U.S. oil regulators may have swung from gung-ho to too cautious. Painfully slow drilling approvals mean America could be missing out on 230,000 jobs — and tax revenue, too. Safety matters. But with unemployment and the deficit top national concerns, red tape should be kept in check.
When President Barack Obama called a temporary halt to deep sea drilling after BP’sblowout in the Gulf of Mexico last year there were howls of protest from the oil industry. But the pause was necessary. The accident laid bare the cozy relationship between the industry and its watchdog along with alarming complacency at oil firms.
Since then, much has been done to make deep sea drilling less perilous. The regulatory structure is being restructured to eliminate a conflict of interest by splitting drilling approvals from revenue collection. Aspiring drillers also face higher safety standards. And oil companies have banded together to create two groups that pool technology and expertise to improve containment and minimize damage should there be spills in the future.
Yet the approval process is still painfully slow, with the median permit now taking over four months to clear against just one month before BP’s Macondo disaster. Even much safer shallow water permits have been put on go-slow.
This cumbersome approach is costly. Boosting domestic oil production will not lower gasoline prices, as some politicians have claimed, since the United States is a bit player in a huge global market. But the red tape is holding back employment — to the tune of 230,000 jobs in 2012, according to consultancy IHS. That’s meaningful given the entire U.S. economy added just 117,000 jobs in July.
The lack of new permits could also be suppressing U.S. production by about 400,000 barrels of oil a day, IHS reckons. This adds to the nation’s oil import bill but also means the cash-strapped Treasury is missing out on $12 billion in annual revenue.
Exxon Mobil’sdiscovery in June of a giant Gulf of Mexico well, containing about 700 million barrels of crude, is a reminder that the renaissance in U.S. offshore production has further to run. America’s new oil regulator needs to ensure its understandable zeal to eliminate risks doesn’t stifle oil’s economic potential.