Are Gulf of Mexico vessel restrictions a boon for whales but a curse for America’s offshore oil & gas industry?

As energy accounts for a significant portion of the inflation brewing on the global horizon, many claim that domestic energy production, including oil and gas, is the key to overcoming challenges in these trying times. With this at the forefront, a new report warns that the implementation of restrictions on oil and gas vessels in the Gulf of Mexico has the potential to undermine U.S. energy security and hamper further economic growth. On the other hand, environmental activists argue that these restrictions will save endangered Gulf of Mexico whales from extinction, as oil and gas development and vessel strikes pose a threat to their survival. Are America’s energy security and economy really hanging in the balance?

In the wake of the global energy crisis, the U.S. along with the rest of the world is trying to come to grips with increasing inflation, which also hit Americans in the pocket. Many organizations and experts claim that oil and natural gas are still needed to strengthen energy security and meet the current and future demand for energy, as renewables are not ready to take over the reins from fossil fuels. This was confirmed by DNV’s new Energy Transition Outlook, which shows that the transformation to low-carbon and green sources of supply is still in the starting blocks with renewables meeting only half, or 51%, of new energy demand during the five-year period from 2017 to 2022 while fossil sources took care of the remaining 49%.

According to DNV, it will take the next 27 years to move the energy mix from the present 80% fossil and 20% non-fossil split to a 48/52 ratio by mid-century. However, the lion’s share of primary energy supply additions from 2025 onward is expected to come from non-fossil sources – primarily wind and solar – which will grow nine-fold and 17-fold, respectively, between 2022 and 2050. OPEC, which also says that fossil fuels will continue to be needed, forecasts the combined share of oil and gas in the energy mix to be 54% in 2045.

However, uncertainty seems to be looming over the further development of the oil and gas industry in the Gulf of Mexico. Recently, the National Marine Fisheries Service (NMFS) entered into a settlement with the plaintiffs – following a lawsuit related to various marine species – calling for the implementation of new restrictions on the transit of oil and gas vessels across the northern Gulf of Mexico on the Outer Continental Shelf (OCS), eastward from the Mexican border with Texas and westward of the Rice’s whale core area.

Previously, the American Petroleum Institute (API) said that the Stipulated Stay agreement in Sierra Club v. National Marine Fisheries Service imposed restrictions on an estimated 11 million acres in the U.S. Gulf of Mexico and proposed operating recommendations that would impose significant burdens on operators and increase emissions from vessels forced to operate at suboptimal speeds or idle outside the restriction areas. API also emphasized that adopting the nighttime and low visibility restrictions could cut transit windows approximately in half, requiring the industry to “balance the government’s recommended practices against safely and efficiently servicing ongoing operations.”

To further hammer home the risks this poses, a new analysis, titled ‘The Economic Impacts of Gulf of Mexico Oil and Natural Gas Vessel Transit Restrictions,’ has been commissioned by API and prepared by Energy & Industrial Advisory Partners (EIAP), outlining the potential consequences of new vessel restrictions on American oil and gas workers in the U.S. Gulf of Mexico. The study finds that these restrictions would have a major impact on jobs, industry investment, government revenue, and oil and natural gas production in the region. This is estimated to result in a nearly one-quarter decline, which is more than 500,000 barrels of oil equivalent per day, in energy production in the Gulf of Mexico by 2040.  

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According to API, the analysis was submitted to the National Marine Fisheries Service alongside joint comments from API, EnerGeo Alliance, Independent Petroleum Association of America (IPAA), and the National Ocean Industries Association (NOIA) in response to the agency’s proposal to designate Rice’s whale critical habitat in the Gulf of Mexico. Within the comments, the industry’s commitment to environmental stewardship and habitat conservation in the areas in which they operate is highlighted but these players argue that the proposal is not supported by the best available science, lacks a comprehensive evaluation of known economic costs, and fails to comply with the Endangered Species Act.

EIPS’s analysis found that the restrictions would greatly reduce the ability of oil and gas vessels to transit through the area, which would include all vessels transiting to deepwater, drilling and production platforms, essentially halting the vessels’ ability to pass through this area during certain sea state conditions as well as at night. These restrictions, which only apply to oil and natural gas industry vessels and not to other vessels transiting the area, would essentially reduce the capacity of the existing offshore oil and gas supply fleet, as the journey between shore and platforms would be extended.

