Gulf Offshore Production Still Hampered by BP Spill

(Newsroom America) -- One year after the BP oil rig explosion in the Gulf of Mexico launched the worst oil spill in history, production in the region is still off due in part to the Obama administration's 10-month freeze on deep-water drilling.

The Energy Information Administration said Gulf region production will average about 1.55 million barrels per day this year, but that is 13 percent less than 2010, The Wall Street Journal reported Wednesday.

The freeze was put in effect by the administration following the April 20, 2010 explosion on the Deepwater Horizon rig that left 11 dead and spewed oil for weeks afterward. It was eventually lifted in February, but it was replaced by a much slower permitting process that continues to hamper production efforts.

The Journal, citing an industry analysis, said the loss of production will amount to about 375,000 barrels a day.

In addition, so-called development wells - dug where there are known reservoirs of oil and gas to maintain production levels and blunt production declines - have been affected as well.

"None of those wells have been brought on-line; that's why we're seeing the big drop-off," Matt Snyder, an analyst with energy consultancy Wood Mackenzie, told the Journal.

Meanwhile, production on land increased dramatically in the wake of the spill, as producers tapped wells in California, North Dakota and Texas, leading to the highest oil production in the U.S. last year since 2004.

The Journal also said energy regulators are in a tight spot, being charged with ensuring that another Deepwater Horizon spill doesn't occur while also trying to comply with a mandate from President Obama to decrease U.S. dependency on foreign oil suppliers by one-third over the next decade.

The fall-off in production comes as turmoil in the Middle East's oil-producing countries has led to skyrocketing prices. Higher energy costs have in turn led to higher prices in the U.S. for nearly all goods; food, especially, has risen in recent weeks.

Worse, the news regarding supply in the short-term isn't good: The EIA "expects oil markets to continue to tighten over the next two years given expected robust growth in world oil demand and slow growth in supply from non-Organization of the Petroleum Exporting Countries (non-OPEC) countries," the agency said on its Web site.

Dr. David Kreutzer, the research fellow in energy economics and climate change in the Center for Data Analysis at the Heritage Foundation, says three policy changes are needed to help address the nation's long-term energy needs.

One, he says, is to continue drilling in the U.S., to help reduce imports and stabilize global oil prices. "Relatively small changes in supply can have large impacts on price, especially when markets are tight," he writes.

Second, the U.S. should drop "low-carbon fuel standards" to allow the construction of an oil pipeline from Canada.

"With its oil sands, Canada has more proven petroleum reserves than any country other than Saudi Arabia. A consistent ally and long-time friendly neighbor, Canada is exactly the sort of supplier the U.S. should want to fill the gap in the petroleum it cannot produce on its own. But some policymakers want to put these vast reserves off limits to American consumers," Kreutzer said.

Finally, he says, lawmakers should end the Environmental Protection Agency's "abuse of the Clean Air Act," which is driving up "refining costs and, therefore, gasoline prices" through over-regulation of carbon dioxide levels.

"When petroleum and gasoline prices shot up during the energy crisis of the 1970s, the experts and pundits predicted imminent resource exhaustion, skyrocketing prices, and energy poverty," Kreutzer said. "Instead, markets responded by searching for, discovering, and producing enough oil to provide over two decades of low prices."

© 2010 Newsroom America.

Contact Jon E. Dougherty

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