The Interior Department Just Released A Rule On Offshore Well Control That Will Cripple Gulf Oil Production

We’ve heard warning after warning that this was coming from the Obama administration. Now it’s here.

The Obama administration’s long-awaited final offshore well control regulations were released Thursday by U.S. Secretary of the Interior Sally Jewell and Director of the Bureau of Safety and Environmental Enforcement (BSEE) Brian Salerno.

The government says the rule will reduce the risk of an offshore blowout, but critics warned that it could reduce offshore worker safety and hurt future offshore development.

According to Interior, the regulations build upon the findings and recommendations from several investigations and reports concerning the root causes of the Deepwater Horizon incident and extensive consultation with industry groups, equipment manufacturers, federal agencies, academia and environmental organizations.

The final rule, Interior says, is a comprehensive regulation addressing all dimensions of well control, including more stringent design requirements and operational procedures for critical well control equipment used in oil and gas operations on the U.S. Outer Continental Shelf.

Specifically, the final rule addresses the full range of systems and equipment related to well-control operations, with a focus on blowout preventer requirements, well design, well control casing, cementing, real-time monitoring and subsea containment.

For weeks, though, there have been criticisms of the BSEE during the process of making the rule. And the folks issuing the warnings that the rule was going to be onerous and destructive are now saying “I told you so.”

Among them, the bulk of Louisiana’s congressional delegation.

Steve Scalise is one…

“President Obama’s Well Control Rule is yet another one-size-fits-all, Washington regulation that will increase costs and threatens to decrease safety and kill thousands of jobs. Over the past six years, the oil and gas industry has taken great strides to implement the highest possible standards, making drilling in the deep waters of the Gulf safer than ever. It is my hope that technical changes were made to the initial proposal so that the BSEE does not unnecessarily reverse the meaningful progress made since the Deepwater Horizon disaster.

“The last thing we need is an overly-prescriptive rule from Washington that actually reduces the safety of drilling in the Gulf. Because of the dynamic nature of drilling in the deep waters of the Outer Continental Shelf (OCS), a rigid rule created by Washington bureaucrats who never drilled a well does not allow for the precautions that need to be taken on a moment’s notice to protect workers and the environment from the changing pressures of a well.”

Charles Boustany didn’t like it either…

“Offshore oil and gas production is critical to the economic success of Gulf communities. The initial proposed well control rule was nothing short of an assault on oil & gas, threatening to shut down an industry that has made remarkable progress improving safety in the aftermath of Deepwater Horizon. The very fact that BSEE pursued a regulatory remedy to a problem that has largely been fixed shows it is out of touch with what’s really going on in the Gulf of Mexico.

“While industry and Congress reviews this 531-page rule, I am disappointed at the apparent rush to regulation of the struggling energy sector. We should be working together to empower this industry, not entangling producers in more bureaucratic red tape. I stand by my request to the Appropriations Committee that funding for implementation of this rule is blocked in any appropriations bill considered before the House.”

Bill Cassidy had ripped BSEE officials to shreds in a Senate hearing about the rule back in December, and his opinion hasn’t changed a whole lot…

“It is our responsibility to make sure history does not repeat itself and that every action taken makes legitimate safety improvements for Americans working offshore. Over the last 5 years, industry has responded with millions of dollars in investment and deployment of new technologies that have made working offshore safer. This is an extremely complex and technical issue, and I am concerned that the intent of many portions of this proposed rule do not match the desired goal of improving safety. The way the rule is proposed appears to prioritize speed and deadlines over long-term safety. The administration needs to address the geological and engineering concerns raised and continue to work with stakeholders to get this right. If this rule is finalized without addressing the outstanding concerns made by technical experts, I fear this rule could have unintended consequences that could increase risk for offshore workers.”

David Vitter didn’t like it any better than Cassidy…

“As we approach the sixth anniversary of the Deepwater Horizon oil spill that took the lives of 11 men in the Gulf of Mexico and devastated our coasts, my top priority continues to be ensuring this kind of human tragedy and subsequent economic losses never happens again. Maintaining high safety standards always takes precedence, but that is not the question here,” said Vitter. “What the Obama Administration’s ongoing anti-energy and anti-jobs crusade fails to acknowledge is that Louisiana’s energy industry supports families, small businesses, and our ongoing coastal restoration efforts. The Department of Interior’s well-control rule is bad news for Louisiana, and certainly has the potential to kick our oil and gas industry while it’s down.”

