Offshore oil and gas development dependent on legal protection of UNCLOS
Offshore operations are capital-intensive, requiring significant financing and insurance. Oil and natural gas companies do not want to undertake these massive expenditures if their lease sites may be subject to territorial dispute. They operate transnationally, and need to know that the title to the petroleum resources will be respected worldwide and not just in the United States.
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In the Methane Hydrate Research and Development Act of 2000 Congress mandated the National Research Council to undertake a review of the Methane Hydrate Research and Development Program at the Department of Energy to provide advice to ensure that significant contributions are made towards understanding methane hydrates as a source of energy and as a potential contributor to climate change. That review is now underway. The U.S. Navy has also done work on gas hydrates, as has the U.S. scientific community, including universities such as Louisiana State University and Texas A&M. Significant research is also being conducted by scientific institutions in Japan. The United States needs to have a seat at the table of the Continental Shelf Commission in order to influence development of any international rules or guidelines that could affect gas hydrate resources beyond our EEZ.
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In conclusion, from an energy perspective we see potential future pressures building in terms of both marine boundary and continental shelf delineations and in marine transportation. We believe the LOS Convention offers the U.S. the chance to exercise needed leadership in addressing these pressures and protecting the many vital U.S. ocean interests. Notwithstanding the United States’ view of customary international law, the U.S. petroleum industry is concerned that failure by the United States to become a party to the Convention could adversely affect U.S. companies’ operations offshore other countries. In November 1998, the U.S. lost its provisional right of participation in the International Seabed Authority by not being a party to the Convention. At present there is no U.S. participation, even as an observer, in the Continental Shelf Commission— the body that decides claims of OCS areas beyond 200 miles— during its important developmental phase. The U.S. lost an opportunity to elect a U.S. commissioner in 2002, and we will not have another opportunity to elect a Commissioner until 2007.
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With respect to our oil and gas and deep seabed mining industries, however, there are especially compelling reasons why the United States needs to promptly adhere to the Convention. Our oil and gas industry is simply unlikely to move forward in development of the continental margin of the United States in areas beyond 200 nautical miles until United States adherence solidifies the legal regime for them in such areas. And our deep seabed mining industry is now moribund, and will remain so, absent United States adherence to the Convention. The United States led the world toward development of the technology for the recovery of deep seabed minerals. Our industry collectively expended more than $200 million to identify and obtain international recognition for five prime mine sites. At present three of those sites lie abandoned and the other two are on hold with zero chance of activity absent United States adherence. The Congress should clearly understand that accepting the arguments of the critics and opposing moving forward with the Convention is to permanently put the innovative United States deep seabed mining industry out of business, and to accept a reality that only the firms of other nations will be able to mine the deep seabed.
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The Foreign Relations Committee heard testimony by Paul Kelly, on behalf of petroleum and other industrial associations, advocating Treaty accession as a means of facilitating energy development on the continental shelf beyond 200 nautical miles. While the Convention allows for continental shelf claims to 350 miles and in some cases even beyond this, as a non–state party, the United States has no treaty-based means of making such a claim. Kelly painted a picture of an energy industry ready, willing, and able to move oil and gas extraction production into deepwater areas beyond 200 nautical miles of the United States. Citing technology that now allows for oil and gas development in water depths approaching two kilometers, Kelly pointed out that “U.S. companies are interested in setting international precedents by being the first to operate in areas beyond 200 miles and to continue demonstrating environmentally sound drilling and production technologies.” " While Kelly touted the ambitious and environmentally sound plans of industry, the environmental community had its own advocate citing the myriad reasons for Treaty accession. "
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Offshore oil and natural gas exploration along the extended continental shelf – an area beyond the 200-nautical-mile EEZ – is expected to increase U.S. reserves over the next decade. However, the United States cannot secure internationally recognized sovereign rights to those resources unless it ratifies LOSC. While the United States enjoys national jurisdiction over living and non-living resources above and below the seabed out to 200 nautical miles, claims to resources beyond the EEZ must be formally made to the U.N. Commission on the Limits of the Continental Shelf, the international body established by LOSC for parties to adjudicate claims to the extended continental shelf. Without the United States ratifying LOSC, U.S. companies operating beyond the EEZ would be considered on the high seas and beyond the formal legal protection of the United States. As a result, offshore drilling companies have increasingly expressed their concern about the lack of legal protections afforded to U.S. companies and have indicated a reluctance to assume significant risk in operating in areas beyond U.S. jurisdiction. In short, U.S. failure to ratify LOSC could have a chilling effect on commercial resource exploration and exploitation on the extended continental shelf.
