Luthi: We Need a Bigger Pie and More Slices for Offshore Energy

Posted March 20, 2013 at 4:00am

During the 2012 presidential election, both President Barack Obama and Mitt Romney touted an all-of-the-above energy strategy as a path to energy independence and a stronger U.S. economy. It’s a wonderful notion, but for years political wrangling has created a legislative logjam that has blocked that path.

Fortunately, things appear to be changing. Several members of Congress and senators are considering legislation that has a chance to stimulate domestic energy production as well as the economies of a large number of U.S. states. Ideally, this eventual legislation will include both access to new offshore areas, such as the eastern Gulf of Mexico and the Atlantic Ocean, and a revised revenue sharing framework that would allow coastal states to share in more of the revenue generated by oil and natural gas development along with wind, tidal and wave generation in federal waters just off their coasts.

Currently, oil and gas companies compensate taxpayers in many ways for the right to lease federal waters, explore for resources and produce that energy. Companies pay an upfront cost to acquire the lease, as much as hundreds of millions of dollars, with no assurance that they will actually discover resources in economically viable quantities. They also pay regular rental fees on the lease and, if fortunate enough to make an economically viable discovery, pay nearly 19 percent of the value of those resources in royalties.

Ideas floating around on Capitol Hill would direct a portion of that revenue stream to the states where the production is taking place — currently Alaska, California, Texas, Louisiana, Mississippi and Alabama — while reserving the bulk for federal deficit reduction. That’s a great start, but any legislation also should include lease sales for new areas in the outer continental shelf (OCS), such as offshore Virginia, North Carolina, South Carolina and Georgia. In 2008, President George W. Bush and Congress lifted a decades-long moratorium on exploration and production in 85 percent of the OCS, but over the past five years the Obama administration has stubbornly refused to allow any exploration or production in those offshore areas. The Interior Department’s current OCS oil and gas leasing plan keeps that 85 percent closed even for consideration until at least 2017.

In addition, the president is recommending that the oil and gas industry pay for the Energy Security Trust. Where is the revenue going to come from? The current largesse from the payment of bonus bids, rents and royalties is all spoken for. The only possible source is to open up new areas to exploration and development.

Now is the time to reverse course. Congress should legislate increased OCS access and a reasonable revenue sharing formula. If this happens, not only would a larger number of states benefit from oil and natural gas production off their shores under the proposed revenue sharing legislation, but these states’ economies would reap the rewards. A recent Louisiana State University study shows that opening up offshore areas in the Atlantic, eastern Gulf and Pacific could generate $141 billion in increased economic activity, provide 625,000 new jobs, and create $35 billion in annual tax revenue for the states and $85 billion annually for the federal government.

We know that valuable oil and natural gas lie off the shores of our coastal states, but since we have been forbidden to look for more than a generation, we don’t know how vast or abundant these resources really are. We do know that the Gulf of Mexico has yielded more than five times the oil and natural gas we predicted it held just 20 years ago. The same might be true for other coastal areas, but we need to be able to explore them. If opening up more of the OCS to exploration and production is married with a new revenue sharing plan, coastal states could enjoy thousands of new jobs and reap significant revenue for those states. It would also be a huge step towards the goal of energy security, and that is something every American can get behind.

Randall Luthi is the president of the National Ocean Industry Association.