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RFF: Some Implications of Tightening Regulation of U.S. Deepwater Drilling

Author: Stephen P.A. Brown, Professor of Economics and Director of the Center for Business and Economic Research, University of Nevada, Las Vegas
June 22, 2010

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In this RFF paper, Stephen P.A. Brown examines the implications of a tightening of U.S. government regulatory safeguards on deepwater offshore drilling in three scenarios.

The disastrous explosion of the Deepwater Horizon drilling rig has resulted in the largest offshore oil spill in U.S. history, with an estimated 1.7 to 3.0 million barrels of crude oil released into the Gulf of Mexico from the blowout on April 20 through mid-June 2010. The ecological damage is severe and clean-up costs are likely to be high. Such a disaster raises questions about unforeseen risks associated with offshore drilling operationsóparticularly in deepwater areas,
such as where the Deepwater Horizon was working and where technology is pushed to the edge.

In the wake of the disaster, many Americans are calling for tighter U.S. regulation of offshore drilling operations. For now, new offshore deepwater drilling is at a standstill. On May 27, the Obama administration announced a six-month moratorium on deepwater oil and gas drilling and the shutdown of deepwater exploratory wells already operating in U.S. waters until they meet new safety requirements.

The oil spill and subsequent calls for tighter government controls raise several questions. What role does offshore petroleum and natural gas production play in U.S. energy markets? What would be the implications of tighter controls on deepwater drilling? What would happen if deepwater drilling were banned? How would such changes in deepwater drilling affect U.S. energy prices and the patterns of oil and natural gas consumption, production, and imports?

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