Its continuing viability and strategic importance has a real impact
The great American author Mark Twain was quoted as saying, The reports of my death have been greatly exaggerated. The same might be said of the Gulf of Mexico, that prodigious oil-producing region bordered by the southern United States, Mexico and Cuba. Following BPs Macondo spill in April 2010 and resulting U.S. government moratorium on exploration and production activity during 2010-2011, oil production in the Gulf region has been steadily climbing to near prespill levels. While the U.S. shale oil and gas revolution has recently overtaken much of the media, the Gulf of Mexico remains an important part of global oil producers strategic plans.
At the same time, much has been written in the media about the viability of alternative/renewable sources of energy, including solar, wind, geothermal and biofuels. While the U.S. inches ever so slowly towards wide adoption of these alternative fuels, it is likely that in the mid- to long term, oil and gas will remain the fuels of choice for North American businesses, particularly small businesses.
Why the Gulf is Important to Small Business
What makes the Gulf a viable place to do business? One of the factors driving the resurgence in production in the area is the price of oil. Over the last six months, West Texas Intermediate oil has averaged around $90 to $100 per barrel. Steady oil prices give producers the incentive necessary to continue drilling not only in deep water but also in the Gulfs shallow waters.
The Gulf is one of the critical oil-producing regions for North America and acts as a buffer against high and volatile global oil prices. Steady oil prices translate into steady gasoline prices, which allow small businesses to continue to profitably serve their customers. Small businesses typically are less profitable when gasoline prices rise above $4.50 per gallon. When prices rise above that mark, small businesses must pass the added cost of fuel on to their customers in the form of a fuel surcharge. In this way, high gasoline prices act like a tax on consumers.
Oil produced in the Gulf can be even more valuable than land-based crude, because it doesnt have to be delivered to refineries using the overtaxed pipeline system. The ideal scenario is that crude oil is loaded onto tankers and shipped anywhere in the world. To make drilling more palatable to oil companies, the Obama administration recently overhauled requirements for Gulf drilling permits. Officials removed a number of waivers that allow drillers to bypass some environmental reviews and added additional safety measures, including advanced spill-containment equipment. Another characteristic that has enabled the revival in Gulf drilling is an improvement in seismic technology that gives exploration and production managers a clearer picture of precisely where to drill. Coupled with pricing, geographical location, streamlined permitting and a favorable tax and royalty regime in place, it is no wonder the area is highly favored by the U.S. exploration and production industry.