The American Petroleum Institute warns that additional federal environmental requirements loaded on U.S. exploration and production could result in major costs to the economy without matching benefits.
API said, "Highly restrictive requirements have been proposed and are currently under consideration in Congress, the Environmental Protection Agency, and other government agencies."
It reckons current regulatory proposals alone could cost the industry more than $14 billion during the next 5 years, greatly reducing U.S. petroleum production and causing the volume of oil imports to rise faster.
API warned that U.S. oil and gas production could fall 6% by 2000, slashing revenues for federal and state treasuries by as much as $9 billion.
And it said the proposals could cause nearly 55,000 jobs throughout the economy to be eliminated while achieving little environmental benefits.
AGENCY AGENDAS
API said EPA has developed a regulatory agenda that could impose new requirements on the E&P sector, and the Minerals Management Service has major actions pending.
"In addition to these regulatory actions, several major federal environmental statutes are due for reauthorization. Most have the potential to create additional complex, expensive compliance requirements for the E&P industry."
Those up for reauthorization include the Resource Conservation and Recovery Act, Clean Water Act, Safe Drinking Water Act, Toxic Substances Control Act, Endangered Species Act, and Comprehensive Environmental Response, Compensation, and Liability Act.
"These new proposals and the costs accompanying them would be imposed in addition to existing environmental requirements, API said.
"Domestic oil and gas producers are making substantial investments to protect the environment. In 1992, the most recent year for which data are available, the E&P industry expended nearly $1.6 billion on environmental protection measures."
It estimated legislative moves under consideration could raise industry costs another $27 billion, including initial compliance and increased operating costs.
"To provide some perspective on these costs, the 300 largest publicly traded oil and gas companies had a combined net income in 1993 of only $18.3 billion.
"On an annual basis, the regulatory initiatives analyzed could raise industry expenditures by nearly $2.9 billion. Including the $1.6 billion in current environmental compliance expenditures, this amounts to nearly a tripling of current environmental protection expenditures by the E&P industry.
"If both the regulatory and legislative proposals analyzed were enacted, incremental costs to the E&P industry could approach $5.5 billion annually for a total of more than $7 billion, including current compliance expenditures."
WHAT COULD BE LOST
API said operators would have to abandon many leases. Depending on requirements imposed, 171,000-250,000 oil wells and 33,000-49,000 gas wells could be plugged.
Current crude oil production could decrease 5% or 295,000 b/d and gas production 6% or 1.1 tcf if only the regulatory initiatives considered were imposed.
API called for the U.S. to adopt an approach that selects regulatory targets based on risk assessment and order of importance. Rules should be subjected to sound scientific analysis, then to cost-benefit analysis.
Finally, API said, regulators need to give industry more flexibility to meet standards.
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