Virginia Off-Shore Gas & Oil Fact Brief

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Nov 8, 2013 (3 years and 7 months ago)

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Thomas Jefferson Institute for Public Policy

9035 Golden Sunset Lane ● Springfield, Virginia 22153

703/440
-
9447 ∙
info@thomasjeffersoninst.org


www.thom
asjeffersoninst.org


Michael W. Thompson

Chairman and President












Virginia Off
-
Shore Gas & Oil Fact Brief



Prepared by


Dr. David Schnare, PhD



Director,

Center for Environmental Stewardship

Thomas Jefferson Institute for Public Policy



























May 2009


Center for Environmental Stewardship

Thomas Jefferson Institute for Public Policy

-

2

-




Thomas Jefferson Institute for Public Policy



The Thomas Jefferson Institute for Public Policy is a non
-
partisan research
and education organization devoted to improving the lives of the people in
Virginia. The Institute wa
s organized in 1996, and was the only state and local
government focused public policy foundation in Virginia based on a philosophy of
limited government, free enterprise and individual responsibility. It is a “solutions
tank” seeking better ways to accom
plish the policies and programs currently being
undertaken by state and local government


always based on the Institute’s
underlying philosophy. The first study was published in February 1997.



The work of the Thomas Jefferson Institute for Public Policy

is geared
toward educating our political, business and community leadership about the issues
facing our society here in Virginia. The Institute offers creative solutions to these
problems in a non
-
partisan manner.



The Thomas Jefferson Institute is a fu
lly approved foundation by the Internal
Revenue Service. It is designated a 501 ( c ) 3 organization and contributions are
tax
-
deductible under the law. Individuals, corporations, associations and
foundations are invited to contribute to the Thomas Jeffe
rson Institute and
participate in our programs.



For more information on the programs and publications of the Thomas
Jefferson Institute, please contact:


Thomas Jefferson Institute for Public Policy

9035 Golden Sunset Lane

Springfield, Virginia 22153

703
/440
-
9447

email:
info@thomasjeffersoninst.org

website:
www.thomasjeffersoninst.org




This Policy Letter,
“Virginia Off
-
Shore Oil and Gas


Fact and Fic
tion,”

is published by the
Thomas Jefferson Institute for Public Policy. This paper does not necessarily reflect the views of
the Thomas Jefferson Institute or its Board of Directors. Nothing in this study should be
construed as an attempt to hinder or a
id any legislation.


Center for Environmental Stewardship

Thomas Jefferson Institute for Public Policy

-

3

-




Virginia Off
-
Shore Oil
and Gas ~
Fact and Fiction

Prepared by David Schnare, Esq. PhD

Director, Center for Environmental Stewardship Thomas Jefferson Institute for Public Policy

Revised May

2009


On February 19
th
, Governor Kaine

asked the Federal government to delay oil and gas exploration off the
Virginia coast.
Attorney General Bob McDonnell and

Lieutenant Governor

Bolling
, in separate
letter
s

to
Interior Secretary Salazar explained why it is in the interest of Virginia and th
e United States to maintain
the current exploration schedule, a position reflecting
a large

majority of Virginia and U.S. citizens.
As

this issue has become a political matter, the Center for Environmental Stewardship has prepared this
fact
sheet to ensur
e the debate is
based on

the best information available. Here are a few of the key facts:




We don’t know how much oil and natural gas is available off Virginia
’s shores, but it is most

likely well in excess of Federal estimates,
although not

likely

as lar
ge as some have suggested.



Development of off
-
shore resources is about reducing U.S. dependence of foreign oil and gas. It
is not about global warming. It is about keeping jobs in the U.S. rather than losing them to other
nations. It is about expanding
Virginia’s economic base and it is about reducing the cost of living
for Virginia and U.S. citizens.

72% of citizens support off
-
shore drilling.



Using modern drilling techniques, off
-
shore oil reserves may produce from
130 million to
2

billion barrels of
oil,

an amount that would provide from less than one year’s worth of Virginia
crude oil needs to
14

years of our crude oil needs.



Estimates for off
-
shore natural gas reserves range from
1.14 to
36

trillion cubic feet, an amount
that would provide
3.6 to 1
00

years worth of Virginia natural gas consumption.



Off
-
shore production could produce about $6
9

million in state royalties for the Commonwealth, if
that production supplied 100 percent of Virginia’s oil and gas needs and no more.



E
stimates of $200 milli
on
a

year in royalties for natural gas alone do not seem
likely at this time
.



Environmental impacts from offshore exploration and production are negligible.



Sixty
-
three percent (63%) of adults now say finding new sources
of energy is more important
than

re
ducing the amount of energy Americans currently consume.


