Oil Industry Rethinks Cost, Risk Of Drilling In U.S. Tighter regulations and tougher safety standards in the aftermath of the Gulf spill could mean higher costs for companies engaged in offshore oil drilling. As a result, oil production could shift to countries with less governmental oversight and fewer safeguards.

Oil Industry Rethinks Cost, Risk Of Drilling In U.S.

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This is MORNING EDITION from NPR News. I'm Renee Montagne. Good morning.


And I'm Don Gonyea.

The flow of oil in the Gulf of Mexico is capped, but its effects continue to play out. The Obama administration's moratorium on deep-water drilling is still on. Lawmakers are looking to hold oil companies more accountable for damages caused by a spill.

In a moment we'll hear about the many lawsuits against BP.

We begin our coverage with NPR's Tom Gjelten, who's been looking at what the Gulf spill could yet mean for big oil.

TOM GJELTEN: It may have come as a surprise to some people that BP had to put its well a mile below the surface of the water and then from there go down another 13,000 feet to find oil. But as writer Michael Klare points out, the easy to get oil has already been gotten.

Mr. MICHAEL KLARE (Author, Rising Powers, Shrinking Planet): We're going to have to dig deeper into the earth, further offshore, further north into the Arctic. The easy oil is gone. From now on we're relying on these extreme energy situations and they do entail these risks.

GJELTEN: Oil people are well aware of that truth, but the Gulf of Mexico spill has brought the point home to a much wider audience, at least in this country.

A presidential commission is reviewing the disaster with a mandate to recommend possible new drilling regulations. The energy bill coming up for a vote in the Senate would increase the liability oil companies have to accept.

Industry analyst Daniel Yergin sees rethinking all across the energy spectrum as a result of the Gulf spill.

Mr. DANIEL YERGIN (Cambridge Energy Research Associates): From how the offshore oil industry operates to what our energy mix is and thoughts about what our energy mix will be like in 20 or 30 years.

GJELTEN: Tighter regulations would mean higher costs for companies engaged in offshore oil drilling. Insurance rates are already rising.

But it's by no means clear that new restrictions would prompt energy companies to abandon risky oil projects, much less to invest more in energy alternatives. Here's why: Deep-water drilling is not getting the new attention in other countries that it's getting in the United States.

Daniel Yergin, who is chairman of IHS Cambridge Energy Research Associates, says those countries that have invested the most in offshore operations are generally sticking with their plans.

Mr. YERGIN: Whether it's Brazil, Angola, Norway, offshore developments are very much tied into their overall economic development goals. I think they are going to continue, and some countries may even see an intensification of activity as operators move away from the Gulf of Mexico, at least temporarily, to other parts of the world.

GJELTEN: Other parts of the world where there are fewer regulations. This could be one of the early consequences of the Gulf spill - a significant shift of global production. Who would gain? Brazil and Norway, for sure, but also Nigeria, Angola and Equatorial Guinea. BP is said to be ready to begin deep-water drilling off the coast of Libya.

David Kotok, who monitors the oil industry as chief investment officer for Cumberland Advisors, imagines a scenario of reduced offshore oil production in the United States and thus a loss of U.S. energy independence.

Mr. DAVID KOTOK (Cumberland Advisors): We have shifted from the U.S. company to somebody else. We've placed the production and drilling and exploration in the hands of less friendly governments, and we've raised our dependency on those less friendly governments.

GJELTEN: Such a shift could happen quite quickly. Massive drilling rigs like the one BP was using in the Gulf rent for as much as a half-million dollars per day. Some of them will now be sitting idle as a result of the temporary U.S. drilling moratorium. Kotok expects companies to move the rigs to other parts of the world where deep-water drilling continues.

Mr. KOTOK: That may take six months or a year, but they will do so. When they do so, if we then change the rules and say come on back, it'll be too late. You don't pick up and move these things quickly.

GJELTEN: Much of this is speculation. It's still too early to say what exactly the Gulf of Mexico disaster will finally mean for the environment, for the oil industry, for U.S. energy security, or even for oil prices.

Authoritarian oil-rich governments could benefit, the American public could get more interested in energy alternatives, or the oil industry could adopt new technology that would lessen the risks associated with deep-water drilling, or drilling in the Arctic for that matter. But inevitably a disaster on this scale will have repercussions.

Tom Gjelten, NPR News, Washington.

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