Big risk, big boon: Offshore drilling could create 15,000 jobs

Drilling for oil and natural gas off the Virginia coast has been touted as a potential economic boon for the state and Hampton Roads that would create thousands of jobs and generate billions of dollars in investment in the region.

"This is a tremendous opportunity for Virginia and for Hampton Roads to be a leader in energy," Gov. Bob McDonnell said in a May interview. "The state that is first in offshore oil and gas and wind will gain tremendous infrastructure and investment in the region."

The number of jobs that would be created in Virginia depends on several unknowns, particularly how much oil and natural gas is offshore.

Estimates vary widely - from 1,500 jobs to 15,000. The count also hinges on whether the oil and gas would be processed locally or piped to refineries elsewhere and whether offshore rigs would be supported by local facilities.

In March, President Barack Obama opened the door for Virginia to become the first Atlantic state where oil could be drilled off the coast. Plans for a lease sale in 2012 appeared to be moving forward until an oil rig exploded, killing 11 workers and spewing oil into the Gulf of Mexico.

However, McDonnell said, the potential to create jobs may be too great to call off the sale.

"When you become a region that is known as a base for offshore exploration, you get tremendous advantage to your ports," he said. "You get the rigging companies, the drilling companies, the barge companies, the offshore wind tower companies, all of whom want to locate to your area so they can assemble this equipment and manufacture the equipment because it's too costly to transport."

 One of the reports cited most frequently by the governor is a 2005 study by James V. Koch, an economist at Old Dominion University. Koch was hired by Virginia Natural Gas to take a brief look at the jobs potential for drilling natural gas alone.

He estimated that if the industry was able to produce 350 billion cubic feet a year of natural gas, it would create about 2,578 jobs over 10 years. Koch also noted in the report that 350 billion cubic feet is a conservative estimate, although higher production might not translate into proportionately more jobs.

Koch, however, has cautioned state officials for months not to base assumptions on the study because it was too cursory.

"It wasn't really a full-blown study," Koch said. "That doesn't mean that I'm backing away from the numbers. It just means that they were generated quickly, and so my advice to everybody has been: This is kind of a good start. It gives us some approximations, but we really need to do much more rigorous full work."

A more recent study released in February 2009 by the American Energy Alliance put the jobs number at approximately 15,244 for Virginia over three decades.

The group, an affiliate of the Institute for Energy Research, which has ties to the oil industry, looked at all of coastal Virginia - not just the triangular 4,500-square-mile zone 50 miles off the Eastern Shore designated by the federal government. It estimated that there's about 356 million barrels of oil off the Virginia coast.

The group's jobs projections are based on how much oil it estimates is off the coast. For North Carolina, the group projects twice as many jobs as Virginia because there may be twice as much oil.

Its estimates also take into account an economic "multiplier effect," which includes everything from restaurant staff to gas station operators created as a result of the offshore industry.

"We did everything we could in this study to bias ourselves downward and to try not to blow the numbers out of proportion," said Joseph Mason, the Louisiana State University finance professor who authored the report.

The study used 2006 estimates from the Minerals Management Service for how much oil is recoverable off Virginia's coast.

All told, drilling for oil and gas off every coastal state in the country would create more than 870,000 jobs, Mason estimated.

"The numbers are all over the block as to what's out there," said David W. Schnare, director of the Center for Environmental Stewardship at the Thomas Jefferson Institute for Public Policy, a Fairfax County-based research foundation which describes itself as grounded in a philosophy of limited government, free enterprise and individual responsibility.

Based on conversations he's had with oil industry executives, Schnare suspects there is far more oil off the coast than the government estimates.

However, he said it's difficult to estimate how many jobs might come to Virginia because the amount of oil is unknown and it's not at all clear what facilities and companies needed to support drilling would be based in Virginia. Offshore operations could be supported from nearby states or even the Gulf.

His best guess is about 3,000 jobs, but many could be transferred from the Gulf.

"So they'll be new to Virginia, but they won't be new to the nation, probably," he said. "There will be some new jobs in addition to that, created within Virginia, to service those people, and that's the multiplier effect."

A big factor in how many jobs would be created is where the oil and gas is brought onshore, Schnare said. If the oil industry builds a pipeline to Virginia - as opposed to routing it to, for example, the Delaware Bay, which already has significant refining capacity - the job boost could be significantly higher than his estimates.

"Then now we're talking about heavy construction and shore facilities," Schnare said.

There is a small refinery in Yorktown that could be expanded.

If a lease sale goes forward, offshore drilling companies likely would begin hiring seismologists, geophysicists and geologists to do an initial study in the drilling area, said Larry Wall, a spokesman for the Louisiana Mid-Continent Oil and Gas Association.

Drilling a test well likely would employ about 115 people, Wall said. If oil is found and the test well is converted to an active well, the oil platform that supports the well from the ocean's surface has 100 to 150 workers at any given time.

The Minerals Management Service reports there are 3,560 oil platforms in federal waters in the Gulf of Mexico, but not all of those platforms would be staffed around the clock, Wall said.

His association has estimated that each oil drilling job supports about four other jobs onshore.

"It's a small very compact city," Wall said. "You should think of it like a rural area that has to go to town for supplies."

With oil still gushing into the Gulf of Mexico from the BP rig explosion last month, the Minerals Management Service, which regulates offshore drilling, postponed public hearings on the sale.

The governor and local officials are reevaluating whether new jobs are worth the potential of a massive spill off Virginia's coast.

"While I'm a strong supporter of the energy and the jobs that come with it, we certainly don't want to go forward without a lot of questions answered from the Gulf," McDonnell said. "I think we've got to wait and find out how well they're able to mitigate these spills and how well we can get assurances after the investigation that these can be mitigated in the future."

The governor said he believes after safety inspectors find out what went wrong in the Gulf, that "we'll find a way to as a nation to make the progress necessary to have new regulations and new technology to try to prevent these kind of accidents that happen."

Republican State Sen. Frank Wagner, who's also president and CEO of Davis Boat Works in Newport News, has been one of the state's most outspoken proponents of offshore drilling in recent years.

"It's a major step-back for the industry, what's gone on in the Gulf of Mexico," he said. "My belief is we need to stop what we're doing right now. I think we should put everything on hold."

But, he too said that if the industry can figure out what went wrong and how to prevent it from happening again, he's in favor of moving ahead and drilling off the coast of Virginia.

Other local officials are less optimistic.

"Am I taking it off the table? No. Am I discouraged? Yes," said Virginia Beach Mayor Will Sessoms.

Sessoms said he's inclined to support offshore wind energy production over oil exploration.

Koch, the ODU economist, said that if offshore exploration does go forward, Virginia officials may find it politically easier to pursue natural gas, which is potentially less environmentally risky than oil.

Another roadblock emerged last week when the Defense Department said much of the area being looked at for oil and gas exploration would interfere with military operations.

For now, the governor said he's in a wait-and-see mode.

"If we have rampant destruction of the environment, we're going to have to rethink this," McDonnell said. "I certainly don't want to have an accident like that off of Virginia's coast to foul our beaches and tourism industry."

Josh Brown, (757) 446-2318, josh.brown@pilotonline.com