1. Resource Potential and Market Impact
According to an assessment by the U.S. Department of the Interior’s Minerals Management Service (MMS), the OCS in the Lower 48 currently under leasing moratorium holds a mean estimate of 19 billion barrels of technically recoverable oil. This has led some to claim that opening the OCS will not significantly improve the energy situation because 19 billion barrels would sustain only about 2 years of current U.S. consumption. But, a more appropriate way to consider the issue is that if the OCS could provide additional production of 1 million barrels per day (b/d) of oil, our Persian Gulf imports could be reduced by up to 40 percent. At 1 million b/d, 19 billion barrels would last about 50 years.
Some opponents of lifting the moratoria correctly point out that there may in fact not be 19 billion barrels of oil. But, this is no justification for not lifting the moratoria. In fact, if more rigorous geologic testing indicates the mean resource estimate to be greatly overstated, then no drilling will occur anyway. The fact is that no assessment could be carried out until the Congress ordered an inventory of the nation’s resources in 2005. More accurate knowledge of the resource in place should be a desirable outcome because it reduces uncertainty about potential future supply. This, in turn, can prove very important in shaping investment behaviors, and better inform policy-makers regarding the full portfolio of options available in formulating energy policy. In general, constraints raise costs, not lower them.
It is likely true that opening the OCS will not have an immediate impact on oil prices because of the time necessary to organize lease sales and to develop supply delivery infrastructure. However, once development progresses, the expected growth in supply would eventually influence market prices. Some opponents point out that the US Energy Information Administration indicated that the impact of opening the OCS would be negligible. However, modeling exercises that do not capture the influence of market expectations – a critical feature of price formation – are not suitable to understanding the full market impact of an increase in available supply options. Moreover, greater supply should dampen price volatility, all else equal, which is another desirable outcome. Opening the OCS, therefore, should be viewed as a relevant part of a larger strategy encompassing a portfolio of options aimed at easing prices over time.
An equally important point, if not more so, is that lifting the current moratorium in the OCS would also provide the benefit of access to almost 80 trillion cubic feet of technically recoverable natural gas. A recent study by the Baker Institute indicates that removing restrictions on resource development in the OCS has substantial implications for future U.S. liquefied natural gas (LNG) import dependence. This is particularly salient since natural gas is becoming an increasingly important fuel in power generation, and, given concerns about carbon emissions, this trend is likely to accelerate in the next decade or so. Thus, lifting the current moratorium in the OCS has potentially strong energy security implications as it could impact the transportation sector, industry and power generation.
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In all the sources that I have checked, i can not find a person that says offshore drilling is a terrible thing, rather that shipping oil is. I am writing an assignment on the views of offshore drilling and i would like your expert help.
1. If safeguards were put into place to help control oil shipping would offshore drilling be less opposed?
2. Does the act of offshore drilling effect nearby marine life?
3. What kind of safeguards would need to be put into place to control how oil is shipped to make it safer for marine life?
In all the sources that I have checked, i can not find a person that says offshore drilling is a terrible thing, rather that shipping oil is. I am writing an assignment on the views of offshore drilling and i would like your expert help.
1. If safeguards were put into place to help control oil shipping would offshore drilling be less opposed?
2. Does the act of offshore drilling effect nearby marine life?
3. What kind of safeguards would need to be put into place to control how oil is shipped to make it safer for marine life?
Honestly, if you all really think about it, the effects of BOTH drilling offshore and the alternative -whatever that may be- will take about a decade or so in order to see more of a change. Everyone is so caught up in "How are we going to fix it, NOW!?" To be quite serious, I am not sure that there is a solution that would fix our problem now. However, we do have to start somewhere, and that somewhere should be with offshore drilling (option A) AND finding alternative resources (option B). This would allow most everyone to be happy, and it would create almost two times the jobs that just doing one alone would.
I think that we should allow offshore drilling for two reasons 1. That it could help with our current problem of gas prices and 2. It would provide a huge amount of jobs.
If we could drill for more oil then it would obviously help lower gas prices. I know that studies have shown that it is possible that there could not be as much oil in the outer continental shelf that people have previously estimated, but even if there is enough out there to solve the problem long enough so that we can come up with a way to solve the enrgy crisis.
I know for a fact that in areas of the deep South, especially in southern Louisiana, Alabama, and Mississippi, as well as many parts of Texas, many people go work in the off-shore oil industry. Where I lived in South Louisiana it was extremely common for the men to go work off-shore right out off high school. Although it is a dangerous job, many men will do it because the pay is very good and there is are great opportunities for advancement. This does not include the amount of jobs that are provided by the refineries that are in New Orleans and Houston.
