Thursday, June 19, 2008

Offshore Drilling?

Now here is a diversionary discussion if ever there was one. Ooooh, gas is over $4 a gallon, let's raise a stupid proposal that makes it look like I've got ideas to solve the problem. So we get the talking point proposal lifting the offshore drilling moratorium (imposed, by the way, by Bush the elder).

So McCain thinks that drilling off of our coast will help to alleviate our gas problem? How incredibly ridiculous. Of course, this is another of McCain's flip-flops (don't Republicans hate flip flopping?), but it is also a crazy idea. Why? For many reasons:
  1. We should not, as a nation, damage our coastlines, which oil drilling right off the coast could do. And it will also damage the beauty of our coasts, which support billions of travel and leisure business.
  2. Selling leases for more offshore drilling will not "be very helpful in the short term resolving our energy crisis" as McCain states. It takes many years to explore, contruct and open oil rigs. Nothing short-term about this at all.
  3. The oil companies are already sitting on ver 4,000 undeveloped leases in the western Gulf of Mexico. And the government already leases 44 million acres offshore, of which only 10.5 million—or one quarter—are producing oil or gas.
The gas/oil industry already has access to the vast majority of the estimated Outer Continental Shelf natural gas resources, including 4 times the amount of natural gas estimated to occur in moratoria areas by the Minerals Management Service. And of the huge resources they have access to, they have developed only a fraction of it.

For once, President Bush got something right. In February he acknowledged the country is ‘addicted to oil.’ But you don't cure addiction by increasing the supply of what you are addicted to! You take measures to ween the addicted off of the 'stuff.' For example, better gas mileage standards... stricter enforcement of speed limits... funding sources of alternative energy...

So why is this an issue? Why is the right wing trumpeting this as a talking point? Well, I believe it is because they want to use it as an excuse. The Democrats will oppose it, Congress will not allow it, and if/when gas prices continue to rise, the Repuglicans will say something like "Oh, we had the solution, but the tree hugging Dems wouldn't adopt it. Blame them, blame them..."

Sad... Just sad...


csm said...

According the Energy Information Administration, it would take at least five years for oil production to begin. EIA predicted that there would be no significant effect on oil production or price until nearly 20 years after leasing begins.


I agree with everything you have posted, csm, but I want to go further. There is much talk from the Obama camp(and the Dems in general)of taxing the windfall profits of the oil companies. My problems with such a plan:

1. What exactly is a "windfall" profit and how does it differ from a normal or regular profit.

2. How do we keep this type of taking from happening to other industries? Should we have been taxing Microsoft's history of huge profits?

3. If we do tax the windfall profits of the oil companies, why should we trust our federal government to pick the winning energy technologies which is what I have been hearing they(the government)wants to spend their "windfall" on. Aren't people and entrepreneurs better arbiters of what they want?

4. What will the government do when there aren't any "windfall" profits, which, though many have said that oil will never be cheap again, isn't necessarily a given?

I am all for taking any tax breaks or subsidies away from the major oil companies; I didn't and don't agree with them in the first place. I don't feel ANY industry should get preferential treatment from the federal government, it just doesn't seem fair in a transparent marketplace. But when you start taking "special" taxes from certain industries, it sure smacks of central planning to me.

csm said...

I am not against some degree of central planning in some situations. We could not have explored space and gone to the moon without it. In this case, I think taxing the existing energy providers to help fund replacement sources of energy (which is needed when fossil fuels are exhausted).

I do agree with the term "windfall" being unnecessary (hard to define, hard to maintain if defined, and not needed when just a regular old tax will do).

G said...

Basic economics
There are two ways to reduce prices: increase supply and/or decrease demand.

No matter how much we reduce our current demand, it continues to increase in the rest of the world.

1. The "outer shelf" is 50 miles off the coast. It is not "right off the coast," but well beyond our ability to see any of it. To claim that it will effect the beauty of our coastlines is absurd. And while it "could" damage the coastline if there is a spill, any other form of energy we pursue "could" damage the environment, the global economy, etc. in unexpected ways.

2. Yes, it takes many years to produce oil from a new lease. It also takes many years to explore and develop new energy options. There are exactly ZERO short-term solutions that won't make things worse in the long run.