Figure I

U.S. and Virginia Energy Supply and Consumption

The left side of
Figure 1
the figure shows the source of our nation’s energy and the right side shows
how we use it. The large bold percenta
ges (
circled
) represent Virginia energy sources and uses.

43%

25%

15%

17%

21%

33%

12%

Virginia Baseline in Circles

49%

51%

34%

Center for Environmental Stewardship

Thomas Jefferson Institute for Public Policy

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4

-


Virginia Petroleum




Petroleum
-
based energy constitutes 33 percent of Virginia energy consumption. While the U.S.
imports only about one
-
third of its petroleum
-
based energy, Virginia imports virt
ually all
petroleum products with nearly half (49%) coming from non
-
U.S. sources.



T
he majority of petroleum
-
related

consumption (
61
%

by volume
) is as

gasoline
.
To meet 2007
requirements, Virginia could be self
-
sufficient if it produced approximately
206

m
illlion barrels
of crude oil

each year
, or the equivalent from coal
resources which would

requir
e

1
03 million
tons of coal per year
.


Virginia Prime Supplier Sales Volumes




2007

Mil Gal / yr

Millions of Barrels needed to
produce
2007

petroleum produc
t

Gasoline

3,941

206

Kerosene
-
(including

Jet Fuel
)

712

18
6

Propane

201

117

Fuel
and Diesel
Oil

1,522

139

Residual Fuel Oil

55

31

Total

6,456


Source:
http://tonto.eia.doe.go
v/dnav/pet/pet_sum_mkt_dcu_SVA_a.htm





Every barrel of crude
(42
-
US
-
gallons)
provides a little more than 44 gallons of petroleum
products.
O
ne barrel
produces
:


o

19.15 gallons (72.5 liters): Gasoline

o

3.82 gallons (14.5 liters): Kerosene (including jet fuel
)

o

1.72 gallons (6.5 liters): Propane (Liquefied Petroleum Gases (LPG))

o

1
0
.
96

gallons (6.6 liters): Heating
, Fuel and Diesel

Oil

o

1.76 gallons (6.6 liters): Heavy Fuel Oil (Residual)

o

7.27 gallons (27.5 liters): Other products (feedstocks for petrochemical p
lants, asphalt,
bitumen, tar, etc.)





Every ton of coal
can
produce two barrels of synthetic fuels.


Petroleum and Coal Resources




Southwestern Virginia has
15 billion

tons of recoverable coal resources.
1

A standard conversion
rate of two barrels of synthe
tic fuels from one ton of coal indicates those resources are equivalent
to over 100 years of coal and coal
-
to
-
liquids production, combined.
The rate of return for CTL is
22
-
25 percent at $50 per barrel and existing subsidies.
2



The Federal government has e
stimated that Lease Sale 220, a 2.9 million acre area, could contain
130 million barrels

of oil
.
3

This would supply Virginia’s needs for 7.5 months.
They caveat this
estimate as based on 1970’s data and badly out of date.




1

Virginia Tech, Estimated Southwest Virginia Coal Reserves, Publication Number 460
-
139, posted June 2000,
see
,
http:
//www.ext.vt.edu/pubs/mines/460
-
139/460
-
139.html

(accessed January 10, 2008)


2

Money Week (2006),
see
,
http://www.moneyweek.com/investments/commodities/could
-
coa
l
-
replace
-
oil.aspx

(accessed January 10, 2008).


3

U.S. Minerals Management Service.
See
,
http://www.mms.gov/offshore/220.htm

(accessed January 10, 2008).

Center for Environmental Stewardship

Thomas Jefferson Institute for Public Policy

-

5

-




Oil companies have made their

own estimates which they have not made public. Their
representatives have, however, suggested that the reestimation of reserves done on Georges Bank
and on the Scotian Shelf east of Nova Scotia provides a metric for a better estimate of the
reserves in t
he Sale 220 area.
4





Updating the U.S. Federal estimates, using

the Canadian

metric,
the reserves

in the Sale 220 area
may likely be 924 million barrels, and off the Virginia Coast perhaps two billion
barrels
. The
later figure
would supply Virginia’s ne
eds for more than
14

years.




Updating the U.S. Federal estimates, using the Bakken oil field experience in North Dakota and
Montana,
5

Virginia’s Sale 220 area may
contain 3.25 billion barrels and off the
Virginia Coast perhaps 7 billion barrels.
The lat
er figure would supply Virginia’s
needs for more than 50 years. Neither t
his
estimate
nor the one immediately above
is
any
more certain than the Federal estimate
based on 1970
-
era data

but does

represent
a likely upper bound
.




