities in the federal offshore would, in the mean case, eventually produce an additional 420 trillion cubic feet of currently undiscovered natural gas – assuming the offshore lands containing the natural gas are reasonably made available for leasing and production.
These two amounts combine to an expected future production from the federal offshore of 480 trillion cubic feet of conventional natural gas – sufficient to totally provide for the United States’ current annual consumption of natural gas for more than 20 years.
One might ask, “What is the value of these reserves and resources to the American people?” This can be measured in many ways. The direct value of receipts to the Treasury from producing these reserves and resources, at $75/barrel of oil and $5 per thousand cubic feet of natural gas, is approximately $1.8 trillion dollars in royalties (assuming an 18% royalty) and $2.7 trillion in corporate income tax receipts from producers, for a total of $4.5 trillion.
This sum does not include any up-front sums paid to obtain the leases, nor the tax revenues derived from the jobs that will be created to directly produce these resources, nor the indirect and induced economic impacts of producing these American energy resources owned by the American people. Even without those additional benefits and others, the direct corporate taxes and oil and gas royalties will pay off more than one-third of our current national debt without raising taxes on the American people. However, these vast offshore resources will never pay off any of the national debt if they are not made available for leasing, drilling and production.
Additionally, it is important to note that these offshore resource numbers do not include natural gas hydrates which international public and private research has now proven will be able to be commercially produced in the near future. More than 99% of America’s 320,000 trillion cubic feet of natural gas hydrates are located in the deepwater federal offshore. If the deepwater offshore is closed to production, virtually this entire resource will be wasted and the American people will achieve neither the financial bounty nor the environmental benefit from this vast, clean energy resource that they own. If even only 1% of this resource is eventually producible, it would add 3,200 trillion cubic feet of natural gas.
In the Gulf of Mexico alone, the Department of the Interior projects that more than 7,000 trillion cubic feet of natural gas hydrates are located in sediments likely to be producible reservoirs. Production of this 1%, or 3,200 trillion cubic feet, of our natural gas hydrate resources would generate approximately $3 trillion in royalties and about $4.5 trillion in corporate income tax on this production from the lessees, for a total of approximately $7.5 trillion. When combined with the prior $4.5 trillion, a total of $12 trillion will result from production of offshore oil and natural gas, including natural gas hydrates.
This sum almost completely pays off the current national debt without raising taxes. Further, this amount could easily be 50 to 100 percent higher because it is based on decades old seismic surveys in moratoria areas which are expected to significantly underestimate recoverable resources.
As the Department of the Interior stated in its February 2006 OCS Inventory Report to Congress mandated by Section 357 of the Energy Policy Act of 2005, “True knowledge of the extent of oil and natural gas resources can only come through the actual drilling of wells. Estimating undiscovered resources, no matter how sophisticated the models and statistical techniques employed, is an inherently uncertain exercise that is based on hypotheses and assumptions, with the results limited by the quality of the underlying geologic data.” (emphasis added).
The Department also stated, “Frontier areas such as parts of the Eastern Gulf of Mexico and other offshore areas under congressional or executive withdrawal offer the potential of larger field-size discoveries . . . the risk-based estimates in frontier areas ordinarily will have been seen as far too conservative if later exploration demonstrates that the area is hydrocarbon-prone.”
Some have said that the oil and gas industry is trying to produce oil in water that is just too deep. First, the offshore drilling industry is capable of drilling in 12,000 feet of water and deeper, and that more than 80% of the oil production in the Gulf is from leases in more than 1,000 feet of water. Second, oil must be produced where it is found. According to the 2006 National Assessment, of the 45 billion barrels of oil left to be discovered in the Gulf of Mexico, all except 3.5 billion barrels, or 92% is located in water deeper than 650 feet.
The current 500 foot drilling moratoria in the Gulf of Mexico makes those 41.5 billion barrels unavailable for exploration and future production. Finally, we can all agree that the nation needs to continue to push the development of even better and safer technology and implement procedures that will help ensure that an accident of this type never happens again, and in the outside chance that it does that we have in place more aggressive and effective oil spill response mechanisms that shut down the well and clean it up much quicker.
Coleman also mentioned that the American people, even after more than six weeks of this record spill, continue to strongly support offshore oil and gas drilling. In late March before the accident, a Rasmussen poll reported that 72% of the American people supported producing oil and gas from the offshore.
On May 6th, after more than two weeks of spectacular television coverage of the explosion and spill, a Rasmussen poll reported that 58% of the American public still supported offshore oil and gas drilling, and only 23% opposed. Almost a month later, on June 1st, another Rasmussen poll reported that support for offshore oil and gas drilling remained at 58%, and only 20% opposed. The rest were undecided. So, it is clear to me that the American people have maintained strong support for offshore oil and gas production and they understand why it is so important for our nation.
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