“This reduction in transport capacity would reduce the ability to support exploration, drilling, development, and production operations, reducing the industry’s ability to explore for, develop and produce oil and natural gas. Given the Jones Act requirement that vessels transporting equipment from U.S. ports to offshore be Jones Act compliant (U.S. built, flagged, and crewed), overcoming these restrictions would take a significant amount of time, as well as putting strain on Gulf Coast ports, and the limited pool of U.S. mariners,” underlined the report.

The oil and gas industry provides jobs, supports gross domestic product, and boosts the U.S. government’s coffers through taxes. While the Gulf of Mexico oil and natural gas production is projected to be nearly 2.4 million barrels of oil equivalent per day in 2023, it is forecasted to average just under 2.6 million barrels of oil equivalent per day over the 2023 to 2040 forecast period. At the end of the forecast period, the production is estimated to be slightly over 2.1 million barrels of oil equivalent per day.

When it comes to the Gulf of Mexico oil and natural gas industry’s spending in 2023, this is projected at around $33.9 billion while the investment from 2023 to 2040 is predicted to average just over $28.9 billion per year. During this year, the offshore oil and natural gas industry is projected to support an estimated 412,000 jobs in the United States, compared to just over 354,000 jobs on average across the 2023-2040 forecast period.

Moreover, the industry is expected to support an estimated $34.3 billion of U.S. gross domestic product this year, compared to contributing an average of just over $29.6 billion of GDP per year over the 2023 to 2040 forecast period. The report outlines that the government revenues coming from the Gulf of Mexico oil and natural gas industry are projected to reach nearly $6.1 billion in 2023, but they are anticipated to average just over $7.3 billion per year over the 2023 to 2040 forecast period.

In addition, the Gulf of Mexico oil and natural gas-producing states are projected to receive $375 million of revenues due to revenue sharing under GOMESA in 2023, which is consistent across the forecast period due to caps on state distributions. Contributions to the LWCF from GOMESA and non-GOMESA offshore sources are projected to be just over $1.1 billion in 2023, which is consistent with the average across the 2023-2040 forecast period.

Holly Hopkins, API Vice President of Upstream Policy, commented: “Energy production in the U.S. Gulf of Mexico is critical for not only meeting current and future energy demand, but also for supporting conservation programs, driving state and local economies and helping the U.S. meet our emissions reduction goals. At a time when offshore production in nations around the world is needed, this proposal could increase reliance on foreign regimes for our energy and may compromise U.S. energy security.”

API further emphasizes that the energy production in the U.S. Gulf of Mexico generates nearly 15% of crude oil production and supplies among the lowest carbon-intensive barrels in the world while supporting thousands of American jobs along the Gulf Coast, generating billions in federal and state revenue and contributing significant funding for conservation efforts.

After API underlined in the motion for preliminary injunction on restrictions to Lease Sale 261 that there was insufficient information to warrant a far-reaching ban on vessel operations, EIAP’s analysis found that the recommended restrictions would severely impact the industry’s ability to supply the necessary materials to conduct oil and natural gas development in the Gulf.

“Restricting the ability of offshore oil and natural gas supply vessels to transit across the expanded Rice’s whale area would likely drastically reduce the capacity of the vessels required to support exploration, development, and production of offshore oil and natural gas projects. This change would likely have a severely negative immediate impact on Gulf of Mexico oil and natural gas development, spending supported employment and GDP, and government revenues,” underscored the report.

Based on the new analysis, if the vessel restrictions are implemented average oil and natural gas production is set to decline to just under 2 million barrels of oil equivalent per day, a 24% reduction from projected levels, between 2023-2040. In line with this, the average oil and natural gas industry employment supported by Gulf of Mexico activities is projected to fall by 13% to just under 310,000 jobs nationally.

Additionally, industry investment in the U.S. Gulf of Mexico is expected to decline by 14% from 2023-2040, as industry investment in the region declines by approximately $6.8 billion in 2024, which is a 19% reduction. The government revenue from oil and natural gas production is also forecasted to fall by 22% to $5.7 billion annually.

Taking these findings into account, API concludes that the Gulf of Mexico vessel restrictions will diminish energy security and hinder economic growth, as the offshore oil and natural gas industry not only plays a significant role in domestic energy production but is expected to continue to do so due to growing demand, despite the evolving energy landscape.