You said: "[drilling] could help with our current problem of gas prices."
It would help if you read up on the other side of the argument. If you had, you would have realized that the impact on gas prices has been estimated to be just a few cents lower. Is it your opinion that this small decrease in the price will solve our current financial issues? What's more, the effects would probably be a about decade or so from now. What, I wonder, are we going to do about the energy crisis in the meantime? Money that our government could be spending researching alternative fuel sources will be spent drilling instead.
As a second point, you said: "it would provide a huge amount of jobs."
This is a valid point. However, increased research on alternative energy also has the potential to provide employment opportunities. Research and testing requires scientists, supervisors, technicians, etc. Either way you turn, there will be jobs. Down one path are the oil drilling and refining jobs which, as you pointed out, are dangerous. Down the other are jobs that are far safer and probably pay just as well, but these jobs would better America and the world. I know which I would choose.
I don't think that a small price decreaase will solve our current financial issues, I think that it will help alleviate the problem until we can find a better, more permanent solution to the problem. My thought process behind that is that if we can lessen our dependance on foreign oil then we should be able to better control prices. Off-shore drilling is the solution in the meantime. Besides the fact that although the government does control where we dig, they do not control who drills there.
I see what you are trying to say that research will also provide jobs, but the jobs they provide are not in a generalized field. How many jobs will be provided if they are for those who are scientists and researchers? Oil-rig jobs will cater more to the masses.
An old saying "When you are up to your Butt in alligators it is no time to devise a way to drain the swamp".
Yes we use too much oil! Yes the "Leaders" in Congress have been negligent! Yes neither of the Presidential candidates and certainly not Pelosi and Reed have a clue as to what to do! Yes, "We the People" have been negligent in not forcing Government to develop alternatives over the past 30+ years.
Lots of people are at fault. We can dwell on blame or try to elect intelligent politicians (only kidding) or be proactive and drill for oil in every conceivable site possible and use every existing technology to get the economy under control. While we are saving ourselves we can also be planning a Manhattan Project type of development effort for alternative fuels. We can do this if we try. We have the intelligence and know-how all we need is enthusiasm and a positive attitude.
There are no easy answers. Wind Energy still cost more to build than it will ever make on production, Solar is even worse from an economic pay back perspective. Not to mention the lack of predictable sustainable production control. Coal can be made clean at a reasonable price and we have more coal than anyone. Gas is readily available with infrastructure in place. Oil is available and the infrastructure is in place but requires additional drilling and refining capacity. Nuclear is safe, clean, efficient and the infrastructure is in place. Nuclear waste disposal issues are far more political than technical. The Biggest problem not discussed with regard to Nuclear is finding enough technical talent. America needs an explosion of young people to go into engineering and the sciences.
Therefore, Drill within 50 miles, Push hard on clean coal technology, Push hard on Nuclear expansion and push hard on technical training for the current and future generations of young people. Eventually we will feel the Win, Win when logic and know-how over come political expediency and press-for-profit driven dooms day fear.
Remember, we are Americans. We innovate and overcome, that is what makes us as a nation stand-out in a bleak world. It is time for all of us to stand up and demand more responsible, intelligent, and thought provoking social, political, technical, and Governmental “Leadership”. The choice to succeed or be a fading memory is ours and ours alone. As one of the hero’s of Flt 93 said “Lets roll” we have nothing to loose!
Airdale
Isn't the world's total oil production somewhere around 80 million barrels per day? Even if off-shore drilling did produce 1 million barrels per day, how would this significantly lower the gas prices, especially with demand increasing so rapidly?
Are Republicans so bad at economics these days that they don't understand the market for oil is a global one? Are McCain and Sarah Palin really that stupid? Or are they intending to nationalize the oil industry along the lines of Hugo Chavez's socialist revolution in Venezuela?
The only way we're going to turn this country around is by putting people with at least a reasonable amount of intelligence into the white house, regardless of their party affiliation. I'm sorry but "reasonable intelligence" doesn't remotely describe either McCain or Palin. I wish Obama would say it: his Ivy League background, his years as a law professor, his experience which required him to use and develop his brain, are actually quite relevant to holding the job that requires the most important and complex decision-making in the land. McCain, of course, sees this "thinking" experience as negative or irrelevant.
If we want to continue to be a prosperous society, we need to elect somebody with brains who can begin to undo what the past eight years of Idiocracy have done to this nation.
