Studies: Big Economic Benefits to States, U.S. From Offshore Energy

Mark Green
Posted March 9, 2018

When we talk about America’s offshore energy potential, we refer to the natural gas and oil reserves on the outer continental shelf (OCS), which the United States could harness for its strategic energy needs and long-term national security.

Yet, as four new regional studies for the Atlantic, Pacific, Eastern Gulf and Alaska OCS areas show, offshore development also could bring significant economic benefits to coastal states and the nation – in jobs and in-state spending by industry, as well as revenues from production royalties, lease bids and rental income that the federal government could share with individual states.

We’re talking potentially about billions of dollars in industry spending, billions in federal revenue sharing money and hundreds of thousands of jobs supported. These are huge numbers. Erik Milito, API upstream and industry operations group director:

“[O]pening the currently restricted OCS areas could increase economic benefits not only specifically to the coastal regions near offshore development, but also nationally as well. This should be welcome news for U.S. consumers and families that are looking for increased jobs, investments in their communities, and energy and national security.”

API Chief Economist Dean Foreman:

“The United States’ vast energy resource and economic potential is at the core of its enduring competitiveness, prosperity and way of life. Offshore energy resources, developed in safe and environmentally responsible ways, support these objectives.  Exploring and better understanding offshore resource potential in the near future could help the U.S. to secure world-leading energy and economic security for decades to come.”

During a conference call with reporters, Milito discussed the new studies by Calash and Northern Economics, which analyze the economic impact of oil and natural gas development in the OCS by region over a 20-year forecast period following initial offshore lease sales. Highlights:

Atlantic OCS

• $260 billion projected in total cumulative spending by industry
• $22 billion spent per year by industry
• Nearly 265,000 jobs supported across the nation

Eastern Gulf of Mexico OCS

• $118 billion projected in total cumulative spending by industry
• $14 billion spent per year by industry
• Nearly 165,000 jobs supported nationally

Pacific OCS

• $160 billion projected in total cumulative spending by industry
• $25 billion spent per year by industry
• More than 300,000 jobs supported nationally

Alaska OCS

• $53.4 billion projected in total cumulative spending by industry
• Nearly $2 billion spent per year by industry
• About 13,500 jobs supported nationally per year over the forecast period

Let’s take a closer look at the potential revenue-sharing benefits to the hosting states – which underscore what’s at stake economically for entire states from safe offshore development.

The Atlantic, Eastern Gulf and Pacific studies assume government revenues would be split on the basis of 62.5 percent for the federal government and 37.5 percent for coastal states, which is consistent with the percentage split currently in place in the Gulf of Mexico, where there is revenue sharing. The studies say that projected state government revenue streams would need to be adjusted proportionally when or if revenue-sharing agreements were legislated.

First the Atlantic OCS, where federal government revenues could top $3.6 billion per year at the end of the forecast period, with combined state revenues for the Atlantic coast states projected at about $2.3 billion per year by the end of the forecast period (Calash study charts below):

North Carolina ($4.4 billion cumulative across the forecast period), South Carolina ($3.8 billion), Virginia ($2.1 billion) and Massachusetts ($1.4 billion) are most likely to receive significant returns from revenue sharing, based on the projected location of oil and natural gas production. According to the study, each of the Atlantic coast states would receive at least $375 million cumulatively in new government revenue over the forecast period.

Next the Eastern Gulf OCS, where federal government revenues are projected to exceed $3.1 billion per year at the end of the forecast period, with combined state revenues for the Gulf Coast states projected at about $1.8 billion per year by the end of the forecast period:

Florida ($11.7 billion cumulative across the forecast period) and Alabama ($2.2 billion) are projected to receive the highest revenues based on expected location of energy reserves. Most Gulf states, with the exception of Texas, would receive at least $120 million per year by the end of the forecast period.

Next the Pacific OCS, where federal government revenues are projected to surpass $5.4 billion per year at the end of the forecasts period, with combined state revenues for the three Pacific coast states projected at about $3.2 billion per year by the end of the forecast period:

California is projected by the study to receive more than $12.2 billion in cumulative revenue over the forecast period, Oregon more than $6.3 billion and Washington nearly $3 billion.

As for the Alaska OCS, there is no federal revenue sharing similar to the program in place for the Gulf of Mexico. As is the case with all OCS areas, some near-shore leases qualify for a portion of federal royalties. The Alaska study projects that federal royalties from production in the Beaufort and Chukchi seas, Cook Inlet and the Gulf of Alaska would total nearly $35 billion over the forecast period. There also would be revenues to the state from property taxes, state corporate income taxes and state royalties.

Milito told reporters offshore development is safer than ever before and can coexist with other offshore activities and industries:

“Advanced technology, safety standards, best practices and regulations are designed to protect the environment, marine life, and workers – while enabling us to work alongside recreational fishing, tourism, and military activities. Since 2010, more than 100 standards were created or strengthened, including for improved safety and environmental management, well-design, blowout prevention, and spill response to ensure we have the best protections and highest safety measures in place.”

Milito said offshore development is vital for America’s energy and national security:

“As long as the U.S. and world depend on oil and natural gas, it should come from the country with the best environmental oversight, safety measures, use of standards, and consideration for energy development that can co-exist with the environment and other industries: the United States of America. Turning our backs on U.S. energy resources doesn’t help our consumers or families, who benefit every day from the very complex and interconnected global oil and gas market that helps to provide reliable and affordable energy for our homes and cars.”

Eight in 10 U.S. voters support increased U.S. natural gas and oil production, and a safe offshore development strategy is critically important in securing the energy to run our economy and keep our nation strong. As Americans join with their federal and state elected officials in discussing our country’s offshore energy plan for the future, these benefits – as well as those projected by the Calash and Northern Economics regional studies – argue for the most robust offshore program possible.