We Tried Offshore Drilling and Oil Prices Doubled

At the end of 2006, the Republican Congress and the president enacted "The Gulf of Mexico Energy Security Act," which opened for drilling 8 million acres of the Outer Continental shelf estimated to contain more than 40 billion barrels of oil. Oil prices were only $60 a barrel then. In the two years since, prices have more than have doubled.

Doesn't that prove that legislation to permit offshore drilling increases oil prices? That seems to be the "logic" of John McCain and the Republicans. Late last month, "Republican John McCain on Wednesday credited the recent $10-a-barrel drop in the price of oil to President Bush's lifting of a presidential ban on offshore drilling."

That's right, the man who wants to be the next President of the United States believes that doing absolutely nothing -- which is what Bush did when he reversed his father's ban, since the congressional ban is still in place -- dropped oil prices $10.

And Conservative Rep. John Shadegg (R-AZ) just claimed, "Gas prices have gone down, and they've gone down in part because the market is realizing that this kind of pressure from the Congress may actually cause a change in American policy."

Something about the air in Arizona must lead to magical thinking.

What's especially absurd about all this is that ending the federal moratorium on offshore drilling would probably add only another 8 billion barrels (assuming California still blocks drilling off its coast) -- one fifth of what was opened for drilling offshore two years ago.

Who thinks that adding under 100,000 barrels a day in supply sometime after 2020 -- some one-thousandth of total supply -- would be more than the proverbial drop in the ocean? Remember the Saudis didn't stop prices from rising when they announced earlier this year that they would add 500,000 barrels of oil a day by the end of this year!

The Bush administration's own Energy Information Administration analysis, "Impacts of Increased Access to Oil and Natural Gas Resources in the Lower 48 Federal Outer Continental Shelf (OCS), spells out the reality:

Look closely. As of 2003, oil companies had available for leasing and development 40.92 billion barrels of offshore oil in the Gulf of Mexico. I asked the EIA analyst who wrote this report how much of that (estimated) available oil had been discovered in the last five years. She went to her computer and said "about 7 billion barrels have been found." That leaves about 34 billion still to find and develop.

The federal moratorium only blocks another 18 billion barrels of oil from being developed. But, as you can see, most of that is off of California, which has bipartisan opposition to drilling from Republican Governor Schwarzenegger -- who, unlike McCain, seems serious about his commitment to greenhouse gas reduction -- and the Democratic legislature, which remembers all too well the devastating 1969 oil spill off the coast of Santa Barbara. Indeed, Karen Bass, the newly appointed speaker of the State Assembly, said, "The idea of increasing offshore drilling off the coast of California I think is absurd, and I can't even imagine we would entertain that." Why would they, given the risk to their beautiful coasts and their commitment to reduce statewide greenhouse gas emissions 80% by midcentury?

So that only leaves about 8 billion barrels, which is about what the world uses in three months. Not bloody much. And that assumes every other state, including Florida, goes aggressively with offshore drilling, which is exceedingly unlikely. Indeed, the military is unlikely to let Virginia drill offshore because they use that area for Naval training. Most other Atlantic Coast states don't have a pipeline delivery infrastructure, which makes them far less attractive to the oil industry. Why would you drill off the coast of Maine when you would have to get that oil to a distant refinery? And Senator Martinez (R-FL) is dead set against drilling off Florida's coast.

So in the real world, ending the federal moratorium on coastal drilling might add 50,000 barrels of oil a day some time after 2020. That is so tiny that it certainly can't have any impact on oil prices ever, psychological or not. That is so tiny that I agree with Sen. Obama that we should be open to a compromise in which progressives give up that nothing in return for a genuine effort to jumpstart the transition to a clean energy economy.

You may ask why Big Oil hasn't gotten around to the 34 billion barrels already available to them offshore, given the staggering price for oil? The answer is pretty much the same reason why the EIA analyst told me that ending the federal moratorium is "certainly not going to make a difference in the next 10 years": It ain't easy being non-green off-shore.

As she explained, the constraints on offshore drilling have little to do with the price of oil, but a lot to do with timing. Once the leases are available, it is a 5 to 10 years before you get to exploratory drilling. There is a tremendous shortage of drilling rigs and manpower. Plus, offshore drilling is so expensive, you don't want to make any mistakes. So you spend do a lot of seismic analysis to minimize your chances of a dry well.

