Virginia, Ground Zero in Atlantic Drilling Debate, to Learn Its Fate Soon

Photo: Shutterstock/claffra
Photo: Shutterstock/claffra

By Jennifer A. Dlouhy

(Bloomberg) — From the shores of Savannah, Georgia, to the Beaufort, North Carolina beachfront, coastal communities in conservative southern states have locked arms in opposition to oil and gas drilling in the Atlantic waters lapping their shores.

A different story is playing out in Virginia, where Democratic Governor Terry McAuliffe and both Democratic U.S. senators support nearby drilling which they say could deliver jobs, new business, and money to the state.

“Virginia is the battleground state,” said Athan Manuel, director of the lands protection program at the Sierra Club.

The Obama administration opened the door to a new generation of offshore drilling along the East Coast in 2015, when it released a draft plan for selling oil and gas leases in 104 million acres of the mid- and south-Atlantic. Now, as the administration prepares to release the next version of its 2017-2022 leasing proposal, the penultimate step before finalizing it later this year, a big question is whether Virginia’s coastline will remain up for grabs.

The answer could come as soon as this week.

The stakes are huge for Royal Dutch Shell Plc, BP Plc, Anadarko Petroleum Corp. and other companies whose U.S. offshore activity is largely confined to the Gulf of Mexico. The Interior Department has estimated that 3.3 billion barrels of oil and 31.3 trillion cubic feet of natural gas could be recovered from the Atlantic outer continental shelf, based on data from the 1970s and 1980s, when energy companies drilled 51 wells off the U.S. East Coast.

Stoked Passions

The drilling debate has stoked passions from the coastline to the campaign stump as Hillary Clinton and Vermont Senator Bernie Sanders vie for the Democratic presidential nomination. Sanders has promised to block all offshore oil and gas development. Clinton told environmental activists she was “against drilling off the Atlantic” during an event last month in Norfolk.

Virginia’s politics complicate the issue for the Interior Department’s Bureau of Ocean Energy Management, which is developing the five-year plan. Senators Mark Warner and Tim Kaine have been mentioned, along with McAuliffe, as possible running mates for Clinton. And the state often plays a decisive role in federal elections.

The counterintuitive support of top Virginia Democrats and the opposition of conservative southern towns “is definitely a quandary,” said Claire Douglass, a campaign director with the conservation group Oceana. “In Congress, most Democrats are opposed to drilling and most Republicans are for it. So you have this huge split. But Obama is a Democrat, and he proposed drilling in the Atlantic.”

Public Awareness

The issue is complex even before politics are added to the mix. In weighing what waters to lease, the government is required to consider an array of factors, including the interests of oil and gas producers, the goals of affected states, and the proximity of energy markets.

“There has been a huge public awareness of this proposal and an incredible amount of community engagement — both folks saying ’yes, yes, yes, keep it in’ and ’no, no, no, keep it out,’” Bureau of Ocean Energy Management director Abigail Ross Hopper said in an interview. Although it’s not the only variable, “certainly that level of interest is something we balance as we decide what the next step will be.”

Atlantic oil and gas could help fuel the world and shouldn’t be ruled out, said Erik Milito, director of upstream and industry operations for the American Petroleum Institute. “We have to make sure we’re not foreclosing opportunities.”

Drilling Blueprint

“This comes down to energy security and national security — and understanding we need oil and gas for decades to come,” Milito said.

While most U.S. waters are technically open for oil and gas development, the activity can only take place on tracts sold under the government’s leasing plan, which takes years to assemble. Lease sales that are included can still be canceled later, but once territory is ruled out, it can’t get back in.

The legal process for designing the drilling blueprint is similar to a funnel, with the number of potential auctions and available acreage winnowed down as regulators move from an initial draft, to a proposal, and ultimately to the final program.

Shrunken Acreage

Environmentalists expect the Obama administration to shrink the Atlantic acreage up for grabs in response to the uprising from coastal communities. One possibility would be to shed southern Atlantic waters near Georgia and the Carolinas while leaving territory near Virginia in the plan.

