Monday, August 06, 2007

Ruling the Waves

One reason that the energy industry has fascinated me for as long as I can remember is the way in which it connects to nearly everything, especially in the realm of geopolitics. The UN Convention on the Law of the Sea (LOS) provides a great example. The LOS was a hot-button issue back in the 1980s and again in the early 1990s, before disappearing from sight--at least for the American public. When the Senate again took up the subject of its ratification earlier this year, the LOS suddenly reappeared in a flurry of duelling op-eds and editorials. While most of its remaining controversies involve issues of national security and military navigation, the LOS has profound implications for the energy industry, as our extraction technology makes increasingly-remote resources accessible. With most of the rest of the world having already ratified this treaty, we only stand to lose by continuing to defer our accession to it, at least from an economic perspective.

Reading the recent op-eds jogged a lot of old memories. The Reagan Era version of the LOS, like its cousin the so-called Moon Treaty, reflected the competing ideologies of the Cold War and appeared to impose a Soviet-style approach on the exploitation of much of the world's resource endowment, which lay beyond the limits of then-current technology. For many in the oil and gas industry at the time, the idea of drilling on the Outer Continental Shelf, in more than a mile of water, might have seemed as fanciful as drilling on the moon. But the US argued successfully against these provisions, and I regard it as highly significant that former Reagan Administration and Bush-I officials such as Kenneth Adelman and Lawrence Eagleburger are satisfied by the subsequent modifications to the LOS's mechanisms on resources.

The enthusiasm of the energy industry for this treaty is understandable. Companies need a clear delineation of resource rights, when they negotiate agreements for access to undersea oil and gas deposits, once technology advances bring them within range. That applies not only to margins of the US continental shelf, which under the LOS would extend beyond 200 miles in places, and up to 600 miles in the Arctic, but also to the offshore regions of Africa, Asia, Australia, Europe and South America, all of which already produce large quantities of oil and gas. However, this should be seen as more than just an extension of the industry's search for profits and shareholder value. A sizable fraction of the world's future energy supply will likely come from these seabeds, and it is also conceivable that in the future, important quantities of oil and gas will be found in the regions beyond any national waters, as defined by the LOS, and will thus fall under the purview of the International Seabed Authority. Until we ratify the treaty, the US cannot take up our permanent seat on that Authority's governing Council.

I'm also struck by the irony of another international treaty for which the US remains the most significant non-ratifying nation, even though an important chunk of it was renegotiated to suit our interests. Four successive US administrations have treated the LOS as US policy, despite our not having officially signed on. At the very least, this situation dilutes some of the congressional criticisms of the current administration over Kyoto, since in the case of the LOS their roles are largely reversed.

In concluding, I have to concede that there might still be a few serious security concerns that could trump our numerous other advantages in joining this treaty. Dismissing those is beyond my expertise, although I find it persuasive that many former military and government officials with impeccable security credentials have publicly endorsed the treaty's ratification. From a national and global energy perspective, formalizing our adherence to this agreement--and thereby gaining our rightful voice in its various bodies--seems to offer only upside, with negligible downside risk. It could also buy us some international good will and legitimacy, at a time when our stocks of those commodities have become depleted.

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