And it is probably another five or more years from drilling your exploratory well to getting significant production from the area -- and that assumes you didn't dig a dry well. If you did, then you are probably going to be even more cautious. And all that assumes you have developed a pipeline infrastructure for delivering the oil. But again the Atlantic Coast lacks such an infrastructure, so who knows how long it would take to get its oil?

One small final point. The EIA analysis concludes

The projections in the OCS access case indicate that access to the Pacific, Atlantic, and eastern Gulf regions would not have a significant impact on domestic crude oil and natural gas production or prices before 2030.

But in listening to the radio and TV debates, I realize that some people have the impression that the EIA meant offshore drilling might eventually lower oil prices, after 2030. It did not. The year 2030 is merely as far out as they project. So I wouldn't say, as some do, that the Bush administration concludes offshore drilling wouldn't lower oil prices until 2030. I'd say the Bush administration found that allowing offshore drilling would have no significant effect on prices as far out into the future as the analysis projected.

Comments

[RoloTomassi]

An excellent article, and if accurate, the chart on recoverable, undiscovered oil makes an excellent case for NOT opening up protected areas to oil exploration.

So, going by the chart, the single largest quantity of undiscovered oil is in the central area of the Gulf of Mexico. The largest groupings of oil platforms and existing pipelines and infrastructure would offer the best and most economical options for exploring, drilling and producing oil in the gulf, and would cost less than any other area on the list.

This just reinforces the facts: there is ZERO NEED to open up protected areas to offshore drilling, as the oil companies have their largest available potential fields OUTSIDE of those areas.

But just like invading Iraq, this is one issue masquerading as another; like Iraq's WMDs, drilling in protected areas is being push by a FALSE PRETENSE. The truth of the matter is that the oil companies are being opportunistic and trying to gain access before the public WAKES THE HELL UP, again.

[TxAggie]

According to the chart.......what is the chart based on? Is it based on modern 3D seismic or well control- no it is not because those two activities areprohibitied in 85% of the OCS.

it is no secret that the CGOM is the most prolific area in the OCS based on the information we have at hand but that cannot go on forever, we needer greater access to develop future reserves. The fact that we are drilling up the WGOM and the CGOM supports increased access in order that domestic production and reserves can grow.

[bronceye]

It really that long ago that we had this same choreography. It was called Prudhoe Bay in Alaska. It was the Alaska pipeline and the drilling there that were going to give us energy independence and cheap gas. Does noone remember??????? Oil companies and repubbles, working together for a prosperous America. I can't find a site on the net that sells new and used oil rigs. There must be untold thousands if we can just command-drill here and drill now. Anyone have that website?

[mjtaylor22]

there is too much to say on this subject so i will try to be simple and on point. TO GET OUT OF THIS CRISIS SITUATION AMERICA NEEDS TO INVEST HEAVILY IN ALTERNATIVE FUELS AS WE SHOULD HAVE DONE WHEN FORMER PRESIDENT CARTER SUGGESTED IT...YES CARTER, WE WOuLD ALREADY HAVE A PRE-PONDERANCE OF HYBRID VEHICLES, AND INFRASTRUCTURE TO SUPPORT THEM HAD WE STARTED ON THE PATH TO INDEPENDENCE IN THE 80'S. INSTEAD CARTER WAS BELITTLED AND LOST THE ELECTION.. so the answer is we need to attack this on all fronts, Obama's plan alays attacked energy on multiple fronts, espceially wind, electric, hybrids, and bio fuels, the drilling thing to me is more recent, but in light of the days of fillibuster, if a new energy bill does not include some provision for drilling...it will not pass the House and the Senate....and you cannot help but know this is you have been paying any attention.

[kalimuzo]

I have always said bad information leads to bad law. You can never pass a law on emotion. One thing no one is talking about is OPEC. They where formed to controll the supply of oil in the market place. So if the U.S. increases supply by 3%, OPEC will reduce the supply by 3% to keep prices at the level they want. Another thing to note is that the drilling will be done by the oil companies who are in it for profit. If oil is at $40 a barrel, it is not in their interest to drill for more in the U.S. because they have better drilling deals with countries in Africa and it is a lot cheaper to get it out. No strict environmental laws in Angola and Equatorial Guinea, plus they only have to pay 10% to those countries for their oil, as opposed to a much higher % share that would have to be paid to Florida or New Jersey. All this is politics, they think they have an issue and they will ram it down our throats.

