The moratorium on deepwater drilling in the Gulf of Mexico is having a devastating impact on coastal economies but the newly-installed top regulator for the offshore industry says it can't end until companies can ensure the work can be done safely.
In New Orleans Tuesday, President Barack Obama's commission on deepwater drilling heard pleas for local politicians to end the moratorium, which is compounding the economic damage caused by BP blowout.
"The moratorium is literally adding insult to injury," Charlotte Randolph, president of southern Louisiana's Lafourche Parish, told the panel in a hearing that was webcast.
"The people of Lafourche Parish are not expendable Americans - we fuel this country," said Ms. Randolph, whose municipality houses offshore companies and support industries that are laying off or relocating workers even as the local fishing industry has been devastated by the massive oil spill.
U.S. Interior Secretary Ken Salazar announced a revised moratorium on Monday as part of the Obama administration's attempt to circumvent a judge's ruling invalidating the first suspension of work.
The new version is scheduled to end Nov. 30, but industry officials say there is considerable uncertainty about that timeline or whether companies might be able to satisfy the government's stringent conditions for resuming work sooner.
As a result, companies are revisiting their development plans for the Gulf of Mexico, including Calgary-based Nexen Inc., which is a 20-per-cent partner with Royal Dutch Shell PLC in the Appomattox discovery in the Gulf's deep water.
Shell, which has suspended operations on two other rigs in the Gulf, had planned to drill another well at the Appomattox site in August, but that is now delayed. "Nothing's changed for us," Nexen spokeswoman Carla Yuill said after the new rules were announced. "We're still monitoring the situation."
The moratorium has been deeply divisive with Gulf coast politicians like Louisiana's Republican Governor, Bobby Jindal, and Democratic Senator, Mary Landrieu, calling for a resumption of drilling, while administration officials insist that to do so now would risk another devastating blowout.
Michael Bromwich, who took over last month as director of the Bureau of Ocean Energy Management, said the industry has yet to demonstrate that it can prevent blowouts in the deepwater, or can respond adequately to one should it occur.
The bureau replaced the Minerals Management Service, which was broken apart to avoid conflict between the safety and environmental protection mandate and the MMS's former role in developing the offshore industry.
At the commission hearing in New Orleans, Mr. Bromwich promised the new agency will be more aggressive than its predecessor.
"The industry has been too casual in the oil spill response plans they've submitted," the former federal prosecutor said. "Frankly, I think my agency has been too casual in approving them. We're not going to politely ask industry any more to fix things. We're going to demand that they fix things."
But industry officials said the government has left companies in a state of confusion and apprehension, and they will not to resume work in the offshore until the picture becomes clearer. Rigs are now leaving the Gulf of Mexico and may be tied up under contract in new locations when the moratorium finally ends.
"All being said, this is just another attempt to put a moratorium on 80 per cent of the oil that is produced in the Gulf of Mexico," Chris John, president of the Louisiana Mid-Continent Oil & Gas Association, said in a telephone interview.
"The judge said the [original moratorium]was indiscriminate and capricious. Well, nothing has changed from those two words," Mr. John added, saying he expects the new moratorium will also be challenged.
While the industry and local politicians warn about job losses, the moratorium will also cut into U.S. oil and gas production, increasing the country's reliance on imported oil.
In a report published Tuesday, the International Energy Agency said delays to new projects have already shaved 30,000 barrels per day off U.S. production for this year and 2011.
Extended production delays could cut expected production in the Gulf of Mexico by up to 300,000 barrels per day by 2015, the agency said. The Gulf accounts for 30 per cent of the U.S.'s crude oil output, and the deepwater represents 80 per cent of that total.
Meanwhile, BP continued working Tuesday to determine the success of the sealing cap which was installed over the blowout late Monday. The company was conducting a "well integrity test," which will determine whether it can shut in the spewing hole, or will have to revert to capturing the gushing crude through various containment options.
HOW DOES THE NEW CAP WORK?
BP has installed a tight-fitting cap over its blown-out Macondo well and was conducting a series of tests Tuesday to determine if it can seal the runaway well completely.
The new 160,000-pound capping stack fits snugly over the blown-out Macondo well and allows BP to control the oil flow with a series of hydraulic rams that are designed to gradually "shut in" flow from the well. BP's previous containment cap used a series of vents that were unable to fully seal the well, but BP and the Coast Guard hope the new system will be water-tight and able to contain most, if not all, of the flow from the well, estimated at up to 60,000 barrels per day by U.S. scientists.
HOW WILL WE KNOW IF THE TESTS ARE A SUCCESS?
BP on Tuesday was expected to start a series of pressure tests on the well designed to tell if Macondo is strong enough to withstand the buildup of pressure that would be required to seal the well. The tests will last anywhere from six to 48 hours, and will measure the pressure deep beneath the ocean surface in the hydrocarbon reservoir. In this case, higher pressures are good news, because they mean that the well is strong enough and that the inner workings of the well are not damaged. If the well can withstand pressures of 9,000 pounds per square inch for 48 hours, odds are good that it could be "shut in" indefinitely, retired Coast Guard Admiral Thad Allen says. But if pressures linger in the 4,000 to 6,000 psi range for six hours, BP might have to suspend the test and switch to a plan to siphon the oil flow to ships on the surface.
WHAT HAPPENS IF THE WELL FAILS THE PRESSURE TEST?
If the Macondo well can't hold up under the pressure required for a shut-in, BP could contain the oil flow with a fleet of collection ships on the surface, which could siphon the oil and either burn it off or collect it. BP should have the ability to capture up to 80,000 barrels per day of oil by July 17-19, Adm. Allen has said. And regardless of the well tests, BP is in the process of drilling two relief wells, which are expected to permanently kill the well by mid-August with heavy mud and cement.