Impact of new drilling plans on U.S. oil

The sun rises over an oil-soaked beach on Grand Isle, La.

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Kai Ryssdal: President Obama took to the East Room at the White House today for his press conference. He established his theme pretty early on.

President Barack Obama: The American people should know that from the moment this disaster began, the federal government has been in charge of the response effort. As far as I'm concerned, BP is responsible for this horrific disaster, and we will hold them fully accountable on behalf of the United States, as well as the people and communities victimized by this tragedy.

And then it was as simple as one...

Obama: We will suspend the planned exploration of two locations off the coast of Alaska.

Two...

Obama: We will cancel the pending lease sale in the Gulf of Mexico and the proposed lease sale off the coast of Virginia.

Three...

ObamaWe will continue the existing moratorium and suspend the issuance of new permits to drill new deepwater wells for six months.

And four...

Obama: We will suspend action on 33 deep water exploratory wells currently being drilled in the Gulf of Mexico.

With those as the new ground rules, then, at least for the time being, what of our domestic oil supply and the companies that drill for it?

Our Washington bureau chief John Dimsdale has more.


John Dimsdale: A moratorium on new deepwater wells won't be felt in the U.S. economy for a while.

Tom Wallin, the president of Energy Intelligence, says wells being drilled today are for domestic supplies several years down the road.

Tom Wallin: It casts a shadow on future U.S. oil supply out a year, two, three, four, five years from now. I think one of the things that's becoming very clear to the industry is that there's going to be a lot tougher regulation, there are going to be higher costs, there's going to be a lot more scrutiny, it's gonna take longer to get projects developed. It's going to cost more. All of these things are going to slow down supply.

A six-month shutdown should result in a production drop of 200,000 or 300,000 barrels a day by the year 2014, says Deutsche Bank energy analyst Adam Sieminski. That shortfall could easily be covered by additional imports, but it'll mean fewer American jobs and less income for the government.

Adam SieminskiGovernment gets about $3 billion a year in royalties and $9 billion a year in corporate taxes from developments in the deepwater.

As for the industry, analysts say global oil companies can weather the temporary slowdown in the U.S. But Shell Oil, which has been betting big on expanding production in the eastern Gulf of Mexico and on Alaska's North Slope, will be hit particularly hard by a moratorium. Shell had been hoping to start drilling in the Arctic this summer and had bet on Congress opening oil leases off the western coast of Florida.

David Knapp, with Global Oil Market Analysis, says that looks like a bad bet now.

David Knapp: The eastern Gulf of Mexico looked like it has some good prospectivity in terms of gas. And I think what the spill has done is the politics of that have taken that off the table, so companies that were very interested in developing that probably are going to have to rethink that.

If foreign sources of oil step into the breach, prices won't necessarily rise, at least in the short run.

In Washington, I'm John Dimsdale for Marketplace.

About the author

As head of Marketplace’s Washington, D.C. bureau, John Dimsdale provides insightful commentary on the intersection of government and money for the entire Marketplace portfolio.

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