Is it safe to expand offshore drilling in the Gulf?

Just over eight months after BP's massive oil spill, the debate over the future of offshore oil drilling in the Gulf escalated this week with new calls from industry to speed up drilling projects, and new evidence that lack of government oversight helped cause the disaster.

Earlier this week, The Wall Street Journal reported that even though the Obama administration had lifted its six-month moratorium on deepwater drilling, federal agencies were slow to issue permits for new wells:

[T]he delay is hurting big oil companies such as Chevron Corp. and Royal Dutch Shell PLC, which have billions of dollars in investments tied up in Gulf projects that are on hold and are paying hundreds of thousands of dollars a day for rigs that aren't allowed to drill. Smaller operators such as ATP Oil & Gas Corp., which have less flexibility to focus on projects in other regions, have been even harder hit.

The WSJ claims "the Gulf coast economy has been hit hard by the slowdown in drilling activity," supposedly threatening thousands of jobs and causing offshore oil production to fall 13 percent in 2010, according to Department of Energy estimates.

But in reality, how "hard hit" is the Gulf economy, especially the oil industry? As Facing South reported last September, the dire warnings of massive job losses from the drilling moratorium proved to be untrue (a fact the WSJ briefly acknowledges in their story this week). A dispatch by the New Orleans Times-Picayune at the time found that predictions of tens of thousands of lost jobs across the region have yet to materialize" and "there have been no reported layoffs" from the moratorium.

Indeed, the latest reports from the Louisiana Workforce Commission -- which last year appeared to have been pressured to go along with claims from politicians and energy companies of widespread job losses -- state that Louisiana employment levels are at their highest mark since April 2009 (12/17/10 report) and that unemployment levels have dropped in all metro areas across the state (12/21/10).

Meanwhile, a newly-disclosed chapter of the federal Oil Spill Commission's report on the Deepwater Horizon explosion and spill  -- in advance of the full report's release next week -- finds that there may be good reason to avoid rushing into new offshore drilling ventures.

In the 88-page portion of the report [pdf] -- one of the most in-depth analyses to date of the breakdowns that led to the April 20 disaster -- the Commission concludes that while "a number of separate risk factors, oversights, and outright mistakes" led to the tragedy, the overarching failures were systemic breakdowns in management and oversight:

The blowout was not the product of a series of aberrational decisions made by rogue industry or government officials that could not have been anticipated or expected to occur again. Rather, the root causes are systemic and, absent significant reform in both industry practices and government policies, might well recur.

The report details crucial procedural and safety shortcuts -- mostly made by BP, but also including Halliburton and Transocean -- that likely saved the companies time and money, but which have been implicated in the rig's catastrophic failure.

But the commission also blames the government for failing to provide adequate oversight, problems they say go beyond the former Minerals and Management Service's notoriously lax approach to regulation. According to the report,

Responsibilities for these [regulatory] shortfalls are best not assigned to MMS alone. The root cause can be better found by considering how efforts to expand regulatory oversight, tighten safety requirements, and provide funding to equip regulators with the resources, personnel, and training needed to be effective were either overtly resisted or not supported by industry, members of Congress, and several administrations. As a result, neither the regulations nor the regulators were asking the tough questions or requiring the demonstration of preparedness that could have avoided the Macondo disaster.

In one telling example, the report documents how a MMS official, after a phone call with BP, suspended a rule on the depth of the oil well's temporary abandonment plug, which caps the well when the company transitions from the initial drilling rig (in this case, Deepwater Horizon) to a smaller rig that actually extracts the oil. BP failed to provide evidence that putting its plug 2,000 feet deeper than regulations allow was safe, but the MMS official approved BP's request in 90 minutes.

Gulf Coast advocates fear that efforts to strengthen the weak regulatory culture surrounding offshore drilling may be undermined by the new Republican-led Congress, which is partnering with industry to challenge regulations enacted under the Obama administration.

Rep. Darryl Issa (R-Calif.), new chair of the House Oversight and Government Reform Committee, sent letters to 150 companies, trade associations and think tanks in December, asking for a list of key regulations to target in 2011.

As The Hill reported, the list is dominated by industry contacts, with energy interests generously represented, including:

* Brian D. Vanderbloemen, Director, Federal Government Affairs, Duke Energy Corp.
* Rex W. Tillerson, Chairman and CEO, ExxonMobil
* Gary Sheffer, Vice President, Communications and Public Affairs, General Electric
* Robert E. Murray, Chairman, President and CEO, Murray Energy Corp.
* Jacob Roche, Washington Representative, American Petroleum Institute

* Thomas R. Kuhn, President, Edison Electric Institute
* Joel Noyes, Director of Government Relations & Industry Affairs, Independent Petroleum Association of America
* Karen Bennett, Vice President of Environmental Affairs, National Mining Association
* Bev Marshall, Senior Vice President, Public Affairs, Duke Energy Corp.
* Charles Drevna, National Petrochemical and Refiners Association
* Bruce Steiner, American Coke and Coal Chemical Institute

As The Hill reports, Rep. Issa has received over $80,000 in campaign contributions from the groups on the list -- led by ExxonMobil, which had to shut down one of its offshore rigs in the Gulf of Mexico this week due to an oil leak.