Document Type

Article

Publication Date

Winter 12-2015

Abstract

In 2013, the American Petroleum Institute and the National Ocean Industries Association, oil and gas industry groups, commissioned Quest Offshore Resources, Inc., to prepare a report (the Quest report) on the economic impacts of offshore drilling in the Atlantic. This report has been widely cited to make the case for opening the Southeast to oil and gas development based on significant local, state, and regional benefits from drilling.

The report, however, was based on an incomplete and misleading economic picture, which resulted in overstating the likely regional economic effects of offshore oil and gas exploration and development.

This summary identifies issues with the Quest report that lead to significant overestimates of the economic impacts of offshore drilling in the Atlantic and provides an overview of the existing ocean economy of the South Atlantic region in order to provide the context of the industries that could be vulnerable to disruptions from oil and gas activity.

For purposes of this assessment, the region of interest consists of Virginia, North Carolina, South Carolina, and Georgia and is designated as the “South Atlantic” region. In Department of the Interior planning, Virginia and North Carolina are included in the “Mid-Atlantic” planning region, while South Carolina and Georgia are in the “South Atlantic.” In this assessment, however, all four states will be referred to as falling within the South Atlantic region.

Key Findings

• The existing ocean economy in Virginia, North Carolina, South Carolina, and Georgia accounted for 249,000 jobs in 2012 and is thus larger than the Quest estimates for oil and gas employment in 2035, which as noted appear to be exaggerated.

• Employment in sectors that have been vulnerable to disruption from oil and gas development is significant in the region.

• The Quest report was prepared before the Department of the Interior released its leasing proposal in 2015, and is therefore based on scenarios that assume significantly more leasing in the near term than will actually be undertaken in the Department of Interior’s still preliminary plans.

– The report assumes that lease sales will be held annually beginning in 2018, but the Dept. of the Interior has proposed only one lease sale, to be held in 2021. – The report assumes that production will begin in 2026, but production would likely not begin until at least 2029 under the actual proposal.
– The report assumes that Atlantic drilling can take place in all federal waters, but the Department of the Interior is proposing to limit oil and gas activity to areas of the coasts of Virginia, North Carolina, South Carolina, and Georgia, and has proposed a 50-mile buffer from the coastline within which drilling would be prohibited.

• Employment estimates in the Quest report are likely exaggerated. It is unclear, for example, how much of the projected employment will be filled by residents outside the South Atlantic region.

• The Quest report fails to disclose key assumptions about the location of support activities such as equipment manufacturing and does not distinguish between oil- and gas-related economic activities taking place in the South Atlantic and those based outside the region.

• The Quest report examines the impacts if Atlantic coast states were to receive revenue sharing from the federal government, as Gulf of Mexico states do, but it fails to acknowledge the long history of difficulty of establishing revenue sharing in Congress.

Comments

One of the primary goals of the Center for the Blue Economy (CBE) is “to provide data and anal­ysis that becomes part of the policy conversation,” says CBE Director Jason Scorse. A policy reversal by the Obama Administration in spring of 2016 illustrated how relevant, timely data and research can have an impact on policy decisions. We believe this study had some bearing on President Obama's decision.

Opening the Atlantic to offshore drilling has been debated since the 1970s Arab oil embargo. An indus­try-commissioned 2013 report by Quest Offshore Resources estimated that offshore drilling could generate nearly 280,000 jobs and up to $23.5 billion a year in economic activity by 2035. A year later, Administration of­ficials released the first draft of a new five-year offshore development plan that proposed exploration and drilling leases off the southeast Atlantic Coast.

In 2015, the Southern Environ­mental Law Center asked the CBE to review the Quest study and describe economic activity that could be af­fected by offshore drilling. The CBE analysis identified flaws in the job es­timates and disputed Quest’s estimate of billions of dollars in revenue shar­ing for states. It pointed out that Con­gress has refused to share oil and gas royalties with states outside the Gulf of Mexico for the past 40 years, and that declining oil prices would signifi­cantly reduce exploratory activity, and therefore its economic impact, below Quest’s estimates. Using detailed eco­nomic data from the CBE-based Na­tional Ocean Economics Program, the new report also highlighted the poten­tial negative impact of an oil spill on a vibrant $15 billion a year ocean-based economy in a region built primarily on tourism and fisheries.

"It’s important for policy­makers at all levels to understand the bigger picture when it comes to ensur­ing a healthy, vital ocean and coastal economy."— Dr. Jason Scorse, director of the Center for the Blue Economy

In March of 2016, the Obama Administration re­leased its final five-year plan, which no longer includes opening the South Atlantic to offshore oil drilling. Sub­sequent media reports in the Wash­ington Post, Miami Herald, and sever­al newspapers in the Southeast cited the CBE report’s findings as a factor in federal officials’ abrupt reversal on offshore drilling. DailyKos noted that the CBE report found that elements of the Quest study touting the benefits of offshore drilling were “based on out­dated assumptions, including leases based on oil trading at $120 a barrel in 2018. It is currently trading below $40 a barrel. When projected economic benefits were weighed against po­tential damage, the CBE report found that the states where off-shore drilling would have been allowed might gain little to nothing.

“The data we uncovered spoke for itself—I’m just glad people in the Administration were listening,” says Scorse.

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