[joekerr]

Well I'm no oil speculator or an economist and I know very little about what is involved with oil extraction or refinement but I do know a little something about addiction. Our government rarely ever says anything exceedingly smart, but the idea that we are "addicted" to oil is dead on. Just looking at some of these comments proves that. We are like crack addicts scurrying through the night picking at the ground just hoping that Mother Nature dropped some of her stash. And like any addiction, it is nearly impossible to drop the habit cold turkey. And like quitting drugs, it ain't going to be easy. As a nation, we have tried to get off the habit several times. From electric cars, to solar energy, to wind farms, we've tried them all. But the oil is the good stuff. And like any other drug, the profits are high and so are the risks. The driving force behind oil is and always has been, the almighty dollar or profit if you will. As long as there is a buck to made off oil, we will continue to see these problems. It's a new drug war all over again. All these suggestions mean nothing if we continue to suck on the pipe. But the larger question remains, are we the only fiend or is there another willing to take our place?

[momof3inGA]

Thanks for this article. Very useful.

[luziannagirl]

Quoting and paraphrasing our blogger Joseph Romm, "The Atlantic coast lacks such an [pipeline] infrastructure" for delivering all that the newly extracted offshore oil to distant refineries.

To me, living in the very heart of Offshore Oil USA, "pipeline infrastructure" means far more than pipes.

It means an extensive, sprawling network of ON-SHORE pumping stations, holding tanks, drilling service companies to provide the drilling fluid and "mud", helicopter and crew boat transport companies, welding and repair services, diving and salvage companies, roads, tanker-trucking transport companies, tanker trucking transport service and cleaning companies, oil-spill-mop-up companies, seismic testing and survey companies, convenience stores, cheap hotels, flophouses, roughneck bars, exotic dancing joints, video poker establishments, homeless shelters, religious "mission" outreach facilities....and so on.

And all these offshore oil extraction support service companies are accompanied by their own impacts on the environment , on the existing community, and on aesthetics, so important in a tourist-driven regional economy. An oilfield service operation can completely dominate an area, and because it involves such incredible amounts of money, existing residents can be steamrolled over and over.

Oilfield service companies can be bigger money makers than oil extraction companies. In fact, Halliburton, formerly headed by Vice President Dick Cheney, started as an oilfield service company, if I'm not mistaken.

How coincidental.

[TxAggie]

You forgot to mention to mention tax dollars, jobs, increased federal royalties, improved roads, infrastructure, and the positive economic on the rest of the economy other than the flop houses, exotic dancing joints, etc.

[gvc]

Oil is an international commodity. Additional "domestic" oil gets added to the world market and helps the Chinese as much as Americans: not much. Wind, solar, hydro and nuclear are truly domestic -- or at least North American.

If the US could become self-sufficient using domestic energy sources, they could let the international price of oil rise sky high while maintaining a bargain domestic price for alternatives. This would not only help consumers but attract energy-intensive industry. And it would help the climate as well.

Increasing oil production is wrong economically and environmentally.

If a "windfall oil profits tax" discourages oil production, so much the better.

[TxAggie]

Increasing DOMESTIC oil and natural gas is not wrong economincally and environmentally. It improves our economy and reduces our dependence on foreign (and unfriendly) oil. It is a win win.

[Insideout143]

I'd like to know who all these people are who think we need offshore drilling... they say the percentage is so high... I say go ahead and drill on the land the oil companies already have.... no need for offshore... there's so much else we need to be doing.... who are these offshore drilling advocates... where are they???

[TxAggie]

No need for offshore? It provides 30% of our domestic oil and 21% of our domestic natural gas produced everyday. We don't need it? Should we put it back? We have been producing in the GOM for 60 years..............

[passport]

Oil companies are making record profits with the situation just as it is. Anyone that thinks keeping them in charge of U.S. energy policy is a good idea is deluded. Giving Exxon more offshore leases will accomplish nothing. Why should a for profit company invest millions in expensive off shore rigs to lower their profits? That will never happen, they are using the crisis to lock up this oil on PUBLIC lands now ,for their future profits. By the time oil is produced most of it will go to China.
You think these multinational corporations care if the U.S. is "energy independent" ?
The reason oil prices are going down now is that they got greedy and way over charged and demand went down, the only way the prices stay down is if demand stays down and even then it will be too high. They don't call it a oil cartel for nothing. Make your own power. Individuals, local governments, regional agencies and even State Governments need to take charge of their energy needs.

