THE BLOG
08/12/2008 05:12 am ET | Updated May 25, 2011

McCain's Offshore Drilling Hogwash

As thin as soup made from the shadow of a pigeon. That was an analogy made by Abraham Lincoln in response to a line of reasoning offered by Stephen Douglas during one of their debates in the mid 1800s. It is an appropriate analysis now when discussing the validity of the argument for offshore drilling.

Republican presumptive nominee John McCain continues to lead the charge for offshore drilling following closely in the footsteps of the president and a few other leading Republicans. President George W. Bush, amid great fanfare, recently announced that he has lifted an executive ban on drilling for oil on the U.S. outer-continental shelf (OCS). The ban, which is only symbolic and has no effect on the congressional ban which has not been lifted, was implemented in 1990 by his father, President George H.W. Bush, and was then extended by President Bill Clinton.

2008-06-26-otb_ramblin.jpgDespite the fact that he has changed his previous opposition to drilling in the OCS, McCain wasted no time in announcing his backing of Bush's lifting of the ban saying it is a "very important signal" and he urged Democratic presumptive nominee Barack Obama to change his position as well. He said it is important for the oil companies to be able to drill in the OCS because, "... in the short term, it's important for us to have our own reserves as we transition to different kinds of energy. We need to have sufficient oil reserves off our coast to either reduce or at least cushion the increased costs of oil."

With this posturing McCain and Bush are trying to give the appearance of doing something constructive while playing out the hand of big oil in maintaining current levels of gas output and high prices. They both know that industry analysts have said any possible activity is years away at best.

As with global warming, the Bush administration and the oil industry can hire "experts" to postulate any position that pleases them, thus confusing the general public, or "low information" voter, and obfuscating the real information. In fact, a report published last year, before the politics of $4-gallon-of-gas was in full swing, stated that new offshore drilling "would not have a significant impact on domestic crude oil and natural gas production or prices before 2030." The effect on prices, the authors said, would be "insignificant." The source of the report was the Bush administration's own Energy Information Administration.

"The reality is, you don't have any rigs available," said Roger Read, oilfield services analyst with Natixix Bleichroeder. "Record crude oil prices have driven up demand for offshore drilling rigs worldwide. Shipyards are busy building new rigs but availability is quite tight through 2010."

In his announcement, Bush claimed the potential reserve from the restricted areas would last almost 10 years. In doing so he ignored a report made by the Minerals Management Service, the federal agency that manages the nation's natural oil and gas resources on the OCS, which estimated there is 3.6 billion barrels of oil; not even a one year supply.

Kevin Book, senior analyst at Friedman, Billings, Ramsey Group in Arlington, Virginia, said Bush's announcement probably will not lead to new drilling. He noted in a research report that Congress can restore the moratorium and governors, many of whom oppose drilling, would have the final word.

That means that even if congress were to lift its ban, the states would still control whether there would be drilling or not, and California, the state that controls a third of the OCS reserves, is not interested. Even though California Governor Arnold Schwarzenegger has endorsed McCain, he has made it clear that he would consider a position as Obama's energy czar. "I don't see this as a political thing," Schwarzenegger said recently. "I see this as we always have to help, no matter what the administration is."

When Schwarzenegger announced he would consider a position in Obama's administration working on energy and the environment, he also took a shot at any last-minute attempts the Bush Administration might make on climate change. "If they would have done something this year, I would have thought it was bogus anyway."

The one place where Bush's announcement was well received, however, was in the stock market. Offshore drilling stocks including Noble Corp. and Transocean Inc. showed a boost in trading. Even in that arena analysts recognize that it would take years for any oil to be produced, which makes Bush's move symbolic on all fronts.

According to McCain and Bush, the oil and gas industry wants to lower prices for American consumers, but they can't because they're prevented from drilling. This couldn't be further from the truth. Right now the oil and gas industry is sitting on 68 million acres of public lands where it could be drilling but isn't. It has some 6,000 leases in the Gulf of Mexico (where the majority of oil and natural gas reserves are found) that are not being explored.

"The idea that we can drill our way out of this (the oil crisis) is just so absurd as to not warrant any serious consideration," Al Gore said recently. "They used to say that a cure for a hangover was the hair of the dog that bit you. If you had a hangover you went and got another drink and it would help it go away. It's sort of the same thing with these proponents of drilling. 'Oh, we're in a fossil fuel crisis? Well, let's just dig for more.' I mean, when you are in a hole, stop digging."

Like the gas tax holiday, OCS oil drilling is a proposal designed to pander to the voters not substantially help them. Despite repeated calls from McCain for a Memorial Day to Labor Day tax freeze, congress concluded -- in short order -- that having $9 billion dollars less to spend on highway construction and repair would result in thousands of lost jobs. It would also result in the additional decline of an already decaying national infrastructure.

It takes two years for an oil company to survey a new drilling site and bid on available leases; another two years for the highest bidder to do seismic tests and analyze the results; another one to three years for exploratory drilling to be carried out in likely oil-producing areas; another two years, if oil is discovered, to set the plans for platforms and pipelines which have to be submitted for government review; there is then a one-year review period; another one-to-three years for the oil companies to build platforms and pipelines; then, finally, the oil can be pumped out.

"Once again, the oilman in the White House is echoing the demands of big oil," Nancy Pelosi said on her speaker's blog. "The Bush plan is a hoax. It will neither reduce gas prices nor increase energy independence. It just gives millions more acres to the same companies that are sitting on nearly 68 million acres of public lands and coastal areas."

Pelosi's feelings are shared by environmental groups who, among a multitude of others, point out that oil companies already have those 68 million acres under government leases they can drill. And virtually all environmental groups join in condemning the call for OCS drilling. After McCain quickly canceled his visit to an offshore oil rig following a massive oil spill in the Mississippi River in New Orleans, Cathy Duvall, the national political director of the Sierra Club, said, "Apparently, hundreds of thousands of gallons of spilled oil, dead fish and oil covered birds aren't ideal conditions for peddling a misguided plan for more offshore drilling."

One of the reasons for high gas prices is that gas refineries are not able to increase production. Not only are the big oil companies not planning to increase refineries, but Shell Oil announced last year that they were going to close their plant in Bakersfield, California, saying it was inefficient and not profitable enough.

However, they were pressured into selling it instead of just closing it down and it was purchased by Flying J Inc. The truck stop chain has approved plans for expanding the plant and will double it's gasoline output as early as this year.

Another of the principle reasons for the current high gas prices is the rampant speculation of high-end unregulated money-people, whose greed is fueled by the Republican's willingness to look the other way and do nothing to get in the way of profiteering. New drilling will never result in lower prices at the pump until oil company loopholes are closed and the industry is forced to pay a windfall profits tax to discourage price gouging.

Former McCain Campaign Co-chair Phil Gramm, while he was in the senate, slipped into law the so called "Enron Loophole" in late 2000 at the urging of Enron lobbyists. The law exempts some energy traders from the regulations that apply to exchange-traded commodities.

Currently, about 30 percent of U.S. oil futures trades fly below the radar because they are transacted on a U.S. exchange that works through a subsidiary in London. Similar arrangements are being pursued by U.S. exchanges in partnership with Dubai as well.