Analysis: On a clear day you may soon see a rig off Virginia

WASHINGTON Tue Aug 16, 2011 5:48pm EDT

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WASHINGTON (Reuters) - Fifty miles off the coast of Virginia is a sliver of ocean the shape of a pizza slice and home to at least 130 million barrels of oil and more than a trillion cubic feet of natural gas.

A previously scuttled plan to drill in these waters offshore Virginia Beach has resurfaced and could get the green light at a time when an election-minded Obama administration is trying to salvage its credentials as worthy guardian of the U.S. economy.

Fluctuating gasoline prices, a faltering economy and fading fears of another BP-style oil spill have put the mid-Atlantic back on the radar for the oil and gas industry, some lawmakers, industry and policy analysts say.

"I think things are getting pretty desperate now in terms of looking for things that could appear as job creating, and might help with revenues," said Guy Caruso, a senior energy analyst at the Center for Strategic and International Studies, a Washington think tank.

Lawmakers on the Senate Committee on Energy and Natural Resources will debate legislation on offshore drilling in September when the Senate returns from recess, according to a Democratic senior Senate staffer.

One of the bills under consideration would allow the leasing of 3 million acres (1.2 million hectares) of ocean offshore Virginia for oil and gas exploration beginning in 2012.

President Barack Obama canceled plans to expand offshore drilling in the Atlantic and Arctic oceans after the massive BP oil spill in the Gulf of Mexico last year.

The proposed area off Virginia holds a fraction of the country's offshore energy reserves but state leaders, including Democrats, are billing it as an economic winner in desperate times.

"It could amount to tens of millions of revenues if not hundreds of millions of dollars in a long-term revenue stream," Senator Mark Warner, a Democrat from Virginia, said.

Virginia Governor Bob McDonnell, a long-time supporter of offshore exploration, said the move would bring thousands of new jobs to the state.

"There are still many, many, too many Virginians out of work. So we need those jobs and we need those revenues," said Maureen Matsen, senior adviser on energy to the governor.

USING A CROWBAR

Environmentalists say the industry is using Virginia as the wedge to get drilling going along the entire eastern seaboard.

"They have always wanted to use us as a crowbar to pry open the moratorium because they want to get to other Atlantic coast states," said Eileen Levandoski, a Virginia Beach resident and program manager for the Virginia Chapter Sierra Club.

On the high end, the mid- and south Atlantic could hold 4.1 billion barrels of crude oil and 37.1 trillion cubic feet of natural gas, the U.S. Energy Information Administration said in its 2011 annual outlook.

Of that, Virginia's contribution would be negligible, said the Virginia Conservation Network. In a statement, the group said that at current rates of energy use, Virginia would supply the country with six days worth of oil and 18 days of natural gas.

Opening Virginia to offshore drilling would not dramatically boost job creation or domestic energy resources in the short term, industry analysts said. But it could be an important start for oil and gas developers and investors interested in the Atlantic.

Not everyone believes the leases could go ahead, which would happen by either legislation or if Obama inserted Virginia into the administration's offshore plan.

"It wouldn't happen in this administration," said Bruce Bullock, director of the Maguire Energy Institute.

Bullock said the administration's approval of the Arctic for exploration, along with permits granted for the Gulf of Mexico, are token gestures to the industry and political cover for Democrats to avoid accusations of blocking development.

"It's largely a political issue and one where they are beholden to their base," Bullock said.

THE POLITICAL CALCULUS

But the administration's approval last week of Royal Dutch Shell to start exploratory drilling in the Arctic Ocean could signal a return to promoting domestic energy production.

"That's an indication the administration is eager to develop domestic oil supply to improve oil security and create jobs here at home, and they think it can be done responsibly," said Paul Bledsoe, a senior adviser at the Bipartisan Policy Center, a Washington think tank.

Obama has already shown he was keen to open up more drilling. In March 2010, he ended a decades-old moratorium on drilling off the East and Alaska coasts, allowing leases for large swathes of the Gulf, the Atlantic and Arctic oceans.

Virginia's status as a swing state could figure into political calculations for the president, who is pushing energy security and job creation as cornerstones of his reelection campaign, energy analyst Caruso said.

Allowing the Virginia lease sale could bolster his image as a moderate. A recent Gallup poll showed the president's approval rating in the state at 46 percent and disapproval at 47 percent. Before Obama won the state in the 2008 election, no Democratic candidate had won Virginia in more than 40 years.

"If they can use this issue as promoting jobs and economic growth, and won't lose too much of the base, then they will probably go with it," Caruso said.

(Editing by Russell Blinch and Dale Hudson)

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