The current federally imposed moratorium on deepwater drilling in the Gulf of Mexico is supposed to expire November 30, if not sooner. But look for the moratorium on activity to last longer, and go through three more phases, John Hofmeister told a Houston audience September 20. "Phase 2 begins when the moratorium is lifted [beginning December 1]. This is the period of significant uncertainty and ambiguity as companies try to understand and meet the new regulations, all while the old MMS is being reorganized throughout 2011," said Hofmeister, the founder of Citizens for Affordable Energy, and author of "Why We Hate the Oil Companies: Straight Talk from an Energy Insider." He said there will no doubt be delays in both shallow and deepwater well permitting as the government and the operators try to figure out what the new regs require for full compliance, in terms of additional paperwork, inspections and new equipment. "Phase 3 is when the first permits are granted under the new specs. NGOs [non-governmental organizations] who are anti-drilling will file lawsuits against the Department of the Interior, much like they already do in the Rockies, to prevent well permits from going forward. The aftermath of the Macondo spill has led these people to believe the government has proved that it is unsafe to drill offshore." This phase could last to mid-2012. "Phase 4 kicks in in June or July 2012, when your old wells in the Gulf of Mexico start to play out, and without enough new drilling to replace them, we see a 1- or 1.5-million-barrel drop in U.S. production. What happens when global demand is expected to go up by then, to 90- or 92 million barrels a day, yet world production is only 83 million, aggravated by this decline in U.S. production? "The crude price rises. You get $125-$150 oil. What happens to gasoline? You get north of $4 a gallon. What else happens in the summer of 2012? You get a presidential election campaign. Phase 4 of the moratorium is the end of the Obama administration." Hofmeister said the BP incident put the president in a no-win situation. The Department of the Interior did not recommend the moratorium, political advisors to the White House did, to appease East Coast and West Coast opponents of offshore drilling. "And think about it--that is where most of the votes are." --Leslie Haines, editor-in-chief, Oil and Gas Investor
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