If Offshore Opportunity knocks, will South Carolina be ready?
On July 18, 2014, the Bureau of Ocean Energy Management (BOEM), a division of the US Department of the Interior, announced that it was “setting a path forward” to allow for modern surveys of the Mid- and South Atlantic coast to update 40-year old data on offshore petroleum resources.1 This type of advanced seismic mapping will yield a far more accurate picture of offshore oil and natural gas reserves than what we currently have. The BOEM announcement could present significant opportunity for South Carolina, perhaps as soon as 2018.
A new study from the Interstate Policy Alliance (IPA) and Palmetto Promise Institute (PPI) titled Economic & Environmental Impacts of Oil and Gas Development Offshore the Delmarva, Carolinas, and Georgia concurs with previous studies which conclude that South Carolina is in a prime position to benefit from new oil and natural gas production in the South Atlantic Outer Continental Shelf (OCS).
The study also goes a step further, factoring in potential environmental impacts such as emissions, and the cost of spills or other environmental hazards, key considerations for our beautiful, tourism-rich coast. Authored by Dr. Timothy J. Considine, a specialist in economic forecasting in the area of energy exploration, the study accounts for the current uncertainty (pending new seismic mapping) of the volume of energy resources present in the OCS by making outcome projections for low, medium and high production scenarios.
Balancing these economic and environmental considerations, the study concludes South Carolina could be the second biggest beneficiary of an Atlantic-based energy boom.3
Map produced with 1980's technology
Map produced with modern seismic technology
Capital Investment and Jobs for South Carolina
Investment in offshore oil and gas development in South Carolina would be both direct and indirect. Direct investments would include the purchasing of capital equipment, engineering services, construction services, and other services from nationwide, state and local companies. Those companies would then stimulate indirect investments down the supply line. These investments would create employment and income for households which would in turn mean more spent on more goods and services for local merchants.4
South Carolina, with its growing high-tech manufacturing sector, is well-positioned to become a player in the oilfield equipment manufacturing industry. South Carolina ports are also uniquely poised to benefit, with key roles for both Georgetown and Charleston in an energy-driven economy.5
Figure A: In terms of capital investment, the study predicts from $490 million to $2.7 billion annually at peak production in 2035.
Figure B: Jobs created range from 8,214 to 45,714 in 2035.
Revenues Generated for South Carolina
The state government of South Carolina is projected to see a windfall as well. These revenues would come in the form of oil and gas lease and royalty payments, particularly after production gets underway after 2030. A substantial state and local tax stream would also be generated.
At high output, and assuming a decade or so of production, the State of South Carolina would be earning over a billion dollars in mineral lease payments and royalties plus $163 million in taxes in 2035.
Carbon and Accidents
As stated earlier, the IPA/PPI study offers an innovation over previous studies in that it accounts for social costs as well. Higher greenhouse gas emissions could come with the increased supply (and lower prices) represented by this new cache of energy resources. There is also the potential for environmental damage due to spillage and other accidents. All of these externalities are included in the model.
Summary and Conclusion
A recent survey of South Carolinians indicates that 77% of our citizens support offshore energy exploration.3 Much of our Congressional Delegation and Governor Nikki Haley are also supportive. The Obama Administration’s Department of the Interior is poised to open up the lease process. State and local leaders are asking whether offshore drilling would be a good move for South Carolina, and the energy industry is seeking to determine if exploration would be profitable for their shareholders.
The IPA/PPI study released this week shows that even with the uncertainty of unseen resources and the potential for carbon emissions and accidents, seismic testing off South Carolina’s coast makes sense due to incremental value added. The combination of these positive and negative factors is represented by Figure G, which shows that even with high production, the ratio of benefits to costs is 2:1.
Frequently Asked Questions
Why is new energy exploration important?
