Posted on 09/17/2008 9:27:28 AM PDT by markomalley
When Arizona Sen. John McCain accepted the Republican nomination for president, he vowed to cut America's reliance on foreign oil by opening up the nation's Atlantic and Pacific coasts to drilling—drawing cheers from GOP delegates on hand for his party's national convention. "We will drill new oil wells offshore, and we'll drill them now," McCain pledged to his faithful, who gushed with enthusiastic chants of "drill, baby, drill!" The ultimate goal, the candidate said: to "stop sending $700 billion a year (for oil) to countries that don't like us very much."
No one disputes that a lot of oil lies untapped under the rocky floors of the Atlantic and Pacific oceans off the U.S. coasts, in areas where Congress has banned drilling since 1982. But is it enough to free the U.S. from its dependence on foreign suppliers?
The Minerals Management Service (MMS), is the part of the U.S. Department of the Interior responsible for leasing tracts to oil and gas companies and collecting the royalties on them, which amount to around $8 billion a year. The leases are supposed to be awarded through a competitive bidding process, in which the best-qualified company coming in with the highest split of royalties wins. (The Interior Department's inspector general, however, released a scathing report on September 10 charging that 19 current and past officials in the MMS's Denver-based Royalty in Kind program were both literally and figuratively in bed with energy company execs. The IG report describes "a culture of ethical failure" in which staffers accepted vacations and other pricey gifts from oil companies, rigged contracts, did drugs with one another and had sex with industry reps.
The MMS has estimated that there are around 18 billion barrels in the underwater areas now off-limits to drilling. That's significantly less than in oil fields open for business in the Gulf of Mexico, coastal Alaska and off the coast of southern California, where there are 10.1 billion barrels of known oil reserves as well as an estimated 85.9 billion more.
To put these numbers in perspective: one U.S. barrel of oil equals 42 gallons (159 liters) and, according to the Energy Information Administration (an arm of the U.S. Department of Energy that provides energy data and analysis), the U.S. consumes some 20.8 million barrels of oil a day—almost one quarter of the 87 million used worldwide. That adds up to 7.59 billion barrels a year.
The EIA estimates that by 2030, U.S. oil daily demand will climb to nearly 23 million barrels, with global per-day consumption expected to top 118 million.
But here's the catch: There is a chance that the MMS has miscalculated the amount of offshore oil, because its estimates are based on 30- to 40-year-old data. For example, MMS spokesperson Nicholas Pardi says a 1987 survey of the Gulf of Mexico indicated there was potentially nine billion barrels of oil there, but when the area was resurveyed nine years later (using newer technologies), the number jumped to potential 45 billion barrels.
In other words, says Ian Nathan, a senior research analyst with New York City–based Energy Intelligence Group (a publisher of data and information on the global energy industry), it is possible that areas currently off-limits to drilling might actually contain a lot more—or less, for that matter—petroleum than previously believed.
So why hasn't the info been updated? Gathering and analyzing this data is expensive: According to Lars Johan Frigstad, CEO of Oslo, Norway–based Scan Geophysical ASA, a seismic survey in the North Atlantic can cost $6 million or more a month and take one to four months or longer to gather (depending on the size of the area being surveyed).
And there's no incentive for oil companies—or the feds—to cough up the cash unless Congress lifts the ban, according to Harold Syms, chief of the MMS's Resource Evaluation Division. If the moratorium was lifted, the MMS would "evaluate the tracts...to be sure the public gets fair market value" for oil leases. He says the agency would issue a permit to an outside firm to do seismic surveys of designated areas, in return for giving all the resulting data to the MMS. The surveyors could also sell the information to private companies interested in bidding on the leases.
Oil companies would commission their own more precise seismic surveys after they were awarded leases, says Judy Penniman of the American Petroleum Institute, the industry's Washington, D.C.–based trade association, and test drill the most promising oil deposits. If test drilling revealed recoverable oil reserves, she says that a company would have to plunk down another $2 billion for an oil rig. But even if Congress were to lift its 16-year ban on offshore drilling tomorrow, she agrees with the EIA that it would take at least five years before an oil company awarded a lease could pump its first drop of oil.
What's more, industry experts say no matter how much oil there may be offshore, only some of it will be "recoverable," that is, able to be removed at a cost that's cheap enough to guarantee oil companies enough profit on their investment. Current shortages of both oil rigs and skilled manpower to operate them could also bottleneck such efforts.