[FreedomBeforeDemocracy]

Oil companies are making record profits because their product has record demand. Why do we need to be "energy independent"? Supply? There certainly seems to be a large supply of this foreign energy. Price? The price of our current energy supply is much cheaper than we'll being paying under energy independence (otherwise we wouldn't have to be forced into it).

[TxAggie]

Why do we need to be energy independent? Could it be that buying foreign production creates a trade deficit and puts our economy and the security of our contry at risk? naw surely not..

[DuganS1]

Oil companies need to constantly find new oil to replace the oil they've gotten out of the ground and sold away -- that is the motivation to drill. US oil companies are currently seeing declining production and reserves, which is bad for those companies and their stock prices and current and future profits.

[Tiggy]

Could do this, should do that, will help, won't help, the endless debate over crude oil and energy continues. Oil companies, Congress and consumers are all to blame for the high prices. The bottom line is, regardless of how much crude oil is out there, it is not without limits. Companies should move to replace petrol chemicals and petrol by products in everyday items such as lotions and cleansers. Congress should do more to ensure that petrol chemicals and petrol by products are used only when no other substitute is available. Consumers should conserve more and more tax dollars should be spent on furthering research including better transportation systems. We need absolute solutions to this problem not blame games and politics as usual designed to pacify American's during an election season.

[Steve13133]

Tiggy, the reason oil is so expensive is the same reason milk and bread areso expensive. Congress spent more than it had and just printed up the difference, thereby diluting the buying power of every dollar we have, Since the dollar is the international trading currency, every commodity costs more with a dollar worth less. Government is not the answer, it is the problem.

[joebhed]

Steve,

It has been thoroughly analyzed and testified to that the dollar valuation share of the price of oil is in the $15 to $20 per barrel range. It will undoubtedly go higher.

But today oil fundamentals, sans dollar considerations, are in the $60 per barrel range.

Bottom line is the price of gas would be below $3 per gallon based on all true market forces. Could be $2.50.

The next question becomes how to restore true market forces to the pricing of petroleum products.

And, the answer to that question is to repeal the Enron-induced provisions on ALL energy futures trading, thus re-illegalizing the market structure that allows, nee encourages, a flight of capital to that formerly illegal activity.

Once that is done, we will have rendered obsolete the questions of how much good old speculation. versus bad old market manipulation, is responsible for the robbery of the American people.

And since the oil industry manipulation of the COTUS was responsible for the Enron provisions in the SEC and CFTC Rules, I am sorry to inform you that it is, yes, the government of this country that must step in and clean up the mess caused by the unbridled greed of the Lay-Bush-Cheney cabal of profiteers.

Go! government.

[THEhillbilly]

'At the end of 2006, the Republican Congress and the president enacted "The Gulf of Mexico Energy Security Act," which opened for drilling 8 million acres of the Outer Continental shelf estimated to contain more than 40 billion barrels of oil. Oil prices were only $60 a barrel then. In the two years since, prices have more than have doubled.'

"Doesn't that prove that legislation to permit offshore drilling increases oil prices?"

Good grief. That's one of the goofiest examples of irratiocination ever seen in public. By the way: No.

[UnbiasView]

The Dems are getting hammered on this topic as of late and they are fighting tooth and nail to come up with something . . . anything that supports their view.

Can you people just be honest, you are an evironmentalist and that means you hate any proven energy.

[leftcoastindy]

Can you people just be honest, you are an evironmentalist and that means you hate any proven energy."

Aside from the obvious fact that this statement is silly. Mr. Romm goes to the trouble of backing up everything he says with facts and sources, and your response is some blanket nonsensical gibberish.

[joebhed]

I'm sorry, but do you have an identity problem?
Some kind of denial of your "self" ?

Your name, and your message, appear, well, incongruous.
Why not come back on as TheBiasedOne and have a go at it?

And, as far as hate goes,
I find it most often in the eye of its beholder.