3. Having a lease does not necessarily produce oil. The lease gives the right to explore. If they find a worthwhile supply of oil, they have to apply to the govt for the right to drill. That application includes an abundance of environmental impact studies. IF the application is approved, then they can start to build... eventually drilling for oil.

Let's be honest. Obama doesn't have any solutions either. Taxing the companies will only lead to the tax costs being passed on to the consumer, which causes prices to go UP. Exploring new energy options is great, but there is no guarantee that it will come up with anything. Over the past couple decades, the billions of dollars spent have come up with nothing better than oil.

I agree that the oil companies shouldn't be getting any subsidies (NOBODY should). As for tax breaks, it depends on what they are for.

I know it "feels" good to blame the oil companies and their "record profits." But the truth is that the cost of gas is increasing because world demand is increasing and OPEC has the power to manipulate supply. It's as simple as that. We will probably end up with ANOTHER congressional investigation of the oil companies, which will once again come up with nothing sinister.

Even if you do tax the oil companies and it does increase revenue (which I doubt), history suggests that congress will squander the money rather than "invest" it in a responsible manner.

coreydbarbarian said...

this has been an educational experience thus far. not 2 much 2 add, except a nit-picky clarification of somethin g said:

"the truth is that the cost of gas is increasing because world demand is increasing and OPEC has the power to manipulate supply."

g, ya forgot two things in your formula - supply is decreasing (or at least that's the perception / common assumption. awful hard to prove, though.) and, rampant speculation on futures hikes prices significantly.

with increasing demand and (at the least) the perception that supply is dwindling, opec manipulating supply and traders fiddlin with imagined future demand, it is no wonder we're in such hurt.

i want to go in a million directions from here, but i'll collect my thoughts/drink my coffee for a bit...


The thing high oil and gas prices has done is to get everybody on the same page worldwide that we have a problem. Everybody is talking. This will lead to innovation. If prices had stayed low this would never have happened.

One thing we could be doing in the short term is to buddy up to Brazil. Brazil has gotten just about all it's people using ethanol in cars and they have made some major oil finds with much more potential ones off their coasts. With Brazil you are looking at the next energy kingpin, and they are outside OPEC.

coreydbarbarian said...

just stumbled onto this, from olbermann:

why regulation is sometimes good.

i don't really like olbermann's style, but the substance is the important thing.

Anony Mouse said...

Not only offshore drilling but also drilling in Alaska and possibly the Rockies. Not only will cost come down as the speculators will not chance the future price drops but also reduce our dependence on the Arabs. A great win for our nation. Brazil is doing it and China just put an offshore oil rig less than 100 miles off our coast. We are the only nation allowing false environmental concerns to handcuff our independence. The DNC will commit political suicide if they fail to follow the will of the people on this. We have a 1995 Clinton to thank for not doing this in Alaska in 1995.

Flip Flopping is warranted when oil prices triple. That is the mark of a thinking man. We can also drill for oil AND R&D alternate energy strategies at the same time. It really is too bad that something this important to our nation must become politicized.

G said...


You're right. I didn't mention the speculation. Nor did I bring up the sliding value of the dollar. They both have been factors in the current situation. But those things tend to work themselves out over time, just through the normal ups & downs of the financial markets.

Ethanol isn't really a solution. It MIGHT help slightly, but maybe not at all:

The ethanol subsidy is worse than you can imagine.

Let Them Eat Gas: Problems with Ethanol

I wholeheartedly agree that we should be researching alternative energy sources. But at the same time, we need to be making efforts to reduce our dependency on FOREIGN oil. The more we depend on other countries for our energy needs, the more our economy will be effected by their whims.

And let's not forget one thing. While it's true that oil is big business with a powerful lobby in DC, the other energy producers are just as interested in making a lot of money, and spend a lot of time and effort lobbying DC as well. So just because they SAY it's a better energy source doesn't necessarily mean that it is.

Personally, I think we SHOULD be doing more drilling (and building nuclear plants, for that matter). But at the same time we should be doing a lot of R&D on alternative fuels (preferably encouraging it by tax breaks, not by subsidies).