According to Phyllis Martin, a senior EIA energy analyst, Atlantic and Pacific oil fields tend to be smaller on average than those in the Gulf of Mexico, but it is just as costly to drill them, making the economics of drilling these areas especially tough to justify.
In fact, oil companies have yet to take advantage of the nearly 86 billion barrels of offshore oil in areas already available for leasing and development. So why are they chomping at the drill bit to open up the moratorium waters and survey them anew?
"Oil company stocks are valued in large part based on how much proved reserves they have," says Robert Kaufman, an expert on world oil markets and director of Boston University's Center for Energy and Environmental Studies. Translation: just having more promising leases in hand would be worth billions of dollars.
So are promises of U.S. oil independence real—or rhetoric? The issue is not whether the U.S. can significantly reduce its reliance on oil imports with domestic, offshore oil, say both Kaufman and Nathan, but whether there is enough that is recoverable to significantly lower the price of a barrel of oil on the global market.
Even by 2030, offshore drilling would not have a significant impact on oil prices, according to Martin, because oil prices are determined on the global market. "The amount of total production anticipated—around 200,000 barrels a day—would be less than 1 percent of the total projected international consumption."
And disruptions to the global supply affect the price of every barrel of oil the U.S. purchases, whether it be from Saudi Arabia, Venezuela or off the New Jersey coast. "Suppose the U.S. got all its oil domestically, and the price was $100 a barrel. Then the Saudi family was deposed," disrupting that country's oil exports, Kaufman says. "The Saudis produce about 10 million barrels a day of the world's 85 million, so clearly prices would go up, because now there is this big shortfall of oil."
"Do you think oil companies are going to sell [U.S. oil] to U.S. consumers for anything less than top price?," he asks. "The answer is no."
What if Congress mandated that the offshore oil could not be exported? "The question of how much of that product that comes out, where it goes, I don't think Congress can dictate," industry rep Penniman says. "It goes onto the market. It's a free market system…but it is up to Congress [to pass] the laws on what they will and won't open."
Such a move could in fact increase the nation's energy costs. "Any time you impose a constraint, like 'oil from Alaska cannot go to Japan,'" Kaufman notes, "you're saying, 'don't do the cheapest thing, do something more expensive.' So everybody pays a little more. Where the free market does work very efficiently is to minimize transportation costs" for oil—which are determined by many factors, including the location of the nearest refinery that can handle the particular characteristics of the crude oil being shipped.
Kaufman dismisses as "nonsense" any promises that offshore drilling could make the U.S. "oil independent." Even if it could somehow insulate itself from the ups and downs of the global oil market, he notes, the U.S. would have to make a huge leap in domestic oil production to replace what it buys from overseas.
"At its peak in production, which occurred in 1970s, the U.S. produced about 10 million [barrels of oil] a day," Kaufman says. "Now, after 30 years of fairly steady decline, we produce about five million barrels a day," whereas we consume 20 million barrels daily. "Whoever talks about oil independence has to tell a story about how we close a 15-million-barrel gap."
The McCain campaign did not return repeated calls seeking comment.
- The official surveys are 30-40 years old. - Whether or not there is oil, it has to be economically feasible for the oil companies to recover it. - Oil is traded on a global market. In other words, even if we say that US oil is for the US only, the net effect will be to reduce demand on globally traded resources. Implied is the fact that if oil costs less, the demand will increase.
Bottom line is that this is not a panacea (but, regardless, there is an absolute requirement to drill here, drill now)
Have you noticed that since our country is looking to produce its own oil, the Middle East has dropped the price of their oil. When oil was about $10 a barrel, it wasn’t worth the effort to drill our own oil. Once the Middle East realized we wouldn’t drill, they started raising their price to see how much we would take. They are finding out. If we use 25% of the worlds oil, and we start producing our own, that puts more oil on the market. Somewhere between 0-25% for the world to use.
I don’t believe anyone is suggesting that drilling will make America “oil independent”. What it will do is ease the crunch a bit while efforts are made get alternative resources lined up and working. Every advocate of “drill here, drill now” that I have read or heard has demanded that development of any and all sources of energy be pursued including nuclear, coal, natural gas, solar, wind, biofuels, geothermal and anything else that has a chance to make a difference.
