Special Report

LOST Oil Prophets

Oil companies are deluding themselves if they think the Law of the Sea Treaty will expand their opportunities for oil drilling.

By 7.14.08

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Against the alarming backdrop of gasoline prices at over $4 a gallon, oil industry executives are busily working the halls of Congress to make the case for increasing domestic oil supply. In addition to pushing for access to the Arctic National Wildlife Refuge (ANWR) and oil reserves off the east and west coasts, however, some industry reps are also rehashing the argument that the Law of the Sea Treaty (LOST) presents an opportunity further to secure American oil by "locking in" drilling rights in our Arctic continental shelf.

It should arguably be self-evident to the oil industry, based upon its own long and difficult experience with trying to open up additional domestic sources, that LOST enthusiasts are promising much more than our politicians have shown a willingness to deliver. Were the industry to think things through and conduct its due diligence on this treaty, it would also be self-evident that LOST will impose severe costs on American oil companies, leaving the consumer stranded at the pump with even higher gasoline prices, after having been led to believe that salvation lies beneath the polar ice.

On paper, LOST provides a mechanism through which a state party can seek to expand the outer limits of its continental shelf beyond the standard 200 miles from shore, and exploit the natural resources within that area. Under procedures laid out in Annex II of the treaty, the petitioning party submits geologic data and makes its case for expansion before a LOST body called the Commission on the Limits of the Continental Shelf, which then makes its determination as to the claim. The American Petroleum Institute and other industry players have therefore estimated that under LOST, the U.S. could expand its mineral exploration/development area by just under 300,000 square miles.

Sounds like a great way to bring more oil on-line, and bring gasoline prices down, until one is faced with two harsh realities: the persistent division within Congress on domestic oil exploration, and the persistent agenda of the international community to "level" the global economic playing field at the expense of American enterprise.

It has become abundantly clear over successive Congresses and administrations that the political will to expand domestic oil/gas extraction simply does not exist. Even now, with President Bush pushing Congress to lift the ban on offshore exploration and open ANWR, Speaker Pelosi's response has been to dismiss these proposals as "more of the same failed policies of the past..."

This gridlock over ANWR and offshore drilling, of course, has been with us for decades. In 2005, even with a supportive President and a House and Senate controlled by largely supportive Republicans, ANWR leasing could not find its way into that year's energy bill. Merely considering the idea became a non-starter with the 2006 Democratic takeover of both chambers redefining the legislative landscape.

Offshore drilling has so far not fared any better. Repeated attempts to lift decades-old bans on it have failed, even with mechanisms thrown into energy legislation over the years that would have allowed coastal states the opportunity to permit or deny exploration at various distances off their respective coasts.

Then there's the polar bear, which Interior Secretary Kempthorne announced in May he was listing as a threatened species under the Endangered Species Act. Although his office has asserted that the listing will still allow energy production in Alaska, members of Congress -- including Rep. Edward Markey, chairman of the House Select Committee on Energy Independence and Global Warming -- have expressed strong objections to any such notion. Do we really believe none of this will resurface if oil companies are given the green light to drill in our section of the Arctic continental shelf?

GIVEN ALL OF THIS, is there really any basis on which the oil industry can assume that more area on which to drill in theory will result in more drilling opportunities in practice? In all likelihood, any newly acquired continental shelf will likely be locked away with the rest of the oil prospects. As hopeful as the industry may be, pushing LOST to increase oil supply is ultimately akin to Sisyphus rolling his rock up the hill, doomed to watch it fall to the bottom yet again.

Suspending disbelief for the moment and assuming new drilling would be allowed, joining this treaty would be far from cost-free, either for the oil industry or for the American consumer. As has been thoroughly documented by Lawrence Kogan of the Institute for Trade, Standards and Sustainable Development, the marine environmental protection requirements emanating from LOST are rooted in the European-derived "precautionary principle," a legal tenet requiring assurance that a proposed action will cause no harm to the environment before proceeding. The costs of this regime are real, and the risk is not hyperbole -- according to a recent front page article from the Washington Post, American chemical companies must now conform to recently passed EU laws premised exactly upon this principle, which affected companies are saying will add billions to their costs.

Other pitfalls for the industry lie buried deep within the treaty text. LOST contains numerous technology transfer requirements that will undoubtedly be used to compel American oil companies to hand over sensitive technologies to other nations. LOST's provisions on prevention of marine pollution from land-based sources could easily serve as a convenient peg on which to hang the greenhouse gas-regulating Kyoto Protocol, even though that treaty has also never been ratified. All of these increased costs of doing business will predictably be passed on to the consumer, the addition of American Arctic oil to the market notwithstanding.

The American people are rightfully demanding solutions to our energy crisis, but make no mistake: LOST is not one of them. Big Oil's arguments to the contrary ignore the political track record on increasing domestic supply while underestimating the harm that LOST will likely inflict upon the industry, with the effect of raising gas prices, not lowering them. So much for locking in relief.

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About the Author

Ben Lerner is Vice President for Government Relations at the Center for Security Policy in Washington, D.C.