Center for Environmental Stewardship Thomas Jefferson Institute for Public Policy

Center for Environmental Stewardship

Thomas Jefferson Institute for Public Policy

Virginia Off-Shore Oil and Gas ~ Fact and Fiction

April 2009



• Governor Kaine (D) and all three Democrat gubernatorial candidates oppose or seek to delay exploration off the Virginia coast.

• Attorney General Bob McDonnell and Lieutenant Governor Bolling, in separate letters to Interior Secretary Salazar explained why it is in the interest of Virginia and the United States to maintain the current exploration schedule.

• Sixty-three percent (63%) of adults now say finding new sources of energy is more important than reducing the amount of energy Americans currently consume.

• Just one-out-of-three voters (34%) now believe global warming is caused by human activity.

Off-shore development is both a political and scientific issue



As of March, 2009:

• Over 70 percent of all citizens endorse offshore drilling

• 74% Men ▪ 76% of White voters • 77% Women ▪ 66% of African-American

voters ▪ 60% of Hispanic voters

• Support for off-shore drilling is constant among all income groups:

• 74% of those earning under $40,000/year• 67% of those earning $40-80,000/year • 72% of those earning $80-100,000/year • 65% of those earning over $100,000/year

All Sectors of the Public Support Off-shore Development



The U.S. imports about one-third of its petroleum-based energy.

Virginia imports virtually all petroleum products with nearly half (49%) coming from non-U.S. sources.

The majority of petroleum-related consumption (61% by volume) is as gasoline.

To meet 2007 requirements, Virginia could be self-sufficient if it produced approximately 206 milllion barrels of crude oil each year, or the equivalent from coal resources.

Virginia coal or off-shore reserves can meet this need for over 100 years for $50 per barrel (coal) or less (crude oil).

Virginia’s Petroleum Needs



Estimates of Crude Oil Reserves vary Widely

The Federal Estimate

The Federal government has estimated that Lease Sale 220 could contain 130 million barrels of oil.

This would supply Virginia’s needs for 7.5 months.

They caveat this estimate as based on 1970’s data and badly out of date.




Oil company Estimates

Oil companies have made their own estimates which they have not made public.

Their representatives have, however, suggested that the recent reestimation of reserves done on Georges Bank and on the Scotian Shelf east of Nova Scotia provides a metric for a better estimate of the reserves in the Sale 220 area.



A more likely estimate

Updating the U.S. Federal estimates, using the Canadian metric, the reserves off the Virginia coast may likely be 924 million barrels, perhaps as much as 7 billion barrels.

7 billion barrels would supply Virginia’s needs for more than 50 years.

A 7 billion barrel estimate is no more certain than the Federal estimate based on 1970-era data and represents a likely upper bound.




The potential oil productivity from Lease Sale 220 will be best measured by gauging the level of interest oil drilling companies show in purchasing the leases.

Until there is additional test drilling, the expected oil and gas reserves off Virginia’s shores is simply unknown.

Using current offshore drilling technology, producers would need approximately three oil platforms to produce 206 million barrels per year, the current Virginia crude oil consumption.

The Reality of Estimating Off-Shore Oil Reserves



Virginia’s Natural Gas Needs and Reserves

The U.S. imports slightly more than one-quarter of its natural gas energy.

Virginia imports 66 percent of its natural gas production.

The Federal government has estimated that Lease

Sale 220 could contain 1.14 trillion cubic feet of natural gas.

This reserve, alone, would supply Virginia’s needs

for 3.6 years. They caveat this estimate as based on 1970’s data and badly out of date.



Two alternative estimates on natural gas reserves place the productive capacity of off-shore resources at much higher levels.

Applying the Canadian metric, the reserves off the entire Virginia coast may likely be 36 trillion cf, nearly 32 times greater than the federal estimate for Sale 220 and equal to Virginia’s needs over 100 years. The Center for Environmental Stewardship believes this is a high-end estimate.

Although we estimate 36 trillion cubic feet as a high-end estimate, others have suggested that the reserves may be only as large as 30 trillion cubic feet.

Virginia’s Natural Gas Needs and Reserves



Time to Production

The Department of Interior announced in July, 2008, a new 5 year plan that will allow leasing to start in 2010, implying production from currently unleased areas could begin as early as 2015.

The Department has indicated it will complete the bidding process but it remains to be seen whether the new Administration will allow actual sales.

The Department of Interior would like to develop a “comprehensive” strategy for the eastern coastal waters and may delay actual production on this basis.



The current MMS Lease Sale 220 includes a request for comment on environmental risks. Additional environmental studies would have to be made prior to construction of drilling rigs.

An Independent Scientific Review of offshore oil production in Australia found that environmental impacts from offshore exploration and production are negligible.

The U.S. National Academy of Science reports:

“New estimates indicate that the overall amount of petroleum released to the marine environment may be lower than earlier thought . . . . Spillage from vessels in North American waters from 1990 to 1999 was less than one-third of the spillage during the prior decade, and, despite increased production, reductions in releases during oil and gas exploration and production have been dramatic as well.”

Environmental Implications



State Revenue Potential

States receive 27 percent of the revenue collected from offshore oil and gas activity within a band that is 3 to 6 miles off their shore, as specified in section 8(g) of the OCS Lands Act.

In 2008, states received a national total of about $64 million in royalties for off-shore production.

Assuming maximum off-shore production (highest high-end estimates of 36 trillion cf over 50 years), Virginia would receive $66.7 million/year.

Some individuals have suggested a 30 trillion cf level of production would generate $200 million/year. This royalty estimate does not seem credible.



Conclusions

Virginia has considerable off-shore energy resources.

They constitute an important part of an “energy independence” policy that would result in lower energy costs, more Virginia jobs and less reliance on foreign powers.

Estimates of potential revenue to the Commonwealth are likely over-estimated by a significant amount.

Development of off-shore resources is environmentally safe and is supported by a very large majority of voters.

Documents

Center for Environmental Stewardship Thomas Jefferson Institute for Public Policy