Notably, the federal governme
nt’s initial
estimates have been dramatically
conservative, frequently underestimating
the amount of actual resources. For example, Alaska’s Prudhoe Bay oilfield has produced more
than 15 billion barrels of oil and natural gas liquids, and is still produci
ng. Government agencies
forecast the region would produce no more than 9 billion barrels, total. In the Bakken Formation
of North Dakota and Montana, the U.S. Geological Survey now says 3 billion to 4 billion barrels
of undiscovered oil are available


25

times more than the original estimate made in 1995. And,
in 1987, the government estimated that there were 9 billion barrels of oil in the Gulf of Mexico.
By 2006, after major advances in seismic technology and deepwater drilling techniques, the
federal
estimate for that area had ballooned to 45 billion barrels.




The
potential

oil productivity from Lease Sale 220 will be best measured by gauging the level of
interest oil drilling companies show in purchasing the leases. Until there is additional test
d
rilling, the expected oil
and gas
reserves off Virginia’s shores is simply unknown.




Using current offshore drilling technology, producers would need approximately three oil
platforms to produce 206 million barrels per year, the current Virginia crude oil
consumption.
6



Virginia Natural Gas




Natural gas
-
based energy
(
321

b
illion cubic feet)
constitutes 34 percent of Virginia energy
consumption. The U.S. imports
slightly more than
one
-
quarter of its
natural gas

energy
7
, Virginia
imports
6
6

percent of its
natural gas production
.
8








4

Canada
-
Nova Scotia Offshore Petroleum Board
,
see

http://www.cnsopb.ns.ca/pdfs/Regional%20Estimates.pdf

(accessed January 10, 2008).

5

United States Geological Survey.
See
,
http://www.usgs.gov/newsroom/article.asp?ID=1911


6

Institute for Energy Research (2008).
See
,
http://www.instituteforenergyresearch.org/2008/08/07/offshore
-
oil
-
production
-
estimate
-
illustrates
-
flaws
-
in
-
eia
-
forecasting/#comment
-
132
. (accessed January 25, 2009)


Center for Environmental Stewardship

Thomas Jefferson Institute for Public Policy

-

6

-





The Federal government has estimated that Lease Sale 220, a 2.9 million acre area, could contain

1.14 trillion cubic feet of natural gas. This
reserve, alone,
would supply Virginia’s needs for
3.6

years
. They caveat this est
imate as based on 1970’s data and badly out of date.




Applying the Canadian metric, based on the Scotian geophysical similarity to Virginia, the
reserves off the
entire
Virginia coast may

likely be
36

trillon cubic feet

of natural gas, supplying
Virginia
’s needs for
over 100

years.

Although we
consider

36

trillion cubic feet as a high
-
end
estimate,
we note that
others have suggested that the reserves may
only
be as large as 30 trillion
cubic feet
,
9

an amount
roughly
similar to application of the Scotian
-
based estimate.


Time to Production




The
Department of Interior announced in July
, 2008,

a new 5 year plan that will allow leasing to
start in 2010, implying production from currently unleased areas could begin as early as 2015.
10


The Department has
indicated it will complete the bidding process but it remains to be seen
whether the new Administration will allow actual sales.


Environmental Implications





The current MMS Lease Sale 220 includes a request for comment on environmental risks.
Additional

environmental studies would have to be made prior to construction of oil drilling rigs.





An Independent Scientific Review of offshore oil production in Australia found that
environmental impacts from offshore exploration and production are negligible.
11





The U.S. National Academy of Science reports: “New estimates indicate that the overall amount
of petroleum released to the marine environment may be lower than earlier thought. This reflects,
in part, advances over the last decade in marine transportatio
n and oil and gas production
techniques. Spillage from vessels in North American waters from 1990 to 1999 was less than one
-
third of the spillage during the prior decade, and, despite increased production, reductions in
releases during oil and gas explorat
ion and production have been dramatic as well.”
12



Texas A&M, Department of Oceanography, reports similar findings, indicating, for example that
oil spills in the opening years of this century are 1/20
th

the size of spills in the 1970’s.
13







7

American Petroleum Institute,
see

http://www.naturalgasfacts.org/domestic_producing_resources.html

(accessed
January 25, 2009).


8

Energy Information Administration,
see
,
http://www.eia.doe.gov/pub/oil_gas/natural_gas/data_publications/natural_gas_annual/curr
ent/pdf/table_073.pdf
(accessed January 25, 2009).


9

See
,
http://www.senators4va.com:80/?page=news&id=24

(accessed January 25, 2009).


