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We Tried Offshore Drilling and Oil Prices Doubled

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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:

eia-table-10.jpg

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.