[vipersdad]

The facts as presented above, come from conservatives in the Dept of Energy, not liberals in Congress. The fact is that even if the Oil industry is given carte-blanche to drill anywhere, it will be YEARS before gas is flowing to our pumps. The impact on supply is years away and demand continues to rise outside of the US borders.

What worries the oil execs is that Demand has fallen in the U.S., and there is a very real move to spend money on alternatives. So they are behind and competing with other companies who could supplant their commodity with cleaner alternatives. If they suddenly open up the pipelines in 10 years and we are getting 20 - 30% of our electricity from wind and solar, Big Oil will struggle to make oil profitable.

That's the problem here - from a corporate perspective, their long-term future looks bleak. They can get all the leases that we can give them but they are not in a position to exploit them until after the likely time when wind/solar, etc... could reduce the oil market to an afterthought.

So they will end up peddling American Oil to places like China, India, etc.... Americans don't get much out of these tracts...... ironic, huh?

[mjtaylor22]

in the end, the truth is more drilling alone will not solve our energy problem and the oil companies are not guaranteed to invest in additional drilling if allowed, thye are not using land that they currently have to drill right now...and they are getting record profits form the status quo...........the free markets are about profits period !!! So no more drilling will not solve the problem, but action on multiple fronts will reduce our dependence on foreign oil. The smart way to motivate oil companies is to offer tax incentives for investing in alternative energy.. While simultaneously closing loop holes and incentives designed to help them drill more using tax payer dollars.....(oil drilling is hugely profitable at this time, why are my tax dollars subsidizing it) I want my tax dollars subsidizing alternative energy methods so me and my kids will not have to pay 20.00/gallon DANGGGGGGGGG

[RoloTomassi]

Hey doofus, the question was rhetorical, and meant to draw a parallel to the nonsensical thinking that McCain displayed in making the claim about Bush's actions being responsible for the recent drop in oil prices.

Jeez, Hillbilly is truly the right handle for you...

[creationwaits]

There are multiple factors here. I think the falling dollar has been the biggest source of the jump in oil prices. But certainly increasing supply helps - just how much it helps is hard to quantify.

[joebhed]

Oh, thanks a a lot for that little pearl.

Anything besides dogma for thinking that the falling dollar is responsible for the price of oil?

[creationwaits]

I posted that in response to his "we drilled, therefore prices rose" bit. Not sure what you mean by that second bit. Perhaps this is what you want: http://www­.321gold.c­om/editori­als/schiff­/schiff052­308.html .

[jaglon]

Good information. I for one, am not fooled by the repubs attempts to use the energy crisis as a political ploy. They had control of congress for over 12 years and did nada, nothing. I wrote to the two repub. senators from my state at the beginning of the war about energy independence and never heard back. The repubs think that alternative sources of energy, hybrids, electric cars, etc. are just lefty stuff. When it comes to conservation that is lefty thing. Never mind that the root of conservative is conserve. What a bunch of hypocrites! They have gotten this country into so much debt, a endles war and what about the corruption. Now they are into crisis management mode.

The reason prices have fallen the last few weeks is that demand has weakened. It has nothing to do with Bush's lifting the executive order on off-shore drilling, McCain is full of it. The oil companies do not want us to become energy independent; they want us to continue to use their oil to the last drop. Their nightmare is that if we start diversifying our energy sources and then we have less need for their oil meaning less money for them. Our country has a short memory, we want everything to be easy without sacrifice. If gas becomes cheap again people will start driving their gas hogs again and guess what we will be back having this same conversation again. It will be deja vu all over again.

[LemonFreshScent]

Its all about pandering to inept voters and money making. We all know that.

[creationwaits]

He he. That's how I feel about Obama's windfall profits tax. Let's cause longterm damage to the economy and steal from an industry it's easy to pick on to promise $1000 bribes for votes.

[11907281]

Is that not better than 600$ bribes already paid out?

[vipersdad]

Well - the Repubs have been picking on so-called "defenseless" groups election after election. (Teachers, Immigrants, Unions, Gay People, Environmentalists, etc..., etc...) So this turn-about should be fair play to you guys.

Big Oil has a powerful lobby and many friends in Congress - Big Oil is anything but "easy" to pick on.

[RoloTomassi]

I can only imagine a half-wit having the audacity to lament the big bad government picking on the poor little oil companies...jeez, that's just asinine.