While America is producing more and importing less oil and natural gas that in years past, with major problems in Russia, South America and violent unrest in the Middle East, we are still far too dependent on foreign oil.Meanwhile, we are ignoring 87% of be truly energy independent, we must maximize the areas of exploration to improve the odds of finding secure resources.6
Won’t oil rigs be visible from our beaches, affecting tourism?
No, oil rigs would be well beyond sight lines from the beach — 50-100 miles offshore. South Carolina’s scenic beauty would be preserved intact, with major onshore infrastructure centering around existing development, such as our ports.
What about the danger of a spill like the Deepwater Horizon disaster?
While environmental risk is never entirely out of the question, a Deepwater Horizon-type incident is highly unlikely. In addition to continuing improvements in technology since then, the Deepwater Horizon rig operated 5,000 feet below the surface. This is a far different environment than South Carolina where operations would be in much shallower waters. This, along with vast coastline, is why South Carolina is in such a favorable position. The Considine analysis finds the likelihood of environmental damage unlikely and well worth any potential risk in his formal cost/benefit analysis.
Some experts say there isn’t any oil off the coast of South Carolina, so is mapping a waste of time?
Many of the same arguments were made about the presence of oil in the Gulf, and those estimates were off by a factor of 5:1 (9 billion barrels projected vs 45 billion actual). Dr. James Knapp,a Professor in the Department of Earth & Ocean Sciences at the University of South Carolina testified before Congress that estimates he has seen on South Atlantic oil and gas from Quest Offshore Resources4 appear to be very conservative (low).5
Will the researchers be using “sonic cannons” that might injure wildlife?
Researchers use air guns (nefariously dubbed “sonic cannons” by environmental activists) to produce sound waves that reach the ocean floor that scientists can then use to map the size and location of resources. There is no evidence that seismic instruments have injured animals and in fact, sea life seems to avoid an area during these seismic tests. Research vessels also follow strict safety protocols, sending out less powerful signals before actual seismic tests begin in order to warn away dolphins, whales and the like.
Shouldn’t we invest in “greener” resources like wind and solar?
Yes and no. While the key to energy independence and a thriving environment is a diverse energy portfolio, alternative energy sources are far from ready to sustain the entire American economy and our way of life. Oil, natural gas, coal, wind, biomass, nuclear and other energy sources are all essential to an “all of the above” strategy that meets our energy needs and strengthens our national security.
Are state and local prerogatives protected during the lease sale process?
Yes, under current law, both the Outer Continental Shelf Lands Act and the Coastal Zone Management Act require input and consultation from state, local and military officials and other interested parties or stakeholders. The Department of the Interior closely coordinates with state and local governments throughout every stage of the leasing process, from planning to exploration and production. In fact, the Bureau of Ocean Energy Management recently reached out to South Carolina and other coastal states to gauge interest and concerns prior to formulating the next offshore energy leasing plan.
“BOEM Issues Record of Decision for Environmental Review of Geological and Geophysical Survey Activities Off the Atlantic Coast,” Bureau of Ocean Energy Management,” July 18, 2014, accessed September 15, 2014.
Considine, Timothy.“Economic & Environmental Impacts of Oil and Gas Development Offshore the Delmarva, Carolinas, and Georgia.” September 2014. http://tinyurl.com/OffshoreOpportunity
“Boom or Bust: Offshore Liquid Gold Rush,” Nathaniel Cary, The Greenville News, August 25, 2015, accessed September 15, 2014
“The Economic Benefits of Increasing U.S. Access to Offshore Oil and Natural Gas Resources in the Atlantic,” QUEST Offshore, December 2013, accessed September 15, 2014
“The Science Behind Discovery: Seismic Exploration and the Future of the Atlantic OCS,”House Committee on Natural Resources Subcommittee on Energy and Mineral Resources, Testimony of Dr. James H. Knapp,Professor of Earth & Ocean Sciences, University of South Carolina, January 10, 2014, accessed September 15, 2014.
“Energy in Charts 2013,” American Petroleum Institute, accessed September 15, 2014.