And Garret Graves was positively furious…

“The Deepwater Horizon disaster resulted in the senseless loss of life, and we need to do everything we can to prevent this from ever happening again. It is also important to remember the company pled guilty to 11 counts of felony manslaughter and the court found that the operators were “grossly negligent” and “exercised willful misconduct.” The court did not find a lack of rules and regulations at the time.

The draft well control rule released last summer was the product of novices who clearly lacked even a basic understanding of offshore energy technology and conditions, and this entire process has exposed the dangerous combination of bureaucratic arrogance and bureaucratic ignorance. The draft rule would have resulted in up to a 35% reduction in offshore energy production, a $50-80 million annual reduction in offshore energy revenues available for coastal restoration and hurricane protection in Louisiana, further bleeding of energy jobs in our state and increased reliance on imported foreign oil – none of which is good for America.

The premise of this rule completely ignores the progress in safety technology and processes made since the 2010 disaster. The Department of the Interior wrote the initial rule behind closed doors for four years, but gave stakeholders only a few months to provide expert comments. Now, they are trying the same thing by providing only 90-days to begin enforcement of this new 500-page rule.

This is why it is dangerous to appoint bureaucrats that have never spent a minute working in the real world in charge of programs like this. We all support the safety of our workers and the environment, but this is no more than a thinly-veiled attempt by the Obama Administration to kill our domestic energy industry. The sad irony is that the technical errors in this regulation will likely put our offshore workers at greater risk. This is why America hates our federal government.

We won’t stop our efforts to reform and reverse the fundamentally flawed components of this regulation. January 2017 can’t come quickly enough.”

This isn’t just a bunch of Louisiana’s politicians shilling for oil and gas. It’s a lot more than that.

When the rule was proposed a year ago, BSEE’s own Regulatory Impact Analysis (RIA) estimates that the initial cost of rule implementation would total near $165 million in 2015, and between $77 million and $99 million in the years 2016 through 2024. And the agency admitted they’d be having a “significant impact on a substantial number of small entities” – meaning, independent drilling companies like the ones owned and headquartered in Louisiana. They also projected the rule might cost over $100 million to the oil and gas industry in order to comply with mandates in the rule.

Then came a study by Wood Mackenzie which essentially told BSEE, “that ain’t the half of it.” Wood Mackenzie’s findings were that better than half – maybe as much as 55 percent – of offshore oil exploration in the Gulf of Mexico could vanish as a result of the rule, meaning that by 2030 oil production in the Gulf would drop by a third, putting anywhere from 105,000 to 190,000 American jobs into the dustbin. It would even cut federal revenues by $5 billion over that same time period – assuming oil traded at an average of $80 a barrel throughout that time. Which might be a high number. At that number the Wood Mackenzie study says you’re looking at a loss to the oil and gas industry on the Gulf coast of a good $11 billion per year.

In other words, the government says its rule will cost $100 million. Industry says it’ll be more like $11 billion, assuming it even bothers any more.

Smart. Just destroy an industry the country needs and the economy of an entire state with a bullshit rule made by bureaucrats with zero clue what they’re doing. From Salerno’s bio – see if you can find any expertise in oil and gas that would give credibility for making a rule with an $11 billion annual effect…

Prior to his appointment as Bureau Director, Salerno served as the U.S. Coast Guard’s Deputy Commandant for Operations where he was responsible for establishing and providing operational strategy, policy, guidance and resources as needed to meet national priorities for U.S. Coast Guard missions, programs and services. Previous Washington, D.C.-based assignments included serving as the Assistant Commandant for Marine Safety, Security and Stewardship, Assistant Commandant for Policy and Planning, and Director of Inspections and Compliance.

Salerno was commissioned as an ensign in the U.S. Coast Guard in December 1976 after attending Officer Candidate School. Over the course of his 36-year active duty career, Salerno attained the rank of Vice Admiral, serving predominantly within the U.S. Coast Guard’s marine safety program. His field assignments included commanding units in Boston, MA and San Juan, PR, in addition to other assignments in Baltimore, MD; Port Arthur, TX; Portland, ME; and as the marine safety adviser to the Panama Canal Authority.

Salerno is a 2000 graduate of the U.S. Army War College, with a Masters in Strategic Studies. He is also a graduate of the Naval War College nonresident program, and holds a Master’s Degree in Management from the Johns Hopkins University. He is licensed as a master of small passenger vessels.

It’s not a surprise a bureaucrat totally ignorant of the industry would take a meat cleaver to it. It happens all the time. Graves had it exactly right – this is why the American people hate the federal government.

 

 

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