Incidentally, I hope you don't get the impression from the past couple threads that I'm a supporter of McCain. My view is that this year has given us the worst two major-party candidates that we've seen in my lifetime.

coreydbarbarian said...

anony mouse,
that was such a rational post, i almost don't want to add my 2 cents.

almost. ;-)

personally, i am not a big fan of more & more drilling. especially in the rockies and alaska. but that is just my opinion.

brazil made the switch to ethanol by doubling the global price of sugar. there was/is a tradeoff. nothing is free.

lastly, the ol' "china just put an offshore oil rig... line was disproved long ago. dick cheney and george will (the originator of said line) issued retractions already.

an odd bit of whatnot, addressed to noone specific:

it occurs to me that petroleum oil is also used for plastics. does anyone know what percentage of oil is consumed in this way? and wouldn't less plastic produced = reduced demand for petroleum?

csm said...

How about reducing plastic consumption by switching back to drinking tap water instead of buying it in plastic bottles?

Ceroill said...

I think the surest sign that we do have a dwindling supply is that the energy supply industry (read oil) is FINALLY doing some fairly serious work on research into other venues than petroleum. Up til now the main research in this area has been fairly small, and production of such products has been limited. Why? Because neither the gummint nor big business have had any interest (and according to rumor actively quashed some efforts over the years) in the topic.

coreydbarbarian said...

bob, i think you're right.

g, you have some interesting links. i might go back to the 2nd one and poke around later on.

i learned to dislike indiana's senior senator, dick lugar, because of ethanol. ask the mainstream media why the price of milk, beef, pork, chicken, etc. has skyrocketed, and they will say it's because of rising gas prices. ask a farmer, and he'll tell ya straight-up: it's because the cost of feed has doubled, because of ethanol.

can i tell ya a secret? i supported hilary until she came to indiana. when asked about rising food costs and ethanol, she basically said we need to suck it up, because ethanol usage is an important step in weening us off of oil. she lost my support at that point.

may i vent for a moment, in a "not entirely off the topic" kind of way?

i'm a single guy, so mine is a single-income home, with a limited budget. with gas prices at $4/gallon, it was costing me $64.00 to fill up. i had to sell the car. now i've got this little motorcycle, which gets me around, but it makes grocery and laundry trips a bit hectic. not to mention wintertime...can't ride a bike in the snow, ya know?

so i think i'm saving some money, but grocery expenses have shot up by 33% or so. and everything else is creeping up, too: laundrymat prices went up 20%, rent went up 20%, the electric company raised their rates by 24%, natural gas for winter heat, etc. even going to see the incredible hulk last week cost 20% more than last summer's flicks.

so at the end of the day, i lost my car, and i'm still worse off. that's on a personal expenditures level.

on a business level, my factory has laid off 33% of its workforce in the past month, and there are more layoffs to come. my degree helps insulate me from the layoffs for now, but things don't look so good down the road. our customers are tightening their belts, and our suppliers are raising prices. a lot of 'em have gone under, both customers AND suppliers.

my weekend job is a delivery position, but we're responsible for fuel, so every time gas prices jump, wages drop. directly. since gas hit $4/gallon, i've been taking home minimum wage on the weekends.

now, before any of you feel sorry for me, realize that i am the only college grad in my extended family. what i mean is, my financial situation is actually better than the rest of my loved ones.

taking it a step further, my community is doing much worse than my family. another step out, and you see how bad the midwest is doing - the parts that aren't under water still. one more step out, our nation is teetering on the edge.

the scary thing is, compared to the rest of the world, we're sitting pretty. and we have been, for quite a while. now what?

there just aren't any short-term solutions for this mess. and i'm beginning to believe our society must change. kicking & screaming probably, but what choice is there?

oy. it's the end of the world as we know it - and i feel fine.


I guess I should clarify, when I brought up Brazil I should have gone further. Because Brazil uses ethanol almost exclusively for automobiles this frees up their oil for other uses, like selling it to us. I am not for the use of ethanol in this country because of the food issues and the fact it actually is more expensive when the subsidies are factored in.



You are right this is going on all over the world and much of the world is taking protectionist methods to keep food and energy inside their borders and subsidizing energy if they can, which is distorting markets even further. And from what I have been reading the food problem is where the trouble hits the fan. Governments are stretched thin just trying to keep their people fed and not rioting.

