New Rules Expected to Curtail Gulf Oil Production

Published May 24, 2016

The Obama administration finalized new rules it says will improve drilling safety in the Gulf of Mexico, but some experts are saying the regulations will undermine safety.

The Interior Department, which is responsible for licensing and regulating oil and gas production on the U.S. outer-continental shelf, unveiled the sweeping new regulations on April 14, 2016.

The centerpiece of the new regulations is a plan to monitor the safety of offshore wells. Under the regulations, monitoring of well safety would shift from being located on-site—at the offshore drilling platform—to being stationed at onshore electronic observation centers.

The regulations also strictly control the types and amounts of fluids pumped into wells, require redundant safety devices, increase the frequency of inspections of critical emergency equipment—known as blowout preventers—and require offshore operators to take steps to center pipes inside wells when pumping cement into them.

Failure of blowout preventers to halt a sudden rush of oil and gas has been cited as one of the chief contributors to the April 2010 BP Deepwater Horizon oil spill disaster.

The new regulations give offshore operators up to seven years to retrofit undersea blowout preventers with pipe-centering technology. Officials at the Interior Department’s Bureau of Safety and Environmental Enforcement say the new rules will reduce the risk of accidents in the future.

“These regulations are among the most significant safety and environmental protection reforms the department has launched,” Interior Secretary Sally Jewell said in a conference call, according to Bloomberg. “The final well-control rule seeks to better protect human lives and the environment from offshore oil spills by comprehensively addressing the full range of systems and processes involved in well-control operation.”

Regulations ‘Undermine Safety’

Oil and gas industry officials say the regulations will undermine safety at drilling sites.

“This rule will likely jeopardize the safety of offshore operations,” said Lori LeBlanc, executive director of the Gulf Economic Survival Team, a Louisiana based-business group, according to Bloomberg.

Exxon Mobil claims there are a number of reasons to be concerned about the new regulations, which it says will increase the risk of accidents. For instance, Exxon claims rock formations cannot handle the volume of fluids the regulations require. It also says the rules will raise the risk of dangerous air pockets and cracks as a result of the requirement to pour cement around the lining of steel pipes used in wells.

Exxon says a new mandate that shifts the primary responsibility for monitoring offshore wells from on-site engineers to onshore electronic observers could delay the discovery of problems and response times. 

Rules Cause Production Decline

Aside from safety, industry experts say the new rules could result in lost jobs and lost production. While the Interior Department pegged the cost of the new rules at $890 million over the next 10 years, Exxon estimates the rules could cost as much as $25 billion, and the American Petroleum Institute says costs could top $31.8 billion over the next decade.

The new regulations come at a difficult time for the oil and gas industry. ConocoPhillips and Chevron have already abandoned some drilling prospects in the Gulf of Mexico because they wouldn’t be profitable at current prices. Consulting firm Wood Mackenzie predicts the new rules would result in a 70 percent decline in energy exploration over the next 20 years and a loss of as many as 190,000 jobs.

“As bad as current market conditions have been for onshore oil producers, low oil prices have resulted in even greater cutbacks in capital spending for offshore oil producers,” said Isaac Orr, research fellow at The Heartland Institute, which publishes Environment & Climate News. “Billions of dollars they would have spent on offshore wells are now being tabled until prices recover, and these regulations will make it harder for offshore production to reach its potential.”

Dan Simmons, vice president for policy at the Institute for Energy Research, says the rules are not really aimed at offshore oil production. Instead, Simmons says they are part of President Barack Obama’s larger strategy to end fossil-fuel use.

“These rules are not designed to improve safety, but [they are designed] to reduce domestic energy production by dramatically driving up the cost of production in the United States,” Simmons said. “The Obama administration is working hard to make the production of oil, natural gas, and coal more expensive, and this is one more example of that effort.”

Bonner R. Cohen, Ph.D. ([email protected]) is a senior fellow at the National Center for Public Policy Research.