The Drill-Down

By Johannes Werner November 30, 2009

A few years from now, when you hop on a speedboat just off the pristine white sands of Siesta Beach and head due west three miles to go fishing, you might have to navigate around a few buoy-size shutoff valve platforms used by the oil industry. If the water is clear, you might see the contours of underwater rigs and pipelines 30 feet underneath, on the bottom of the Gulf of Mexico.

Once considered far-fetched, this scenario is becoming more likely. Florida, already the nation’s fourth-largest consumer of fossil fuel, is in the middle of a high-stakes battle to make the state one of the largest oil and gas producers as well. The political and economic fundamentals point toward the oil industry prevailing. And although the exact location of the drilling is still murky, Sarasota, Manatee and Collier are among the counties that could be most affected.

Concerned may be an understatement to describe the state of mind of players in Southwest Florida’s billion-dollar tourism industry. Jack Wert, executive director of the Naples, Marco Island and Everglades Convention and Visitors Bureau, evokes images of oil-lump spoiled beaches around Naples.

“Look at the Texas and Louisiana coast,” Wert says. “They have daily, ongoing issues such as tar balls. The hotels even put specialty chemicals into rooms so guests can clean their feet.”

Just a glimpse at a world oil map makes it clear what kind of pressure Florida’s worried anti-drilling resistance is under: Of some 6,500 offshore oil and gas production rigs worldwide that pump the fuel from the seabed, more than 4,000 already are in the Gulf of Mexico. At a time when the war in Iraq has raised awareness about our rising dependency on imported oil, Florida’s no-drill zone increasingly looks like a leftover from good old times we can’t afford anymore.

All around the United States, the federal government owns the oil in the outer continental shelf, 

from 3.45 miles to 230 miles from shore, with the exception of Florida’s west coast, where the state owns the seabed from shore to 10.5 miles into the Gulf. And it’s exactly the state’s three- to 10.5-mile zone that the oil industry is targeting.

How Much Oil—and Where?

Oil and gas reserves in the restricted areas of the eastern Gulf of Mexico and Florida’s coastal waters are unknown, since oil companies have not been allowed to perform seismic testing there over the past two decades. Some testing has been performed in Charlotte Harbor, off Lee County and around the Florida Keys.

According to National Petroleum Institute estimates, federal waters in the eastern Gulf could hold some 5.2 billion barrels of oil; reserves in state waters along the Florida coast could be “even more significant,” say industry analysts cited in 2005 by Alexander’s Oil & Gas Connections, a Web site focused on the industry.  

“There’s very little information in the public record,” says David Rancourt of Southern Strategy Group’s Tallahassee office, who, along with Frank Matthews of Hopping Green & Sams, is heading up the lobbying team to open state waters for drilling. “The companies that have been in Florida aren’t showing much, they aren’t telling much. The official estimate [by the U.S. Geological Service] is three billion barrels’ oil equivalent. But I’ve been told privately by companies that the real number is between 8 billion and 16 billion barrels.”

This optimistic near-shore estimate is based mainly on large onshore oil fields in the Panhandle and Collier County. Near-shore sites most likely to contain oil are close to these onshore fields, speculates David Mica, executive director of the Florida Petroleum Association.

“Between these sites in the northwestern and southwestern corners of the state lie 4.5 million unexplored acres that could harbor vast potential for oil and gas reserves,” Florida Energy Associates says on its Web site. “Some argue that Florida’s energy deposits in state waters could rival those of East Texas.”

Many stretches of the Florida coastline will be off-limits for direct drilling. The Florida Keys are a national marine sanctuary, the Ten Thousand Islands is a National Estuarine Research Reserve and nearly the entire coastline of Lee and Charlotte counties, including Charlotte Harbor, is protected as an aquatic preserve.

In Sarasota and Manatee counties, only a small stretch at the mouth of Tampa Bay is protected, and all of Pinellas County’s shores are an aquatic preserve.

However, the oil group says it could use directional drilling from remote locations to tap oil and gas reserves under these protected areas.

In the Zone

In April 2009, the Florida House passed a bill that would have allowed drilling in the three- to 10.5-mile offshore zone that has historically been off limits. The measure died in the Senate, because of inaction. The fight is expected to resume in the Florida Legislature in the current session. It doesn’t look good for drilling opponents.

