The removal of “obstacles” to drilling in the Gulf of Mexico announced by Donald Trump is not expected to unlock additional oil reserves in an already saturated market. That is the conclusion of journalists at Grist, a Seattle-based nonprofit magazine specializing in environmental issues. The survey, conducted in collaboration with colleagues at Verite News, focuses on existing drilling leases in the area highlighting that the vast majority of them are currently untapped. With the current production at record level in the U.S., Grist says, it is unthinkable that the situation will change unless extraction costs decrease significantly.
Only one-fifth of contracts produce oil
Oil leases grant companies permission to explore, drill and produce for a defined period. These agreements can establish various aspects such as surface use rights or a right of first refusal that allows the owner to renew the concession itself before a competing company buys it. Royalties on oil contracts usually range between 12.5 and 25 percent of the countervalue of production and are paid to landowners, individual states or the federal government. The contract includes a primary term (1-10 years) and a secondary term that is triggered if production continues after the first term.
The problem, Grist noted, however, is that as of January only one-fifth of the 2,206 active contracts in the Gulf of Mexico-448 to be exact-were producing oil. Should Trump expand concessions and accelerate permitting, the magazine argued, the oil industry would still be reluctant to make new investments at the risk of generating an oversupply. The U.S. Department of Energy estimates that global oil production will grow more than demand generating a price decline of 8.6 percent in 2025 and 10.8 percent the following year.
Artificial intelligence supports the fossil industry in greenwashing
Manufacturing concessions drop again in February
Grist’s analysis, which focuses on the current year, also finds important findings in the long run. The Bureau of Ocean Energy Management (BOEM) is the U.S. government agency that manages offshore oil concessions in three macro areas. Alaska, Gulf of Mexico and the Pacific. Since 2011, it has provided monthly data on the number of drilling contracts, projects in place and the extent of territories affected by the projects.
The latest report released in February speaks of 2,200 concessions of which 439 are productive in the Gulf of Mexico ( mentioned as Gulf of America, Sic).
Including Pacific (30) and Alaska (11) comes to a total of 2,241 contracts for offshore operations, 472 of which are actually exploited. On balance, for the three macro regions, the total area covered by the contracts amounts to less than 50 thousand km2: that actually subject to extractive activities slightly exceeds 10 thousand km2, the untapped area comes to 39 thousand km2.
Exploited area reduced by two-thirds in 15 years
In January 2020, on the eve of the Covid pandemic, there were 741 active contracts, accounting for about 28 percent of the total (2,680) and covering 15 thousand km2. The untapped area reached nearly 43 thousand km2. At the end of 2011, the oldest year for which data are available, productive concessions were about a quarter of the total: 1,690 out of 6,592. The area involved in production was close to 25,500 square kilometers; the unused area exceeded 118,000 square kilometers.
In summary: in 15 years the number of outstanding contracts was reduced by 2/3, the extent of exploited area dropped by 60%. At the same time, the incidence of concessions actually used out of the total number of existing concessions has decreased from about 26% to 21%.
In other words, at the beginning of last decade there were 1 in 4 truly productive contracts, today there are 1 in 5. Finally, the weight of the area subject to extraction on the total covered by concessions, yes, has increased but not too significantly from 17 to about 20 percent.
US companies are already optimizing production
How about in the future? Grist quoted a statement made last November by ExxonMobil CEO Darren Woods that at current production levels in the U.S. many companies would already be optimizing production. Despite this, the magazine continues, some companies may acquire offshore permits without the intention of exploiting them for speculative reasons or, in general, to take them away from the availability of competing companies. In this scenario, however, the simplification of regulations promised by Trump would allow companies to reduce costs related to bureaucracy and environmental controls, thus generating an economic advantage.
