By Jim Noe
With the confirmation of Sally Jewell as the new Secretary of the Interior, it’s a good time to take a fresh look at our nation’s goals for the production and consumption of energy – and talk about the best approach to reach them.
For the first time in generations, we have arrived at the threshold of achieving, in the best case, something close to energy independence – and, even in the worst case, to sharply cutting imports from unstable or even unsavory overseas suppliers.
President Obama made a number of encouraging remarks in favor of bolstering energy exploration and production during campaign 2012. Yet, just as consistently, his energy policies have flagged when it comes to the offshore – a critical lapse given that 28% of our nation’s fossil-fuel output flows from the Gulf of Mexico alone.
As a former CEO of REI, Sally Jewell presents a chance to move past the contradictions between rhetoric and reality. Hopefully, her combination of business acumen and industry experience will drive her to focus on increasing U.S. energy output in earnest, in part by creating a more clear and dependable business environment that attracts investment in exploring for oil and gas in the Gulf.
This is critical because the production boon from recent discoveries on private lands onshore has masked significant downward trends. Gulf oil production declined roughly 25% between 2010 and 2012, and output on U.S. federal lands overall dropped seven percent from 2007 to 2012.
Output from the Gulf – our country’s most productive basin – creates ripple effects across the economy. The natural gas liquids alone that are produced along the Gulf shelf are a key ingredient for everything from gasoline to inputs for the resurgent U.S. chemical industry. We simply won’t advance the energy independence ball if we turn a blind eye to the missed potential offshore.
As Secretary Jewell is sure to recognize, the offshore industry’s vitality depends as much on the effectiveness of Interior’s regulatory regime as it does on market dynamics. How do we strengthen offshore production and speed our country’s path toward energy independence?
While the flow of permits for offshore operations has increased, the timing and outcome of approvals still lacks predictability. Companies managing multi-million dollar investments must have confidence that they are operating in an environment where the rules of the road are clear and aren’t subject to constant and unpredictable change.
To arrive at that point, it’s high time to finalize and streamline the still expanding quilt of rules and regulations that makes up the offshore oversight regime. A slew of new regulations has come out since the 2010 Macondo blowout, with more yet on the horizon or still on the drawing board. The industry has a strong interest in complying with commonsense rules of the road that help bolster the safe production of oil and gas, but regulators must consider the effect of this continuing uncertainty on companies trying their best to carry out their work.
Secretary Jewell must also think through the role of the new Bureau of Safety and Environmental Enforcement, including its new Investigations and Review Unit. This group must be adequately staffed and clear on its mission. Ramping up the issuance of Incidents of Non-Compliance (INCs) for often trivial infractions is no substitute for technically substantive oversight. Policing the mundane only distracts from what’s really important: what’s going on at the drill floor and in the well.
Finally, regulations in entirely different arenas can affect companies’ ability to deliver the product that the U.S. economy demands. The specter of an amorphous National Ocean Policy with a sweeping regulatory reach threatens to undermine confidence in future Gulf operations. Secretary Jewell must keep a careful eye on the implications of broad regulatory initiatives from other quarters lest regulatory creep dampen our energy future.
The new Secretary has an unprecedented opportunity to help guide the country toward U.S. energy independence. Creating an efficient oversight regime that ensures safe and responsible production while harnessing the potential of our nation’s largest resource basin would be a good way to start.
Jim Noe is Executive Vice President of Houston-based Hercules Offshore and Executive Director of the Shallow Water Energy Security Coalition, an advocacy group comprised of shallow-water exploration and development companies, drilling contractors and service companies.