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Offshore operations are capital-intensive, requiring significant financing and insurance. Oil and natural gas companies do not want to undertake these massive expenditures if their lease sites may be subject to territorial dispute. They operate transnationally, and need to know that the title to the petroleum resources will be respected worldwide and not just in the United States. Availability of clear legal title is crucial to realizing the potential of U.S. offshore areas both now and in the future, as drilling technology continues to advance and make new projects feasible. As ExxonMobil emphasized in its recent letter to this Committee, before it undertakes the immense investments required to explore and develop resources beyond 200 miles, “legal certainty in the property rights being explored and developed is essential.”
Until we ratify the treaty, no U.S. companies will operate on the extended continental shelf. Aside from a small pocket of territory in the western Gulf of Mexico where we have bilaterally negotiated a boundary with Mexico, companies cannot be granted the certainty that leases of these regions would not be challenged in international courts.
Without becoming party to the treaty and gaining a seat at the negotiating table where decisions are made about how to partition out extended-shelf claims, we will be unable to assure industries that the international community will recognize a U.S. lease. Businesses, even those with extremely deep pockets such as Big Oil and Lockheed Martin, have been very clear: If we don’t ratify, they won’t operate. Companies want to create those jobs, generate revenue, and increase domestic production. But no certainty means no investment. No treaty means no security, no jobs, no dollars, no resources. It’s that simple.
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Critics suggest accession to UNCLOS is not required in order for the United States to claim an ECS, since the 1958 Continental Shelf Convention and the 1945 Truman Proclamation already support a unilateral U.S. claim. Although that may be true, the metric for determining the outer extent of the ECS is more generous in UNCLOS than in the 1958 Convention or the Truman Proclamation, both of which rely on an “exploitability criterion” to identify the outer limit of the ECS.30 More importantly, the U.S. oil and gas industry believes that unilaterally claiming an ECS outside UNCLOS may be challenged by other nations in courts throughout the world, and has therefore repeatedly argued that legal certainty/security of tenure to explore and exploit the resources of the ECS can be obtained only through UNCLOS.31 The bottom line is that U.S. industry will not invest in offshore oil and gas production in the ECS unless the United States is a party to UNCLOS.32
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The isolationists were also concerned that U.S. corporations could be subject to the compulsory dispute resolution measures in the Convention. This highlights the limited knowledge of those who signed the letter to Senator Reid. Lawyers who practice international law prefer international arbitration or appearing before an international tribunal rather than local adjudication in a country whose legal system may not be well-established. These U.S. senators seem to believe that by bypassing UNCLOS ratification, disputes will be subject exclusively to U.S. law. This belief is incorrect, as U.S. corporations have subsidiaries worldwide that are subject to lawsuits in local jurisdictions.
Offshore petroleum production is a major technological triumph. We now have world record complex development projects located in 7,500 feet of water in the Gulf of Mexico which were thought unimaginable a generation ago. Even more eye-opening, a number of exploration wells have been drilled in the past four years in over 8,000 feet of water and a world record well has been drilled in over 10,000 feet of water. New technologies are taking oil explorers out more than 200 miles offshore for the first time, thus creating a more pressing need for certainty and stability in delineation of the outer shelf boundary. Before the LOS Convention there were no clear, objective means of determining the outer limit of the shelf, leaving a good deal of uncertainty and creating significant potential for conflict. Under the Convention, the continental shelf extends seaward to the outer edge of the continental margin or to the 200-mile limit of the EEZ, whichever is greater, to a maximum of 350 miles. The U.S. understands that such features as the Chukchi Plateau and its component elevations, situated to the north of Alaska, are not subject to the 350-mile limitation. U.S. companies are interested in setting international precedents by being the first to operate in areas beyond 200 miles and to continue demonstrating environmentally sound drilling development and production technologies.
Today our industry associations and their member companies are devoting much time and money lobbying for increased access to public lands within the U.S. Exclusive Economic Zone. The Law of the Sea Treaty will provide access opportunities to explore vast acreage beyond 200 miles off the coast of any nation that can delineate its shelf in a manner that meets the requirements of Article 76 of the Convention.
The author discusses the opportunities the offshore oil and gas industry has to break boundaries provided by "Exclusive Economic Zones" off the coasts of all our nations and take exploration beyond the traditional 200-mile limit. The means by which this can and will be accomplished is the 1982 United Nations Convention on the Law of the Sea (LOS).
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