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The next hot spot for drilling could be the N.C. coast

N.C. is central to MMS's proposed five-year leasing plan



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The size of oil and gas deposits at any specific location off the North Carolina coast is unknown, according to Robin Smith, assistant secretary for the environment at the N.C. Department of Environment and Natural Resources. However, this year MMS estimated that the mid-Atlantic region could contain from 21 billion to 42 billion gallons of oil and 2.5 trillion to 11 trillion cubic feet of natural gas.

Those estimates are for "economically recoverable" deposits, meaning energy companies can retrieve the oil or gas cheaply enough to turn a profit. And these gettable amounts are far less— one-third to one-half—than the "technically recoverable" resources MMS reported in 2006.

Since the estimates are based on 30-year-old data, Rader called them "highly speculative."

Yet energy analysts are viewing these numbers with cautious optimism. Given MMS projections though, says Bill Weatherspoon, executive director of the N.C. Petroleum Council, "It's reasonable to expect there could be sizable discoveries."

But those discoveries would only briefly sate Americans' appetite for oil and gas. Overall, Americans use about 840 million gallons of oil per day, according to the Energy Information Agency, meaning even on the high end, the amount of oil in the mid-Atlantic would feed our habit for roughly seven weeks. As for natural gas, the deposits would provide about six months' worth.

And as the Southern Environmental Law Center noted in May, opening more areas to exploration and drilling wouldn't translate to lower oil and gas prices for another 20 years.

The federal government designated the mid- and southern Atlantic off-limits to drilling and exploration for more than 25 years. Then, in June 2008, President George W. Bush, who has longstanding familial and political ties to the oil industry, effectively lifted the longstanding presidential moratorium on these and other areas. The congressional moratorium lapsed.

In last year's leasing plan for 2010–2015, MMS agreed that other areas should be open for drilling. It cited the effects of Hurricanes Katrina and Rita on drilling operations as an example of how the U.S. relies on a too limited area—the gulf—for energy production.

Rader challenges MMS' rationale, noting the Atlantic is equally prone to violent hurricanes. And drilling in the mid-Atlantic makes no financial sense, he said, considering the lack of onshore pipelines, roads, waste-processing facilities and other infrastructure.

Nonetheless, last March, Obama picked up where Bush left off, directing MMS to include the mid-Atlantic in a new 2012–2017 leasing plan, although some environmentally sensitive areas—yet to be determined—could be excluded.

Obama's new plan is not substantively different from the previous one. And Gov. Beverly Perdue, in a September 2009 letter to Interior Secretary Salazar, sounded displeased with the previous proposal.

"I want to point out several significant gaps at the federal level which make it difficult for us to do our work," Perdue wrote.

One of the main sticking points of both leasing plans is that the states won't know the extent of oil and gas deposits in a lease area until after MMS has already leased the tract to an energy company. The state's comments, in other words, won't be informed or timely. Once the tract has been leased, the energy companies expect to be able to drill, regardless of the state's input.

"The states can comment," Rader said, "but it's largely shooting in the dark."

And North Carolina would receive none of the revenue from the energy production off its shores because federal law limits such revenue sharing to the Gulf states and Alaska.

"Simply put, no state can or should make decisions that could forever alter the state of its coast and economy without a firm commitment as to its share of the revenue," Perdue wrote.

Congress would have to pass a new law, signed by the president, for East Coast states to get any money. That's likely, considering the support for offshore drilling by many East Coast senators, including North Carolina's Richard Burr.

Weatherspoon of the N.C. Petroleum Council predicts the state could receive as much as $577 million annually. But, Rader said, based on the lack of information about what oil and gas may exist in the mid-Atlantic, there could also be no money available.

Should the MMS go through with its 2012–2017 plan, North Carolina would undoubtedly be affected. In federal waters—areas three to 200 miles offshore that fall inside the state's administrative boundaries—MMS could lease tracts to energy companies for five to 10 years without the state's consent. The state can object to the leasing, but the federal government can overrule it.

North Carolina does have one critical power. The state can review the exploration and drilling proposals for areas within its administrative boundaries and comment to MMS on the impact. The state used this power, known as consistency review, in the 1980s to successfully thwart Mobil's attempts to drill at the environmentally sensitive Point.

In energy parlance, the area near the Point is called the Manteo Unit, a 190-square-mile leasing area where, based on 1980s data, the reef 15,000 feet below the seafloor was thought to hold 6 trillion cubic feet of natural gas. A 1999 article in the trade journal Marine Georesources and Geotechnology called the Manteo Unit a "high risk prospect with world class potential."

In 1988, Mobil successfully bid $103 million for the rights to a nine-square-mile leasing block of the Manteo Unit and proposed drilling an exploratory well. But North Carolina, in its review of the company's required exploration plan, deemed it inconsistent with the state's coastal protection laws because it lacked enough information. Mobil appealed the state's decision to the U.S. Department of Commerce, but lost.

Then, in 1990, Congress passed the Outer Banks Protection Act that blocked exploration off the North Carolina coast. Mobil sued the federal government for breach of contract and won on appeal, effectively overturning the protection act. But as a consequence of its legal victory, Mobil lost its leases in the Manteo Unit.