The two legislators sponsoring a new bill that could open state waters also happen to be the two most influential politicians in Florida right now: House Speaker-designate Dean Cannon and incoming Senate President Mike Haridopolos. What’s more, foremost on legislators’ minds is a budget crunch that is forecast to last until at least 2012.

Adding to these pressures to drill is the state’s fast-rising use of natural gas. The oil industry hasn’t wielded the argument yet, but the state is increasingly hooked on natural gas—a byproduct of oil drilling. Although gas-only exploration is advancing, most natural gas production around the globe—similar to the gas escaping when you open a soda can—occurs as oil wells are being tapped. Right now Florida’s natural gas is coming almost exclusively from the Gulf of Mexico. While the oil share in FPL’s power generation mix has declined over the past years—it’s currently 8 percent—the share of gas has skyrocketed from near nothing in the early 1990s to 52 percent. FPL plans to increase the share of natural gas to nearly 70 percent by 2017. That translates to fast-rising import needs by the state’s biggest utility—from 450 million cubic feet of natural gas in 2008 to a projected 600 million cubic feet by 2017, according to FPL’s most recent report to Florida’s Public Service Commission.

That’s why it shouldn’t come as a surprise if drilling proponents argue that we need to get natural gas from sources closer to home. (See “The Port Dolphin Project,” page 25.)

Money Matters

And then there is the compelling argument of money. A study by Orlando’s Fishkind and Associates predicts state revenues from severance taxes and royalties could amount to $2.3 billion to $12 billion a year, depending on the quantity of oil and gas found and the methods the state chooses for compensation. The study was commissioned by Florida Energy Associates, the oil-industry consortium leading the charge to open state waters for drilling.

Fishkind also estimates that offshore drilling would directly and indirectly inject $7 billion to $41 billion into Florida’s economy and create 40,000 to 231,000 new jobs.

“Offshore drilling would create many types of jobs, from manual labor to highly sophisticated technical jobs,” says Mica of the Florida Petroleum Association. Although most oil engineers and geologists would come from out of state, some would relocate. Also, Florida companies could provide surveying, environmental, archaeological and other consulting services.

These are intoxicating predictions in a state that needs to flee from real estate as its main economic driver.

But some environmentalists and economists contend that dreams of oil revenue might derail the state’s other efforts to diversify the economy—such as investing in alternative energy research and development. Also, it’s going to take a billion-dollar private investment to get offshore drilling going, and there simply might not be enough resources for other renewable energy initiatives.

Florida Energy Associates, however, insists that oil revenues will help finance renewable energy research. “We have no way to fund renewables unless we get another revenue stream, and this could be it,” says lobbyist Rancourt.

The Florida Solar Energy Industries Association seems to be buying into that theory. Last summer, the group endorsed opening state waters to drilling in the hope of getting a deal that assigns a fixed, permanent share of oil revenues to solar research and state programs that directly subsidize the purchase and installation of solar equipment.

But What About Our Beaches?

Tourism officials argue that while oil might bring big money, tourism generates much more—including the $1 billion-plus that visitors poured into Sarasota County alone in 2008. As Sarasota County Commissioner Jon Thaxton puts it, “The oil industry has been active in areas that are deprived of commerce, desperate for any kind of activity. We have such prime resources here on which other economic activity depends. To compromise them all, I think, is a bit lopsided.”

While most of the coastlines of Pinellas, Charlotte and Lee counties are designated as marine sanctuaries, the beaches of Manatee, Sarasota and Collier counties have no such protection and could be exposed to drilling. This fall, in anticipation of a contentious legislative session, grassroots resistance has been taking shape in Collier, Lee, Sarasota and Manatee counties.

In Collier County, the county commission passed a resolution, 4-1, that asks for drilling no closer than 25 miles, and for the issue to be put before voters in a state-wide referendum. In September, Sarasota County and municipal officials followed suit, collectively condemning any effort to drop the offshore drilling ban. In October, the Manatee and Lee county commissions issued similar resolutions to ban drilling.