10

Institute for Energy Research,
see

http://www.instituteforenergyresearch.org/2008/08/07/offshore
-
oil
-
production
-
estimate
-
illustrates
-
flaws
-
in
-
eia
-
forecasting
/#comment
-
132

(accessed January 10, 2008);
and see
, Department of
Interior Press Release (2008),
http://www.doi.gov/news/08_News_Releases/080730a.html

(accessed Jan 25, 2009).


11

Earth

Science Australia.
See
,
http://earthsci.org/mineral/energy/gasexpl/offshore.html

(accessed January 10,
2008).

12

National Academy Press, “Oil in the Sea” (2002),
see
,
http://books.nap.edu/html/oil_in_the_sea/reportbrief.pdf

(accessed January 11, 2009).


13

Texas A&M (2008),
see
,
http://oceanworld.tamu.edu/resources/oceanography
-
book/oilspills.htm

(accessed
January 11, 2009).

Center for Environmental Stewardship

Thomas Jefferson Institute for Public Policy

-

7

-


Revenue Potential




States receive 27 percent of the revenue collected from offshore oil and gas activity within a band
that is 3 to 6 miles off their shore, as specified in section 8(g) of the OCS Lands Act. In 2008,
states received about $
64

million in royalties

for off
-
shore production
.
14






If Virginia produced
321

b
illion cubic feet of natural gas

from off
-
shore reserves, thus supplying
all of the Commonwealth’s
annual

needs, it would receive abo
ut
$2
9

million

per year

in royalties.
Current rates of state royalties (2
007) are $
92.65

per million cubic feet
.






If Virginia produced 206 million barrels of crude oil from off
-
shore reserves, thus supplying all
of the Commonwealth’s own needs, it would receive about $
40

million in royalties. Current rates
of state royalties

(2007) are $0.
195

per barrel.




If Virginia became a net exporter of oil and gas, State revenues would grow proportionately,
based on the per cubic foot and per barrel rates above. Because estimates of oil and gas reserves
and production potential are hig
hly uncertain, this brief offers the state royalties per production
unit, allowing others to calculate their own estimates of potential state revenues.





There is a large diversity of opinion on the potential value of potential gas and oil production to
V
irginia state coffers. If Virginia had 3
6

trillion cubic feet of natural gas reserves and produced
that amount over a
50

year period, it would produce 7
2
0,000 million cubic feet
(m
m
cf)
per year.
A
ssuming Virginia could sell that amount,
15

at

$
92.65

per mi
llion cubic feet (the federal 200
6

disbursement rate to states)
, 7
2
0,000 m
m
cf would provide Virginia
$6
6.7

million.
Some have
suggested this
level of
production would generate more than three times that amount ($200
million)
16
.

Neither the level of produ
ction (3
6

trillion cubic feet) nor the highest royalty estimate
($200 million per year) appear credible in light of data cited in the factsheet.




The Coastal Impact Assistance Program (CIAP)
17

provides a
n additional source of federal funds
associated with o
ff
-
shore oil and gas production

and

authorizes funds to be distributed to Outer
Continental Shelf (OCS) oil and gas producing states to mitigate the impacts of OCS oil and gas
activities.

Congress establishes the distribution formula
which is based on th
e percent of total
off
-
shore production within a state’s coastal lease area.
Virginia would not l
ikely receive more
than about $
2.
5 million a year, all of which must be expended on coastal an
d marine
environmental programs and 25 percent of which would go

to local governments.











14

Minerals Management Service distributed $
$47,911,233.03

in 2006 state royalties (
see
,
http://www.mrm.mms.gov/MRMWebStats/Disbursements_Royalties.aspx?report=TotalDisbursementsbyCategory&
yeartype=FY&year=2006&datetype

) as payment for
517,121

million cubic fee
t in 2006 natural gas sales from gas
and oil wells in state off
-
shore waters ,
see

http://tonto.eia.doe.gov/dnav/ng/ng_prod_off_s1_a.htm
)
(accessed
January 25, 2009). Dividing disburse
ments in dollars with production in million cubic feet produces state revenues
of $92.65 per million cubic feet of natural gas production.


15

Marketed volumes are approximately 82 percent of total production. In this example we assume all 750,000 mcf
is
sold, a liberal assumption.


16

See
,
http://www.senators4va.com:80/?page=news&id=24

(accessed January 25, 2009).


17

See
, 43 U.S.C. 29.1356a.