One of the great scams being perpetrated on the American people is that even if we opened up OCS, there is no way there is enough oil there to make us independant of foreign oil. Brazil is example A of what happens with you combine new technology with a willing gov’t to search for oil. The HUGE reserves just discovered were untradeep SUBSALT deposits, which means they lie in very deep water, under a layer of thick salt. The reason this is important is that the surveys taken 30-40 years ago had no way to technically see what was under these salt layers. Even today, with 3_D seismic, it is still very tough to see oil deposits under these salt layers. The key is that they are there, just waiting to be discovered, but unfortunately for us, the gov’t will not allow oil comapnies to even LOOK for those deposits, let alone drill.
With modern technology and an agressive exploration program in ALL of the promising areas of Atlantic, Pacific, Gulf, and Alaskan waters and ANWR, we probably have a couple hundred billion bbls of oil. The jobs which could be created, tax dollars on production generated, and lower energy costs for consumers could solve out economic problems within ten years, it is only the enviromarxist democrat party that is stopping us.
This article starts from a false premise — that McCain’s plan for “energy independence” is only based on offshore drilling. Hence it is a waste of time.
Off shore drilling alone won’t do it. However it is a key factor in becoming oil independent. Also included must be on-land drilling, oil shale, and coal gasification. Energy must include nuclear, wind and solar. That will hold us until new technologies are developed and in the market long enough to get down to the average consumer.
Main problem is that while conservatives understand what “energy independent” means the liberals think it means “independent of energy”.
Oil is traded on a global market
That is what I am to understand, as well - everybody drills and puts their oil on the global market (thus evening the playing field) and the gas companies buy it.
If we drill (oil companies pay for and reaps the rewards of that risk) and NOT put that oil on the global market, our prices would hopefully go down.
For example, gas prices in Saudi are at 70 cents - because they skim their needs off the top of what they put on the global market.
It has been quite some time since Scientific American has been a reliable source for any kind of scientific information. What was once a great magazine has now become just another source of PC Junk Science. It was a great loss. I loved Martin Gardner’s Mathematical Games and the well researched scientific articles of the old SA. But they are gone forever for me. I wouldn’t waste my time reading Scientific American anymore than I would read Time or Newsweek.
“”Do you think oil companies are going to sell [U.S. oil] to U.S. consumers for anything less than top price?,” he asks. “The answer is no.””
But the money would stay in the U.S. — rather than being sent to the treasuries of enemies of the U.S. (Plus Canada of course — we don’t belong on the “enemy” list.) National security and balance of payments are as important as the price of gas at the pump.
Also, under the scenario in the article, the “top price” would be much higher if the U.S. does not produce more than it is now.
I wonder how much oil and gas there is on the East Coast of the United States.. As far as I can tell nobody KNOWS..
Correcto. The market will tell us.
This article is missing the point. What drilling would do is stop the huge transfer of wealth from the U.S. to Russia and the Middle East, lowering our standard of living and raising theirs. Sure prices would flutuate with the world market, but money flow would stay in the U.S.
I know one thing for damn-skippy-certain.......NOT drilling (offshore or onshore) won’t do a damned thing to reduce our foreign oil dependence.
“Whoever talks about oil independence has to tell a story about how we close a 15-million-barrel gap.”
That’s really a bogus argument. It’d be great if we did become 100% self-sufficient in crude production, but it might not be possible in the foreseeable future.
But doubling our production, from 8 million to 16 million barrels per day could give us enough additional production to keep prices reasonable. And, the ideal situation would be to produce more than we produce now, still buy on the international market, and have a reserve production capacity of a few million barrels to put in play when prices become unreasonable for whatever reason.
Plus, we should develop the alternatives that can be reasonably competitive, and further reduce our need for imported crude with alternatives.
Why ask a question that has been answered?
It will take many solutions but corn is not the answer.
The point being if our demand on a global market is reduced because of increased domestic supplies, either the price will drop precipitously or OPEC will throttle back on their production levels, in order to maintain a steady price.
It really is not realistic to not be on that global market, unless we can be assured that we would be 100% self-sufficient for petroleum for a long, long time. Even if we were, it is not reasonable to assume that the oil companies would not control their production levels to assure that our domestic prices for crude oil would pretty closely track to the global price.
Remember, if we have a resource that we are hoarding, the rest of the world can punish us in other ways.
The primary advantages I see are twofold:
#1) We would be insulated from interruptions in supply as the result of hostile actions elsewhere in the world (embargo, war, terrorism, etc.). Our prices might rise, but at least the oil would flow.
#2) As balls pointed out in #13, the wealth would not be transferred overseas. As balls didn’t mention, though, it would be a huge cash cow to our federal and state balance sheets, from royalties paid on the production.
And keeping a boatload of dollars in play in OUR economy.. creating jobs and even taxes..
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