To answer your first question, if supply is perfectly elastic, then any increase will have no effect, regardless of how large it is. However, if supply is constrained (so that we are in an inelastic region of the supply curve as most have argued, i.e.- it is near impossible to increase supply at any price), then any increase in supply will have a significant effect on oil price. The exception to this is if demand is highly elastic. However, you will be hard-pressed to find any evidence that this is indeed the case.
Opening the OCS could also provide benefit by altering the perception of future supply availability. The notion that expectations influence price is foreign to many people, but they certainly do. I have outlined this briefly in an objection within this debate, but more is available in any advanced microeconomics textbook.
To this point, I have laid out in other articles that the OCS is only one very important part of a portfolio approach that must be adopted. I invite you to view the articles and FAQs posted at the Baker Institute website.
Much of the rest of your comments are reflective of your own very passionate feelings regarding the candidates. I will not broadly comment on this in order to stay centered on the debate. But with regard to the OCS, to be fair, both candidates are in favor, to at least some extent, of expanded access. Moreover, both have actually changed positions on this, McCain simply did it first. I recently interviewed with Petroleum Economist (yet to be printed) where I laid out my thoughts on the candidates and energy policy in general. Unfortunately, I do not think either has a grasp on the realities of the energy market, going beyond the OCS debate. We must remember that the OCS issue is but one in the energy policy space, and energy policy is but one issue that this country must tackle. Albeit, energy policy has not been this important an issue since the late 1970s.
"Opening the OCS could also provide benefit by altering the perception of future supply availability. The notion that expectations influence price is foreign to many people, but they certainly do."
Wouldn't the effect of a perception change be an increase in demand?
The shift in perception would likely encourage an increase in demand. But the extent of the increase is what's at issue. Given that the price elasticity of demand is relatively small, a downward shift in price would beget only a small increase in demand. So, the answer to your question is yes, but the effect of shifting the supply curve is likely to dominate.
Now, it is important to recognize that other factors are likely to increase demand, especially for natural gas. The effect of economic growth is one that tends to shift demand out at any price, so additional supply will be needed to abate dramatic increases in price. (This is where alternatives also play a role, by the way). With regard to natural gas in particular, climate policies will favor its use in power generation over coal, and the ability to deploy natural gas using capital in power generation quickly makes it a favored fuel for the next decade at least. Couple this with a push to diversify our vehicle fleet toward natural gas, and we have the potential to see demand rise dramatically. This is precisely why I think the natural gas potential in the OCS holds the greatest promise. We will need additional fuels, and among the carbon-based fuels natural gas is the least carbon intensive. Shouldn't we promote policies that encourage smart use of our resources as we transition to a world where carbon-based fuels are a thing of the past. We can do this the right way, or we can do it the wrong way, with the latter being laden with greater potential for volatility and potentially large macroeconomic costs.
You said:
"But, a more appropriate way to consider the issue is that if the OCS could provide additional production of 1 million barrels per day (b/d) of oil, our Persian Gulf imports could be reduced by up to 40 percent. At 1 million b/d, 19 billion barrels would last about 50 years."
Oil is a global commodity which is sold on the open market to the highest bidder. Do you really believe that any oil found in, on or under U.S. land or the OCS will be for the exclusive use of the U.S.?
Further you said:
"However, modeling exercises that do not capture the influence of market expectations – a critical feature of price formation – are not suitable to understanding the full market impact of an increase in available supply options. Moreover, greater supply should dampen price volatility, all else equal, which is another desirable outcome."
You speak of supply, but not of the other side of the equation, demand. What evidence is there that "all else [will be] equal"? Isn't the explosive economic growth of China and India a significant factor in the increasing demand for oil?
Market forces bump into the wall of OPEC and the oil Companies - supply is controlled; demand is out of control.
Surely, alternatives must be found - and sooner rather than later.
To answer your first question, any oil produced here will be consumed here, unless we end up producing so much that we become net exporters. This is because part of the value of oil extraction is embedded in its cost to transport to market, and US produced oil will carry the smallest transport cost if it is consumed domestically. One exception could be oil produced in Alaska, but that is another issue. In general, however, additional supplies will displace imports and lower prices globally, not just in the US.
Your second point is well taken. Demand growth is a critical issue. I have addressed demand side responses in other articles I have written. I think efficiency and conservation are potentially very powerful, as was demonstrated in the 1980s in the US. During that time our average on-road fuel efficiency (not the window sticker but actual mpgs) increased from about 12 mpg to over 20 mpg. This enabled us to drive more, see more cars on the road, yet consume virtually the same amount of fuel. Unfortunately, policy did not continue the trend of stricter CAFE standards, and the SUV revolution ensued. We are now on the verge of witnessing a long overdue mandated increase in efficiency. Nevertheless, the fact of the matter is, we will remain reliant on today's technologies for some time to come, even with increased efficiency. Thus, we can think of ways to smoothly transition to the world that we desire, or we can demand abrupt change. The latter option comes with high fixed costs, a fact that history has borne out on more than one occasion.