Center for Environmental Stewardship

Thomas Jefferson Institute for Public Policy

-

8

-



Public Support




As of April, 2009,
Sixty
-
three percent (63%) of adults now say finding new sources
of energy is
more important than

reducing the amount of energy Americans currently consume.
18

Several
other
surveys of voter
s
, c
onducted over the past 6 months, indicate strong support for off
-
shore
development of oil and gas resources.
19





The
March 2009
survey results shown below indicate 72%

of South Carolina voters a
gree

with
the first of
two statements

between which they were
asked to choose
.
20


(Some/other) people say that offshore drilling is critical to reduce gas

prices and help reduce American
independence on foreign oil. They

s
ay that new methods of offshore oil exploration are safe for the

environment and that we should m
ake full use of our own natural

resources to help with America’s energy
crisis. (72% support)


(Some/other) people say that offshore drilling could harm the

environment, and that there is a risk of an oil
spill. They say that it

would be years before Ameri
cans saw any reduction in prices

because of offshore
drilling. (20% support)



Support for Off
-
Shore Drilling by
Gender and Age:

o

77%
Men 18
-
44

o

69%
Men 45
-
64

o

68%
Men 65+


o

79%
Women 18
-
44

o

67%
Women 45
-
64

o

74%
Women 65+


Support for Off
-
Shore Drilling by

Race:

o

76% of White voters


o

66% of African
-
American voters

o

60% of Hispanic voters


Support for Off
-
Shore Drilling by

Earnings:

o

74% of those earning under $40,000/year

o

67% of those earning $40
-
80,000/year

o

72% of those earning $80
-
100,000/year

o

65% of those earn
ing over $100,000/year











18

See,

http://www.rasmussenreports.com/public_content/politics/environment/energy_update

.

19

See
,
e.g.
,
http://www.gallup.com/poll/108121/Majority
-
Americans
-
Support
-
Drilling
-
OffLimits
-
Areas.aspx

http://www.naple
snews.com/news/2008/jun/26/poll
-
74
-
percent
-
support
-
offshore
-
oil
-
drilling
-
us/?printer=1/

http://www.instituteforenergyresearch.org/2008/09/24/national
-
offsh
ore
-
energy
-
poll/

http://blog.thehill.com/2009/02/24/%e2%80%9cpoll
-
finds
-
continuing
-
support
-
for
-
offshore
-
drilling%e2%80%9d/


20

See
,
http://palmettoscoop.com/wp
-
content/uploads/2009/03/SC_Offshore_Drilling_Survey_Memo.pdf


Center for Environmental Stewardship

Thomas Jefferson Institute for Public Policy

-

9

-


David Schnare



Dr. David Schnare serves (
pro bono
) as the Director of the Center for Environmental
Stewardship at the Thomas Jefferson Institute, Virginia’s premier independent public policy
foundation. He is a Senior Attor
ney and Environmental Scientist in the Office of Regulatory
Compliance at the United States Environmental Protection Agency (EPA). He held an
appointment to the Environmental Quality Advisory Council of Fairfax County, the largest urban
county in the nati
on. He is CEO of Schnare and Associates, Inc., a professional corporation
providing legal representation, legal and policy analysis and is Chairman of the Environmental
and Land Use Committee of the Occoquan Watershed Coalition, an organization of 143
hom
eowners associations in western Fairfax County, Virginia..



Bringing his “balanced” environmental views to his community, Dr. Schnare Co
-
Chaired
the Occoquan Watershed Task Force, a group appointed by the Chairman of the Fairfax County
Board of Supervis
ors to make a thorough assessment on the status of the watershed and to make
recommendation on how to ensure its continued protection.



Dr. Schnare’s honors include: Two Gold and four Bronze Medals from the Administrator
of the U.S. Environmental Protecti
on Agency, the Vice President’s Hammer Award and multiple
U.S. Department of Justice Certificates of Commendation. His academic achievements include
Law Review at George Mason University School of Law; Inns of Court (GMUSL); Sigma Xi
(Science Honorary); D
elta Omega Service Award (Public Health Honorary); National Science
Foundation Research Fellowship; LEGIS Fellowship; and the U.S. Public Health Fellowship.
He is an Honorary Member of the Water Quality Association.


Dr. Schnare earned his JD in 1999 fr
om George Mason University School of Law. While
attending law school (and working full
-
time at EPA) he was the Hogan (Environmental) Essay
winner and served on the Law Review and the Inns of Court. He graduated Cum Laude (Order
of the Coif). He holds hi
s PhD in Environmental Management from the University of North
Carolina
-
Chapel Hill, a Master of Science in Public Health
-
Environmental Science from the
University of North Carolina School of Public Health, and a Bachelor’s Degree from Cornell
College in
Mt. Vernon, Iowa where he majored in chemistry and mathematics.