The 2020 Mid-Year Economic Update_long

What the Latest Drilling Ban May Mean for Gulf Region

Those serving the oil and gas industry are watching closely to see how the Administration's latest ban plays out.

While federal courts have overturned the government's ban on deepwater drilling, a new ban has been issued that attempts to address the issues the court found with the original ban. Distributors and other providers that target the oil and gas industry in the Gulf of Mexico are watching closely to see how the latest moratorium plays out and what that may mean for their business.

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According to the Wall Street Journal, under the new ban, the Interior Department will undergo a process to gather information to identify conditions under which companies could resume deepwater drilling. In addition, the ban forbids drilling at any wells using subsea blowout preventers or surface blowout preventers on a floating facility. That means some shallow-water wells have been shut down, as well, due to uncertainty and confusion over the new policy.

While the administration says this latest ban is necessary to research how the BP disaster occurred and how it can be prevented in the future, the industry and those who serve it say the ban could have dire economic consequences in the long run.

I spoke with distributors and economists from the Gulf region for the recent premium article, The Ripple Effect of the Oil Spill.

Eric Smith, associate director of the Tulane Energy Institute in New Orleans, LA, told me that if a moratorium were to stay in place, it's possible companies would leave the Gulf of Mexico altogether. And, "once they leave, they don't come back" due to long-term contracts they will establish off the coast of Africa or Brazil. And though shallow-water drilling is still a part of the industry it is not the primary growth engine of oil and gas production in the Gulf. According to the Louisiana Mid-Continent Oil & Gas Association, in 2009 80 percent of the Gulf’s oil and 45 percent of its natural gas came from operations in deep water, defined in the association’s report as more than 1,000 feet of water.

While many people we spoke with said they understood concerns on both sides of the issue from a safety and environmental standpoint, they worry that government actions could make it more difficult for independents to continue doing business in the Gulf and will push away businesses that have other alternatives for drilling. That could mean a major economic shift for the region.

 

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