OFF-SHORE OIL DRILLING. PRICE RELIEF OR POLITICAL PAYOFF?

Presidential Candidate John McCain has promised to lift the moratorium on off-shore drilling in areas that are currently unavailable to leasing and exploration. Almost a month ago, on June 16th, McCain made this statement:

Tomorrow I’ll call for lifting the federal moratorium for states that choose to permit exploration,” McCain said. “I think that this and perhaps providing additional incentives for states to permit exploration off their coasts would be very helpful in the short term in resolving our energy crisis.

The Author was suspicious of McCain’s claim that opening up areas that would be many years away from very meager production would provide “short term” relief to the “energy crisis”.

Oil markets did not react to this claim. Prices have continued to climb since mid-June. Could markets know more about oil supply and demand than John McCain?

So the Author did what most journalists (not including the Pulitzer Prize wining editor of the Advance-Leader, Bob Buttgen) and nearly all American news organizations stopped doing years ago. Research the politician’s claims and report on its veracity.

WHAT’S THE SCOOP?

The US Energy Information Administration (EIA) stated in a report from 2006 entitled “Impacts of Increased Access to Oil and Natural Gas Resources in the Lower 48 Federal Outer Continental Shelf” that:

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

Further, it is likely that the additional supply, based upon mean estimates, is 8.2 billion barrels, while there is currently 40.92 billion barrels in areas currently available for leasing. (There is estimated to be 18.17 billion barrels available in all off-limit areas. However, much of that oil is in coastal California. And California leaders, including Governor Schwarzenegger, have indicated that they will not permit these areas to be exploited.)

Two salient points come out of this analysis.

1. Any supply increase is 22 years away.
2. The supply is to be considered relative to DOMESTIC oil production, not WORLD oil production.

World oil production is currently at 85 million barrels per day. What production will be in 2030 is subject to much dispute. If 2030 oil production is 100 million barrels per day, then, then 8.2 billion barrels is 82 days of world supply. If world oil production is 50 billion barrels per day (a possible post-peak oil figure), then it is 164 days of world supply.

WHAT’S THE RUSH WHEN THERE IS LOTS MORE LYING IDLE?

Commentators have noted that there are many areas available for leasing and development that are not being utilized. The EIA report confirms this. There are 40.92 billion barrels in areas available for leasing, 5 times that available in the areas off limits. (See the graph above.)

This post should not be interpreted to mean that these areas off limits should never be developed. But any consideration of these areas should take into consideration several factors, which include:

1. The extent to which currently available areas have been leased and developed.
2. The potential for spills which would cause substantial environmental and economic damage to coastal areas.
3. A requirement that developers pay adequate royalties and lease payments to the taxpayers.

This third item should bear special attention. Oil companies would like to tie up these areas on favorable terms. What better time than in an election season where energy issues are prominent?

Misinformation for short-term political gain should remain off limits, just as the areas should remain off limits absent compelling and accurate rationale.


DRILLING FOR VOTES IS VERBOTEN IN THE DESERT OF THE REAL!