“What we’re seeing is more than anyone in the administration expected,” said Alexandra Adams, a senior advocate for the oceans program at the Natural Resources Defense Council. “We have conservative communities and people who don’t engage in this type of energy discussion at the local level now doing everything they can to have their voices heard. It would be striking to me if they ignored that.”

Spiking southern Atlantic acreage is insufficient if Virginia waters remain under consideration, said Oceana’s Douglass. “Just chipping away at it isn’t enough,” she said. “The message has been clear the entire time: we don’t want anything in the Atlantic.”

Even if the administration keeps Atlantic waters in its proposed plan, they still could be pulled out entirely when the leasing program is finalized late this year.

Local Concerns

There’s precedent for the Interior Department to heed the local concerns. Two years ago, the ocean energy bureau shifted potential offshore wind leases further from the North Carolina coast, after the thought of ocean views cluttered with towering turbines spooked local residents in Kitty Hawk on the Outer Banks, a popular tourist area.

More than 100 communities — including dozens on the coast — have passed resolutions or formally declared their opposition to offshore oil development.

These are the people “on the front lines of the debate,” said Cale Jaffe, director of the Southern Environmental Law Center’s Virginia Office. “It’s really about two competing visions for the economic future of our coast, and for the folks who have invested significantly in growing tourism and growing fishing and growing the hotel industry, there is a lot to lose.”

Virginia Ports

Oil companies and some business groups say there also is plenty to gain if drilling goes ahead, including some $60 billion in added economic value for states from Delaware to Georgia estimated in a 2014 report.

Under the Obama administration’s draft plan, the earliest the U.S. would sell Atlantic leases would be in 2021, potentially leading to exploratory drilling within three to six years and, if energy companies make commercial discoveries, possible oil and gas production about decade later. That would mean new business for Virginia ports, with more demand for shipbuilding and supply vessels, and jobs that could lure college graduates back to their hometowns, said Miles Morin, executive director of the Virginia Petroleum Council.

Top Virginia Democrats, along with the Republican governors of North Carolina, South Carolina and Georgia, also see a potential payout in royalties collected from nearby offshore oil and gas activity. Gulf Coast states collect some of those dollars now under a revenue sharing agreement enshrined in U.S. law, and the Senate could vote on a proposal to extend it to other states later this month.

Diminished Payout

Still, even if revenue sharing is expanded, the potential payout has diminished, along with the price of oil and gas. “You’ve got to take into account changing economics,” Warner said in a Feb. 9 interview on the Virginia radio show “HearSay with Cathy Lewis.”

McAuliffe’s views also have become more nuanced. During an “Ask the Governor” segment on a Richmond radio station in February, McAuliffe stressed that “no one would support” offshore drilling “if there’s no revenue sharing for the commonwealth.” It also has to be safe, he said. “If I can’t get comfortable that it’s 100 percent safe, then I’m not for it, to be honest,” McAuliffe said.

Last month, Ralph Northam, the Virginia lieutenant governor who is running to succeed term-limited McAuliffe, came out against drilling. In a letter to the Bureau of Ocean Energy Management, the Democrat cited uncertainty over revenue sharing, possible risk to Virginia’s tourism and seafood industries, and jeopardy for military assets in the Hampton Roads region. The Defense Department has warned that as much as 80 percent of the proposed leasing area near Virginia would interfere with Navy training exercises and other operations.

For Obama, the issue is tied to his environmental legacy, following a historic climate accord struck in Paris in December, a rule slashing carbon dioxide emissions from power plants, and a halt in leasing coal on public land. “There is no way that opening these areas is going to be seen as anything other than a contradiction” of the president’s climate goals, said Franz Matzner, a senior adviser with the Natural Resources Defense Council Action Fund.

“If you open these offshore areas up for oil drilling, it’s telegraphing that you really don’t believe in our ability to achieve our climate goals,” Matzner said in an interview. “You’re saying in 20 or 30 years we will still be so stuck on fossil fuels that we can’t afford to take this oil off the table. If we can’t say no here, then we are in deep trouble.”

© 2016 Bloomberg L.P