At some point though, oil will have to go down. I believe oil is in a bubble position and once the bubble bursts prices will swing the other way. But it will take demand to slow significantly which is starting to happen even in this country. I am not in the $200 barrel of oil camp; I just can't see the world staying at our current economic pace with oil that high. Once that pace slows down, oil will have to come down. Will it go down to $20 a barrel, no. $80 or $90 a barrel, probably.

Ceroill said...

Bawdy, I think it's beginning here. According to one item in the NYT today record numbers of folks are taking the train instead of driving, and AMTRAK is having trouble keeping up with increased demand.

One comment on the basic level here: Why do you think Europe has been big into rail travel for decades now? And why are the vast majority of European cars tiny by current American standards?

I find myself flashing back to the late 70's/early 80's when Japanese cars began to eat away seriously at Detroit's market. Suddenly Ford and other American brands are cutting way back on truck and suv production, though as yet they don't seem to be hurrying to get more economy models out there.



1. Europe has been into rail for decades because European countries are closer together and much of the population centers are more densely packed. For example, when I drive up to my summer getaway here in Arizona it is about 130 miles away. In that same 130 miles in Europe you could have gone through a handful of countries. Rail has to have stationary destination points, i.e. cities, to be efficient. This is why the east coast is the most profitable area for rail as the cities are closer together and more densely packed.

2. Europeans have had a history of smaller cars because they have endured high petrol prices for decades mainly because they have never had the energy resources this country had. Cheap gas and lots of expendable cash = big cars. Of course this isn't our case anymore.

3. The American car makers are going as fast as they can. The old line about how long it takes to turn an ocean liner around fits here. These behemoths have been hit with a right cross they weren't expecting, though they probably should have had an idea, and now they are scrambling to get back in the game. And there is the possibility they won't.

Lastly, this piece is from an organization I have talked of before, Strategic Forecasting. They are a private intelligence firm based in Dallas. They take the pulse of the whole world; there isn't a corner of the world they don't have intelligence resources and they generally are two to three weeks ahead of the mainstream media. The big plus to them is they do not take sides, just the straight poop.

This article has to do with Tush's just announced plan to lower oil and therefore gas prices in the short term. I like it because it is short and concise:

"With global crude oil prices at historic highs, U.S. President George W. Bush gave a speech in the Rose Garden on June 18 in which he outlined four proposals for lowering U.S. gasoline prices — which are also at historic highs.

There are no easy solutions to the higher prices, which are driven by global trends over which Washington has little control. All of Bush’s proposals — which include opening the continental shelf to drilling for oil, opening the Arctic National Wildlife Refuge (ANWR), pursuing oil shale deposits and increasing U.S. refining capacity — attack the problem from the standpoint of increasing the long-term supply of oil and petroleum products. While they might have some effect (and some would be more effective than others), ultimately they would only slow the eventual decline in U.S. oil production.

Let us address the proposals from the least to the most effective at achieving the stated goal of lowering gasoline prices.

The first of Bush’s proposals would open up more offshore drilling in the United States. There certainly is oil in the continental shelf — approximately 1.9 billion barrels of it — mainly near Alaska, California, Texas, Louisiana, Alabama and Florida. But retrieving this oil would not be easy. It is not concentrated in large, accessible fields, but scattered across millions of square miles of ocean in thousands of small deposits. Even in the most optimistic scenario, a massive series of interconnecting pipe networks would have to be built, costing somewhere in the hundreds of billions of dollars and taking several years. Given the necessary time and investment, the cost-effectiveness of such a strategy is questionable at best, and any impact it might have on prices would be marginal.

The second proposal, drilling in ANWR, is considerably more reasonable — and certainly more feasible — than drilling in the continental shelf, as production could feed into existing infrastructure. An estimated 6 to 16 billion barrels of recoverable oil lies inside ANWR’s 19 million acres, and production sites could be linked to existing pipeline infrastructure that flows from Prudhoe Bay. But developing ANWR would only be a small step toward U.S. energy self-sufficiency; the region’s reserves are not nearly enough to bring back the heady days of $30-per-barrel oil. Even the most wildly optimistic estimates project ANWR’s output at about 1 million barrels per day (bpd) for a maximum of 25 years. By comparison, U.S. demand is currently about 22 million bpd and has been rising for decades. ANWR would help the bottom line somewhat, but in the long run there is no getting around the mathematical fact that its deposits would provide less than 5 percent of U.S. annual consumption, and only for a limited amount of time.