But the state tourism industry’s defense has been in disarray since last year. Apparently hoping it could keep near-coastal waters drilling-free, the Florida Association of Convention and Visitor Bureaus turned away from a clear “no” and announced it would tolerate drilling in federal waters in the eastern Gulf, as long as the drilling is at least 30 miles from Florida beaches. The oil industry’s push this year to open state waters in the three- to 10-mile zone caught FACVB officials off balance.

Tourism players express concern about oil lumps on beaches, unsightly rigs disrupting the sunset on the horizon, about Mississippi Delta-style canals crisscrossing the area, and about pipelines and drilling facilities restricting access to sand for beach renourishment.

Florida Energy Associates knows very well that it is competing for legislators’ votes with the combined political and economic clout of environmental groups, the tourism industry and real estate value-driven cities and counties, particularly along the Southwest Florida coast. They’ve kicked off a campaign pinpointing the concerns.

They promise “minimal impact” from near-shore drilling, citing that the industry’s record on drilling in U.S. waters has been fairly clean for the past 30 years or so. Indeed, improved seismic testing and redundant safety valves have made blowouts and spills rare. According to the federal Minerals Management Service (MMS), despite frequent hurricanes, there have been no major (more than 1,000 barrels) drilling-related spills from a platform or drilling rig in federal waters in the last 15 years.

And because Florida’s Gulf waters are shallow, permanent above-water structures are unnecessary, except for platforms with shutoff valves that look like hydrants that are only as high as the average man. The exploratory drilling equipment will be visible temporarily, for six weeks to six months, in the shape of 200-feet long drilling barges three miles distant—a dot on the horizon.

“No permanent structures will be visible from shore,” promises Rancourt. What’s more, directional drilling technology allows horizontal access to oil and gas deposits up to seven miles distant, either from remote offshore or from onshore locations that can be several miles inland. Directional drilling also allows tapping several fields from just one location. This means no tall oil rigs dotting the horizon at sunset.

Finally, Florida Energy Associates promises to minimize onshore structures and assures that oil companies would ship the crude to out-of-state refineries, via pipeline.

The entire oil-production chain has cleaned up its act considerably. Worldwide, the amount of oil ending up in water bodies shrank from 43 million barrels per year in 1975 to nine million barrels by 2002, according to a 2002 study by the National Research Council of the National Academy of Sciences.

But cleaned-up or not, oil drilling still has considerable risks, including contaminated water (“produced water”) and toxic muds and cuttings produced by offshore drilling that must be taken care of onshore. In Florida, they would likely be processed at a centralized plant near a port, and some  produced water could be pumped into deep wells

for disposal.

Seismic blasts can cause noise-related injuries among marine mammals. And there’s the issue of sinkholes, says Jim Culter, manager of the Benthic program at Mote Marine Laboratory in Sarasota. Little is known yet about offshore sinkholes and whether perforating them would allow contaminants into the state’s water supply.

“We need to know more about the underlying geology,” Culter says.

Most importantly, the sheer scale of operations in the Gulf makes disasters unavoidable. The feds’ Minerals Management Service predicts that, within the entire production and distribution chain, there will be one major oil spill a year of at least 1,000 barrels in the Gulf of Mexico over the next 40 years. A spill of 10,000 barrels or more can be expected every three to four years. As tourism officials point out, just one spill can soil beaches (and an area’s image) for an extended period. In October, a blowout at a drilling rig off the Australian coast operated by Thailand’s publicly traded PTT Exploration & Production caused a major spill and fires.

Over the past two decades or so, the highest-profile spills happened in the process of shipping rather than producing oil, as highlighted by a three-vessel collision off Pinellas County in 1993 that released 336,000 barrels of fuel oil into Tampa Bay.

Drilling supporters point out that the oil that ended up on Pinellas beaches was imported.

As oil industry spokesman Frank Matthews told the Democratic Caucus in Tallahassee recently, Florida already faces that risk, because tankers import millions of barrels of fuel to the state.

Matthews knows very well how to pound this weak spot in the anti-drilling argument—no one is protesting the billions of gallons of fuel we import every year. “Is anybody screaming in horror? Is anybody out there picketing beaches?” Matthews asked rhetorically. “We’ve got to get it from somebody.”

So even while there’s a growing consensus that fossil fuels are not only running low but are the prime cause of global warming, there’s also the political and economic reality that finding and implementing savings and renewable alternatives is a slow, piecemeal process. Particularly for businesspeople, it’s hard to simply say “no” to drilling under these circumstances.

