May 1999 Vol. 220 No. 5  Offshore

Robert E. Snyder,  Editor

Comments on NOIA’s annual meeting

The National Ocean Industries Association (NOIA), the Washington, DC-based lobbying / liaison group representing the U.S. offshore industry, held its annual meeting in the capital city on March 25–27. The assemblage of executives and representatives of operators, service / contracting companies and financial institutions got a fairly pragmatic overview — from the political perspective — of industry’s status.

The message the group heard was sort of along the lines of "if it ain’t broke, don’t fix it." In other words, if we go to the legislators in Washington and complain that we are hurting from low oil prices, any "help" we get could likely be used against us later on when things improve. The reasoning behind this is that the Congress represents a nation that is doing well economically, and one big factor is the lower cost of energy to fuel cars, airplanes, tractors, factories, and heat houses. Our loss of 50,000 people and a hitch in our ability to supply domestic oil to the benefit of foreign importers is not seen as a big problem.

DOE initiatives. The group heard from Robert W. Gee, Ass’t. Secretary for Fossil Energy at the U.S. Dept. of Energy. Reiterating the fact that 140,000 U.S. wells have been shut-in since November 1997, and imports are headed toward 75%, he talked about DOE’s help program initiated by Secretary Bill Richardson in February.

Emphasizing that DOE will not involve itself in the energy "market," Gee provided an outline of four strategies that will provide "Initiatives for Energy Security." Stemming from the Department’s Oil Emergency Task Force formed in December 1998, these strategies are: 1) Enhance America’s energy security; 2) Preserve domestic oil / gas production capacity; 3) Lower production cuts; and 4) Improve government decision making.

The first item involves royalty oil for the SPR and commercial storage therein. The second targets stripper oil on federal lands, royalty relief and PTTC crisis assistance to independents. The third item zeroes in on advancing technology, permitting and administrative relief. And the fourth will improve "dialogue with industry, states and Congress."

Supply / Demand. Cambridge Energy’s Daniel Yergin covered a broad range of relevant topics in his presentation. Probably the most prophetic comment, as we look for help from our government, is that "we have a crisis in the oil industry, not an oil crisis."

He discussed oil demand, saying the new "Prize" is the capturing of Asia’s demand growth. He sees the handling of world demand as the degree to which market "transportation" is controlled — he doesn’t necessarily see demand increasing due to low oil prices. "Risky" areas noted are: Japan, which should recover; China, where we deal with huge state-owned companies, i.e., CNOC with 1 million+ employees; Korea / Malaysia and Indonesia, with signs of recovery by 2000; and Russia, which is "difficult" with Yeltsin still in power. The U.S., he says, is becoming a "prosperous island" in the world.

Regarding supply, a key factor is the effect of low oil prices. In 1997, world capacity was 83.6 MMbpd; now it’s more like 79.3 MMbpd. Iraq is a big factor. And Yergin sees OPEC as a "bridge" to get to higher prices in the next 1½ years. As for oil prices, he says if OPEC cooperates, oil could average $13 this year and, with 70% compliance, it could be $14.50. But, he cautions, no one knows, "recovery will be in cycles," keep your eye on the global economy.

Global warming. The atmosphere warmed considerably over Washington from all the hot air produced by the panel that discussed this ongoing topic. Featured there were Dr. Nancy Kete, Director, Climate, Energy & Pollution, World Resources Institute; David Montgomery, VP Charles Rivers Assoc.; William O’Keefe, Exec. VP/COO API; and Daniel Lashof, Senior Scientist, Natural Resources Defense Council.

In summary, we have a bunch of government scientists who say increasing CO₂ is causing the earth’s atmosphere to warm, as evidenced by analysis of slices of ages-old ice from Antarctic glaciers. The consequences are dire, with coastal flooding, coral reef loss and spreading diseases. And fossil fuel increase is the main culprit. The other side points out the uncertainties of these analyses, with the obvious point that major decisions are pending based on inconclusive evidence.

Debate on global warming will continue in the 106th Congress. In December 1997, the U.S. agreed to the "Kyoto Protocol" to expand the scope of the 1992 UN Framework Convention on Global Climate Change. If implemented as now structured, the treaty would require the U.S. to reduce emissions of greenhouse gases by 7% from 1990 levels during 2008 to 2012. A key point brought up by API in the panel is the major problem of getting compliance with the many developing countries who are just starting to develop their industrial needs.

Help we don’t need. Dr. D. James Baker, Under Secretary for Oceans & Atmosphere, NOAA, talked about several environmental things, including additions to the U.S. Gulf Flower Banks Nat’l. Marine Sanctuary; hydrographic surveys; four new floating observatories near Sakahlin Island; and new ocean current studies.

Baker has drawn industry’s ire with his recommendation to the Chairman of the Georges Bank Review Panel, which is considering lifting the moratorium on exploration and development on the Canadian side of Georges Bank in the North Atlantic, just east of New England. He "strongly encourages" Canada to extend the moratorium due to the probability that "contamination" from such development could be carried by currents into U.S. waters; and it could "adversely affect many species of fish and marine mammals that use both Canadian and U.S. waters at some point in their life cycle."

A letter from Paul Kelly, Sr. VP Special Projects, Rowan Companies, Houston, strongly refutes Baker’s unsupported industry condemnation and ill-timed recommendation, citing strong scientific support for industry’s ability to operate safely in this important offshore area.

Copyright © 1999 World Oil
Copyright © 1999 Gulf Publishing Company