There is greater potential with Bush’s third proposal, oil shale. The Green River Basin in Colorado, Utah and Wyoming contains an estimated 1.8 trillion recoverable barrels of shale oil. Canada has proven that extracting oil from oil sands — which requires somewhat similar technology — is economically viable at current prices. More important, oil shale formations also contain large amounts of natural gas (as do coal seams), and technology is now mature enough to extract and capture this natural gas along with the oil.

But while the technology of oil shale is similar to oil sands, it is not identical, and at present, it is still largely theoretical. Another downside is that oil sands and oil shale require a large amount of processing after extraction, and that requires a large amount of energy. Compared to developing conventional oil deposits, these recovery methods are inefficient and emit high levels of carbon to boot. If carbon taxes and trade regulations are legislated in the future, they will heap on even more complications and costs to oil shale production. So while shale may be very promising, for now it is like cellulosic ethanol — the fuel of the (somewhat distant) future.

The most realistic and applicable of Bush’s proposals is the suggestion to increase domestic petroleum refining capacity. Since 2004, the United States has produced an average of about 108 million barrels of motor gasoline a year — up from about 72 million in 1982. The country has the technology and capital to build new refineries and increase domestic gasoline supply, but none have been built for 30 years. The main reason is that the permitting process at the local, state and federal levels is so complex and contradictory that it is impossible, in practice if not in principle, to get a new refinery built. The proposal to reform the system to allow new refineries might actually lower gasoline prices — but not in the short term, and not by much.

At $130 per barrel, a gallon of unrefined petroleum costs $3.09; turning that into gasoline adds less than $1 of cost. Additional refinery capacity will make a difference, but only a small one, taking only pennies off the price. Even if Congress took Bush’s suggestion to heart and produced a reformed permitting process within a week — and we do not need to speculate on the likelihood of that happening — it would still take two to five years before the first new refineries could come on line. And a lot can happen in the oil markets in two to five years.

It is not that the Bush plan is a step in the wrong direction (although environmentalists will undoubtedly argue that point), but that it offers only very small steps.

The price of oil is set by global supply and global demand, and the answer to cheaper prices lies both in decreasing global demand (or demand growth) and increasing global supply. Bush only addresses the supply side of the equation, and even that only at the national level.

Major supply increases cannot come from places like the United States where, to put it bluntly, there are no large new sources that can be brought on line easily and cheaply. Any “new” oil will instead come from reviving Venezuela’s oil industry post-Chavez, an Iraqi oil renaissance after the war ends, bringing Iran’s technology up to at least the 1980s, and accelerating Brazil’s whopping oil discoveries to market ten years from now.

This leaves only reducing demand as a quick and “easy” option. Reducing demand means, most likely, increasing the efficiency with which the country uses oil. While not an overnight process, this is something that becomes more likely the longer fuel prices remain high. Given a few years, Bush’s proposals might reduce gasoline prices somewhat — but not as much as replacing half of the sport utility vehicles on U.S. roads with hybrids would."

Back to me, I can attest to the problems in getting new refining capacity; Arizona has had a proposed new refinery set to break ground in the southern part of the state for awhile now, but the same old bugaboo, red tape has kept it from getting off the ground.

Ceroill said...

Bawdy, indeed the smaller distances in Europe are a factor. I know they've had horrendous gas prices for a long time, that was a lot of my point. As to trains, however, they are not all intranational. I guess my point about the car makers harkens back to the seventies. It's not like nobody could see this coming, or that they didn't know how to make econo cars already. Yes, I know it takes time to design, prototype and tool up for new models, but like I said, it's hardly a surprise event.
No, I don't expect Detroit to keep a constant supply of unpopular cars in production, I'm not that naive.

coreydbarbarian said...

just saw this article
on the price of corn.

my best friend took a job in iowa after college. i'd been so worried about her & her family, i never stopped to think about the crops, and what the loss could do to food prices. kinda ties into our ethanol discussion.

G said...

For those of you still interested in this thread (from the NY Times, surprisingly):

Obama Camp Closely Linked With Ethanol