That’s what drilling opponent Keith Fitzgerald is concerned about. In a talk at The Greater Sarasota Chamber of Commerce in October, the Democratic state representative urged local businesspeople to wrap their arms around the complex topic. Fitzgerald is helping to forge a no-drilling coalition that includes small business owners and smart-growth planners.

“I want them to be the opposition,” he says. “If we let [the oil industry] drill three miles offshore, it affects all other economic activities here. It affects real estate, it affects the reason why people come here, it affects the economic development strategy. We need to look at our self-interest.”

Adds Fitzgerald: “There will come a vote, and I will vote ‘no.’ But if it’s going to get through, I want to help shape the way it’s done. It’s kind of a tightrope walk.” ■ 

How oil wealth can warp economies

If the drilling proponents’ most optimistic forecasts come true, oil could challenge agriculture in relative economic size for Florida and generate around 20 percent of state revenues. That sets off alarm bells among some economists.

Studies show when an economy experiences a natural resource boom, manufacturing and agriculture tend to shrink. Eventually, imports replace locally made goods, because so much of the economy is focused on one high-wage sector.

The best research comes from political scientists Erik Wibbels from Duke University and Ellis Goldberg from the University of Washington, who have studied the impact of oil on Texas and Louisiana. Their main conclusion, using 73 years of economic and political data: Oil froze these states in time. Wibbels concludes that oil states’ boom-and-bust cycles average out to below-average growth in the long run, making them among the slowest-growing economies in the U.S.

Norway, the world’s third-largest oil exporter, is one of the few countries that succeeded in avoiding the paradox of plenty effect. The Norwegians set aside the entire inflow of oil revenues for post-boom times, investing them abroad, and then bringing them back little by little. In 1990, the Norwegian parliament created the Statens Pensjonsfond—Utland, commonly known as The Oil Fund (Oljefondet). At $395 billion in assets as of this summer, the Oljefondet is the largest pension fund in Europe, and the fourth-largest worldwide. To put this in perspective: That’s some $86,000 in assets per Norwegian, child or adult.

The approach works: While oil is directly and indirectly responsible for 14 percent of Norway’s mainland economy, oil prices have not been the main economic driver; and fiscal spending has also been largely decoupled from oil price swings.

During the last three decades, Norway’s GDP and real-wage growth was more than double that of the Organization for Economic Cooperation and Development (OECD) average, while unemployment has remained below average. The government is not only virtually debt-free, but has actually grown its net assets considerably. 

The Port Project Dolphin

Port Dolphin Energy, a subsidiary of Norwegian shipping company Höegh LNG AS, plans to build a deepwater port in the Gulf of Mexico 28 miles west of Manatee County. This port would allow tankers bringing liquid natural gas from elsewhere to dock and unload their cargo to a pipeline that would transport the gas onshore and connect it to the state’s gas grid. The landing spot and supply base for the offshore port is expected to be Port Manatee, although spokesman Steve Tyndal said in November the port had not reached an agreement with Port Dolphin yet.

In September, Gov. Charlie Crist approved the Port Dolphin project. As part of the federal permitting process—Port Dolphin would be located in federal waters—the governor must express his support, opposition or neutrality regarding the project. In October, Port Dolphin cleared what spokesman Harry Costello called major federal hurdles.

Construction could begin in 2011. The company expects Port Dolphin to have a $150 million economic impact on Port Manatee and Manatee County over 20 years. Construction aside, that impact would include up to 25 full-time jobs at Port Manatee, where services for docking ships would be based. The stevedoring, crew transfers, food vending, tanker repairs and maintenance could be substantial because each tanker would dock at Port Dolphin on average nine days.

David Rancourt, who coordinates the oil industry’s drilling campaign from Tallahassee, suggests that Port Dolphin could serve as a training ground for Florida companies.

“The more experienced Florida companies get in this type of business, the more likely it is they can later participate in offshore oil drilling,” he says.

The Port Dolphin project is mirrored by an even bigger LNG terminal project on the Atlantic side  of Florida. In two competing bids, energy concerns are planning to build an LNG terminal in the Bahamas and run a pipeline to Broward County.

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