Energy Tomorrow Radio: Episode - 123 Economic Harm of Offshore Ban
Jane Van Ryan
Posted December 7, 2010
In today's episode, I interview Sara Banaszak, API's senior economist, about the administration's recent ban on offshore drilling and its impact on the economy, jobs and energy security.
Use the audio player below to listen to information about the ban and its impact and follow along with the show notes. I hope you find the podcast informative.
00:17 A few days ago, the Obama administration reversed a policy decision and made several U.S. offshore areas unavailable for oil and natural gas development. The Atlantic and Pacific coastal areas, as well as the eastern Gulf of Mexico, were placed off limits for at least seven years. API's Senior Economist, Sara Banaszak, is in the studio today to discuss this policy shift and to shed some light on the economic impacts of this decision.
00:49 Before we begin, perhaps we should explain the benefits of oil and natural gas development to our listeners. In addition to providing fuels and chemicals, there are some very significant benefits to our economy and our standard of living. Can you provide a quick overview from an economic perspective?
01:07 Ms. Banaszak: The economic impact of the oil and natural gas industry is about 7 percent of U.S. GDP. The investments made by this industry are tremendous. They amount to $1.7 trillion in capital investments since the year 2000 and include investments in renewables, biofuels and wind projects. The industry is also paying billions in direct payments to the government through leases, rents on those leases and royalty payments, as well as corporate income taxes. Overall, the industry is affecting a wide swath of our economy positively, providing direct revenues to the government and providing jobs for America.
02:04 How many U.S. jobs are supported by the U.S. oil and natural gas industry?
02:09 Ms. Banaszak: Today, 9.2 million American jobs are attributable to the oil and natural gas industry. Between 2004 and 2007, 2 million jobs were added. The wages in this industry are often higher than average. In fact, wages in exploration and production, or the upstream sector of the industry, are sometimes double the national average.
02:35 Very impressive. The administration's decision, however, puts a damper on the industry's growth and that in turn could have an adverse affect on the economy. Is that correct?
02:46 Ms. Banaszak: Yes, that is correct. If the government had proceeded with holding these lease sales and exploring and producing in these offshore areas, they could have been adding jobs almost immediately, and those jobs would have increased every year. By 2020, the industry could have created 57,000 additional jobs from this activity. Revenue flowing into the government by 2020 could have been as much as $3.8 billion. The industry would have added a tremendous amount of oil and natural gas production to our domestic supply. By 2030, the industry would have been producing as much as 900,000 barrels of oil per day and as much as 2.9 billion cubic feet of natural gas per day.
03:33 Considering the fact that the government has greatly reduced the areas where oil and natural gas can be produced, where exactly will Americans get their energy?
03:44 Ms. Banaszak: Our oil imports were building over the last 25 years, when we had a moratorium in place. Today, we are getting approximately 60 percent or more of our oil from imports. The number one supplier of oil imports has been Canada, which supplies our nation with oil from tar sands. We also get a lot of oil from Mexico and Venezuela, but a lot of oil also comes from the Middle East, including Saudi Arabia and other Persian Gulf countries and also from West Africa, such as Nigeria and Angola.
04:17 The fact that a lot of this oil and natural gas is coming from foreign countries and that their share could increase because we'll be producing less oil and natural gas here, what does this mean for U.S. jobs?
04:30 Ms. Banaszak: We're losing out on the opportunity for jobs. If we were producing that oil and natural gas here at home, we would be capturing those jobs and income benefits across the country. Instead we're going to be sending dollars overseas to import oil and natural gas. That will put downward pressure on the value of our dollar.
04:53 Millions of Americans are old enough to remember the last time world oil supplies disrupted due to instability. Doesn't reducing our energy security put all Americans at risk?
05:04 Ms. Banaszak: Yes, we're missing the opportunity to improve our energy security. We would like to produce more oil and natural gas here at home. This is really an opportunity to improve our energy security and we need it now more than ever. It's better than ever because we're coming out of this horrible recession, which has had an impact on everybody, but it has also put downward pressure on demand and oil prices. We have had a little bit of reprieve both in terms of demand pressures and price factors. That's why the opportunity is more important now because we're expecting global growth to pick back up and as that happens it's going to put upward pressure on oil prices and create competition for oil.
05:56 When the announcement was made, Interior Secretary Ken Salazar downplayed the impact of this decision to ban drilling in certain areas saying that the oil and natural gas industry already has leases on about 29 million acres elsewhere, but isn't producing energy there. How do you respond to that?
06:14 Ms. Banaszak: We can't produce oil and natural gas where these resources don't exist. The industry is paying the government for these leases, but it doesn't know which leases have oil and natural gas and which don't. Some of these leases don't have oil and natural gas and as soon as that's determined concretely, they are returned to the government. Some of these leases are under the exploration process. It takes several years to explore an area seismically and drill, if there's an opportunity to drill.
06:51 Secretary Salazar also said a few days ago that he will streamline the approval process for offshore wind farms along the Atlantic shoreline. What do you think of that?
07:02 Ms. Banaszak: We definitely need more wind-sourced electricity and more renewables in our energy mix, but there's no reason for this administration to deny Americans the benefit of producing both wind and offshore oil and natural gas. That wind electricity will be a very important part of the mix, but moving forward we're still going to need oil for our transportation needs.
07:32 As you've said, Sara, the decision to take so much of America's coastline off limits to oil and natural gas development seems to have come at exactly the wrong time from several perspectives. Right now we have about 15 million Americans standing in unemployment lines. The official unemployment rate just went up to 9.8 percent. If these areas, and all other promising energy-rich areas, were open to exploration and production, how many people might be employed? How would the economy be affected overall?
08:05 Ms. Banaszak: If we opened up all of these areas, we could be creating more than 160,000 additional American jobs. We could be significantly increasing our employment in the United States. We could be increasing our oil and natural gas production by 35 percent. We're actually the world's third largest oil producer, so if you added that additional 35 percent, that would be the same as all of the oil coming from the Persian Gulf--a fifth of our imports.
08:41 Thank you so much for providing some insight and helping to quantify the impact of the administration's decision on the offshore drilling ban.
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