The items that the offshore oil and gas industry needs to explore for new resources, drill exploration and production wells, develop new projects, conduct production operations, vary and cover pipe, chemicals, drilling mud, food, fuel, and thousands of other commodities and pieces of equipment.

“Significantly restricting the movement of the vessels that transport these things is projected to have a major impact on the industry’s ability to supply the necessary materials to conduct offshore oil and natural gas development. This reduction in activity is projected to lead to reduced industry spending, supported employment and GDP, government revenues, and oil and natural gas production,” emphasized the report.

Earthjustice, which filed a lawsuit on behalf of the Sierra Club, the Center for Biological Diversity, Friends of the Earth, and Turtle Island Restoration Network, is adamant that fossil fuels are exacerbating the biodiversity crisis by causing pollution, planet-warming carbon emissions, and the destruction of critical habitats. While explaining that there are about 50 Gulf of Mexico whales left in the world, the nonprofit environmental law organization claims that oil and gas development is “the greatest danger to their survival.”

The Gulf of Mexico whale, also known as the Rice’s whale, is believed to live throughout the northern waters of the Gulf, stretching from Texas to Florida in waters 100-400 meters deep, with most frequent sightings about 60 miles off the coast of Florida. Unlike many whales, they do not make long-distance migrations but stay in Gulf waters year-round. Researchers confirmed in 2021 that this whale is a distinct species and one of the most endangered ones.

Following the Deepwater Horizon disaster, the federal government realized that it needed to reassess how continuing oil and gas development in the Gulf might affect the remaining Gulf of Mexico whales, however, Earthjustice points out that it took a decade and a lawsuit for the government to release the assessment. The NGO elaborates that progress was made in August, when the Biden administration reached a settlement agreement that included a three-step plan to better safeguard the Rice’s whale, pausing the lawsuit for 13 months.

In light of this, any leases issued in the Gulf during the litigation stay will require oil and gas industry vessels moving through the whales’ habitat to travel at no more than 10 knots (about 11.5 mph). Thanks to this settlement, BOEM will notify existing oil and gas leaseholders of the threat that vessels pose to the whales and remind anyone seeking a permit for fossil fuel development in the Gulf to avoid harming, killing, or harassing protected species.

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The settlement terms stipulate that the Bureau of Ocean Energy Management (BOEM) will exclude about 6 million acres of the Rice whale’s habitat from any oil and gas lease sales that occur while the lawsuit stay is in effect while requiring future oil and gas leaseholders to reduce the risks of vessel strikes to the whales. However, the Western District of Louisiana granted a preliminary injunction that removes the protections for the whale in the upcoming lease sale, adding back the 6 million acres, after API, Chevron, Shell, and the State of Louisiana sued to take back that portion.

“In August, the federal government gave the whales the most basic protections by removing about 6 million acres of their home territory from the upcoming Lease Sale 261 – the result of an interim agreement between the government, Earthjustice, and other environmental groups. The agreement left 67.3 million acres open for oil and gas exploration – yet oil companies went to court demanding to get access to the whales’ small portion too,” highlighted Earthjustice, which is in the process of appealing that decision.

As the groups, represented by Earthjustice, are fighting back and have appealed the ruling to the Fifth Circuit Court of Appeals, which recently delayed the sale until November 8, the court is expected to resolve the appeal on an expedited schedule before that date. The nonprofit environmental law organization further states that the long-term future of Rice’s whales and other Gulf species also depends on BOEM’s recently released five-year program for oil and gas leasing, which allows for up to three lease sales in the Gulf of Mexico by 2029.

The NGO further said: “While the Biden administration recently took some encouraging first steps to better protect whales by pausing oil and gas leasing in whale habitat and slowing oil-and-gas vessel traffic for Gulf of Mexico whales, these temporary actions lasting through Fall 2024 are not enough. If we’re going to save Rice’s whales, we need to first stop dropping more oil rigs and more ships in their habitat and making the problem worse. Continued oil and gas development in the Gulf represents a clear, existential threat to the whale’s survival and recovery.

“The BP Deepwater Horizon oil disaster alone wiped out nearly 20% of the whale’s population and government scientists have concluded that the loss of even a single reproductive female whale would jeopardize the existence of this species. Even day-to-day oil and gas operations negatively impact the habitat of these whales. Seismic air gun surveys create near-constant blasting sound across the northern Gulf as fossil fuel companies search for oil and gas deposits beneath the ocean.”