Seven years later, the state again used its power of consistency review, and this time received Chevron more warmly. Chevron began looking at a block within the Manteo Unit close to Mobil's original tract. The state approved Chevron's proposal, and had it gone through, the energy company was considering Morehead City for its onshore operations.

However, before Chevron could drill its exploratory well in 2000, President Bill Clinton issued an executive order removing from consideration all unleased areas of the Atlantic Outer Continental Shelf until 2012.

Clinton's executive order should have bought North Carolina time to prepare for the possibility of offshore drilling. But Virginia circumvented the executive order, much to North Carolina's chagrin. In 2007, Virginia requested that MMS hold a special lease sale off its coast to include a 2.9-million-acre block that was still under the moratorium. At the time, the federal government was hopeful that other states would be open to oil and gas exploration, says Robin Smith of DENR, but there was little positive response. "There was a lot of hesitancy of the East Coast states to enter offshore exploration."

Then-Gov. Mike Easley objected to the Virginia sale because of the block's proximity to North Carolina, which also supported the moratorium.

But Easley's—and the state's—opposition had little impact on Virginia's decision. Under federal law, states that provide consistency review must show direct impacts of, not merely general concerns about, oil and gas production on their coasts.

Until the lease sale was canceled in May—or by MMS' account, postponed indefinitely—the Virginia block hovered over North Carolina like a storm cloud. (The one-two punch of the BP disaster and the military's concerns that the drilling area would conflict with Navy training and testing derailed the sale.)

Undaunted, Virginia's top officials are aggressively pursuing offshore oil and gas.

"The fact of the matter is that the Republican Party of Virginia has reached the conclusion that 'Drill, baby, drill' will appease their base and give them a way to answer their transportation funding problems," says J.R. Tolbert, advocate for Environment Virginia.

Virginia is not entitled to revenues from offshore energy production or lease sales, but it's clearly anticipating the law will change. Officials are citing potential energy revenues as a way to pay for maintaining and building the state's roads. The irony is stunning: Instead of kicking the oil habit, Virginia is using oil money so its roads can accommodate more gas-powered cars.

"It's going to take passing a policy that lessens dependence on oil to calm 'Drill, baby, drill,'" Tolbert says.

As for South Carolina, state leaders also are gung-ho for natural gas, although legally, once energy companies begin drilling, they can retrieve gas or oil. Republican state Sen. Paul Campbell Jr. was quoted in The Charleston City Paper last September as saying offshore exploration offers "an excellent opportunity for the state with limited environmental impact."

We now know that's untrue. If a spill occurred off Virginia or South Carolina, the Labrador and Gulf currents—the same ones that enrich marine habitats at the Point—would also ferry the oil there and to other North Carolina coastal waters.

How the states resolve their differences about offshore drilling remains to be seen. North and South Carolina belong to the Governors' South Atlantic Alliance, which includes top officials from those states, plus Georgia and Florida. (Virginia is a member of a different alliance.)

The alliance is focusing on clean coastal waters, disaster-resilient communities, healthy ecosystems and working waterfronts—all of which could be critically damaged by an offshore spill or accident.

"Ecosystems don't stop at the state line," says Chris Russo, director of organizational effectiveness for N.C. DENR and the alliance's point person.

Yet it's unclear how much pull North Carolina would have in convincing the other states to resist offshore drilling. Since the alliance's mission was drawn up before the BP disaster, nowhere in its working documents does it discuss how states would contend with conflicts over offshore energy exploration.

The legislative advisory subcommittee recommended that the state develop a comprehensive energy plan. While that has yet to happen, N.C. Energy Policy Council is working through issues related to coal, oil, natural gas and renewable energy.

In the Legislature, the bill that removes the damages cap also requires state agencies to study and prepare for an oil spill that would reach the North Carolina coast. In addition, the legislative climate change commission has prepared its final report to the General Assembly.

The greatest promise for North Carolina is wind energy. A detailed UNC Coastal Wind Study analyzed the economic, environmental and technical issues and concluded there is significant potential for utility-scale wind energy.Progress Energy announced this week it is spending $300,000 to partner with UNC to further study wind energy possibilities.

The Coastal Resources Commission is amending its energy policy to focus on wind. Gov. Perdue appointed her Scientific Advisory Committee on Offshore Energy, which recently held a lengthy discussion on wind and wave energy. Under Perdue's leadership, the state has also joined the Atlantic Wind Consortium, according to Jennifer Bumgarner, the state's newly appointed assistant secretary for energy.

"Responsibly sited wind turbines are the way of the future to meet our energy needs cleanly," said Elizabeth Ouzts of Environment North Carolina. "And there will not be a wind spill."

Yet our dependence, even insistence, on gas-powered cars keeps Weatherspoon of the N.C. Petroleum Council in business. "We use fossil fuels for mobility—to shop here, eat there, go to doctor here. That isn't going to change for a long time."

Moreoever, public opinion on oil is changing. Before the BP disaster, polls in North Carolina showed support for drilling off the coast. Two-thirds of those surveyed approved of it, but those numbers have eroded to less than half in favor.

"The gulf disaster opened people's eyes to what can happen in a worst-case scenario," Ouzts said. "Combined with the plan on the table, hopefully it's making more people see that it wouldn't be a good thing for the North Carolina coast."

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