Trump to Open California Coast to Oil Drilling

State waters stretch between three and nine nautical miles offshore before turning into federal waters, which reach 200 nautical miles into the ocean. The New York Times reported that the federal waters near California proposed for offshore oil drilling are along the shore of Santa Barbara County, where some drilling already takes place.

The lease offerings come as the U.S. oil industry has been shedding jobs, and low global oil prices have impacted its balance sheets. Even with more opportunities to lease, experts in energy economics don’t believe the oil industry will rush to drill more oil.

Will the oil industry want to access California waters?

“It’s economics that is holding back production,” said Lucas Davis, a professor at the Haas School of Business at the University of California, Berkeley.

Global oil prices are currently in the low $60-per-barrel range. At that price point, 71% of large U.S. oil companies said they would have to decrease oil production, not expand it, according to a Dallas Fed survey. To expand production, most oil companies want to see prices around $75 per barrel.

However, Davis told Straight Arrow News that market conditions could change if the economy picks up and oil demand rises, or if some supply sources currently flooding the market dry up.

In a June letter to the Bureau of Ocean Energy Management, a consortium of industry groups led by the American Petroleum Institute pressed for expanded offshore leasing not only in California, the Gulf Coast and Alaska, but also along the coast of Florida and in the Atlantic.

The letter said all areas on the outer continental shelf with “potential to generate jobs, new revenue, and additional production to advance America’s energy dominance should be considered.”

Davis said that although right now the economics do not pencil out for expanded production, the industry wants options for the future if market conditions change. “Access to more areas means there’s more opportunities,” he said.

“The industry is reflexively always on the lookout for more lease sales,” said John Quigley, a senior fellow at the Kleinman Center for Energy Policy at the University of Pennsylvania.

Expanded leasing in the Gulf of Mexico is likely to see a stronger response from the industry because more infrastructure already exists there. In California, where a lease sale hasn’t occurred in about 40 years and production costs will be higher, Quigley said, “there doesn’t appear to be any economic rationale to explore uncharted waters.”

The path for California to resist offshore oil leasing is unclear because federal waters of the outer continental shelf are outside state jurisdiction.