Earthjustice urges the government to develop and finalize emergency rules that would require vessels to slow down and take other measures to reduce the risk of a fatal collision when transiting the whales’ habitat, as these whales spend a lot of time hanging out within 50 feet of the water’s surface, which increases the risk from ship strikes. The NGO believes that continuing with business-as-usual seismic exploration or drilling in the northern Gulf threatens the species’ survival and chances of recovery. 

Meanwhile, the U.S. Energy Information Administration (EIA) expects global oil inventories to decline by almost a half million barrels per day in the second half of 2023, causing oil prices to rise over the remainder of the year. Oil production cuts from OPEC+ members, including Saudi Arabia’s recently announced extension of additional voluntary production cuts, contribute to the agency’s forecasts for decreasing supplies.

Joe DeCarolis, EIA Administrator, said: “We expect crude oil prices to rise as global oil inventories decrease through the end of this year. High oil prices combined with uncertain economic conditions could lessen global demand for petroleum products through 2024.”

Even as OPEC+ continues limiting oil production, EIA expects global production of liquid fuels to continue increasing in 2023 and 2024 due to production growth in non-OPEC+ countries. EIA forecasts that electricity generation from natural gas will account for about 42% of U.S. generation in 2023, an increase from 39% in 2022, as the result of relatively low prices for natural gas; the retirement of 10 gigawatts (GW) of coal-fired generating capacity this year; and 5 GW of new, highly efficient natural gas-turbine capacity entering service.

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Things are expected to change next year as EIA believes that natural gas-fired electricity generation will fall slightly to a 41% share in part because of increasing generating capacity from renewable sources, assuming 40 GW of solar and wind generating capacity will enter service next year, an increase of 16% from this year, leading to the share of electricity provided by renewables rising from 22% in 2023 to 25% in 2024.

OPEC+ members are predicted to decrease their crude oil production by 0.3 million barrels per day (b/d) in 2024 compared with this year while global oil inventories in EIA’s forecast fall by 0.2 million b/d in the second half of 2023 due to a voluntary production cut from Saudi Arabia and reduced production targets among OPEC+ countries keeping oil production below global oil consumption. As a result, upward pressure on crude oil prices is on the cards, with the Brent spot price increasing to an average of $95 per barrel in 2024.

The U.S. Energy Information Administration expects U.S. households that use natural gas or are in the West to spend less on heating costs this winter than last winter, as natural gas prices will be about 21% lower than last year. On the other hand, homes that use oil for heating will need to contend with somewhat higher heating expenses this winter.

The Natural Allies Leadership Council, including former Senator Mary Landrieu (D-LA), former Congressman Tim Ryan (D-OH), Kendrick Meek (D-FL), and former Philadelphia Mayor Michael Nutter, are in agreement that natural gas, in partnership with renewables, needs to be embraced to meet energy needs. This was urged strongly as the best option for the current energy woes after Germany decided to turn to coal plants amid the energy crisis.

The Natural Allies Leadership Council brought this point home further by saying: “Amidst the ongoing energy crisis in Europe, officials in Germany have decided to bring three mothballed coal plants back online. This is an example of what happens if you move too quickly, and not enough secure and reliable natural gas is available to meet the energy needs of a clean energy economy. It is only through a balanced and diverse approach – natural gas partnered with renewable energy – that we can both meet our energy needs and reduce carbon emissions.  

“The United States and its allies deserve great recognition for ramping up liquefied natural gas (LNG) to stabilize their energy situation amidst the Russian invasion of Ukraine. Europe and the United States should increase their efforts to connect renewables and natural gas, to provide not only a cost-effective, but a cleaner, lower emissions future for everyone.”   

This national coalition, raising awareness on why natural gas is best partnered with renewable energy like wind and solar as a pragmatic way forward to accelerate clean energy goals, urges further investment in domestic infrastructure that can move natural gas where it is needed both at home and abroad. Natural Allies see gas as “a low-carbon, low-cost, and highly reliable,” solution to the energy challenges the world is being forced to tackle.

While outlining its path to reducing global carbon emissions, Natural Allies underscores that utilizing natural gas, partnered with renewables, is “the most pragmatic solution to help us reach our climate goals affordably and reliably.”