Whether or not we drill for oil, I am looking at the big picture. People are saying "Drill, drill, drill" but why are those same people NOT saying "Conservation is by far our fastest way to reduce cost of and dependence on imported oil? The strongest push should be to conserve, including auto efficiency (CAFE standards), insulation, and incentives for solar heating and other non-polluting, quick-to-implement technologies. Second, there should be a strong look to the future, with a far larger commitment to renewable energy research than the current administration is supporting, and I believe far more than the candidates support (we will see what they do AFTER the election). So, whether to drill is not exactly the right debate. It is a sideshow and possibly a relatively brief transition to a much better future of lowered fuel consumption and increased renewable output and storage. If anyting, exploration and drilling on current landholdings will be faster and less expensive, and less risky, than offshore drilling.
To begin, I simply point you to the last sentence of the last argument I present in this debate.
Conservation is indeed a very powerful tool. In fact, it is something that I have constantly promoted in many different forums. To illustrate, consider the fuel savings if we could cut our driving by 30 miles per week, which amounts to roughly 13% of the average driver's mileage per year. This amounts to carpooling or telecommuting once per week for many Americans. This reduction in demand, amounting to close to 1.5 million barrels per day, would have a significant impact on price. However, this does not mean we should not also pursue supply-side options.
I also agree with your comment regarding basic research into alternatives. This should be clear from my arguments in this debate. My proposal to use royalties to support such research has been picked up in Washington. I know of at least one Senate proposal that intends to do just this. We will have to wait and see where it goes.
One additional point is that the last sentence in your comment is not necessarily true. Economies of scale are very important in the resource extraction industries, so per unit costs are very much dependent on the expected ultimate recovery from the development. Your statement therefore assumes there are large untapped deposits in "current landholdings" and that no such deposits exist offshore.
Your points are reasonable; however, mine are also correct, as we are talking about slightly different topics. For example, you did as requested and presented the case for drilling for more oil, and you did so rather well. However, the result is that once more there is some passing mention of conservation and of research into alternative energies, but the primary focus that the reader will hear about is just the drilling aspect. For example, where is mention of the ability to raise car mile-per-gallon standards as of three years from now? Where is mention of subsidies to build up mass transit? it is not that you are wrong Kevin as far as you go, but the debate is not the right one.
If money is set aside from OCS oil profits, how much will that amount to? I doubt it will match what i believe is necessary - the equivalent of a war-time intense effort by all citizens. It is a strong commitment to urgent development of conservation options and of alternate energy sources, because burning a lot more fossil fuels may trigger passing of tipping points.
Regarding my last sentence, I meant that the cost of offshore oil exploration and developing new rigs outweighs the benefit of that added oil in the market. Still, I would like to see the economic numbers in various scenarios to better understand the tradeoffs.
Thank you.
planetThoughts-
You ask: "If money is set aside from OCS oil profits, how much will that amount to?"
Let's assume the areas under discussion are opened up for exploration. Let's further assume a peak rate of 2 million extra barrels of oil per day come on the market due to this action, at a price of $100/barrel. This 2 million is the peak rate reached by North Slope production in 1988.
Reasonable expected government revenues:
1) $3-4 billion in lease bids. This much was generated in a recent Gulf of Mexico area wide sale, and also in Alaska's recent Chukchi Sea sale.
2) At royalty rates of say 20%, this would mean $40 million per DAY, or $15 billion per year in new revenues, to be allocated between the states and feds as they see fit.
3) About $60 billion in revenues from the companies producing the oil, so additional state and federal tax revenues perhaps in the range of 10 to 20 billion.
4) Thousands of new quality jobs, therefore new income pumped into local economies.
5) 730 million barrels per year purchased domestically rather than imported, or $73 billion annual improvement in the US trade balance. Meaning a stronger dollar, downward pressure on interest rates, and lower borrowing costs.
However, it's not possible that "money is set aside from OCS oil profits". Otherwise, who would drill for the oil? Would you if you received no profit for it? However, why not set aside some percentage of lease bids, royalties, or income taxes for alternative energy research? As you can see above, this could be in the mid to high tens of billions of dollars.
You say: "I doubt it will match what i believe is necessary - the equivalent of a war-time intense effort by all citizens. "
Why do you phrase it as a zero sum game? Both can be done, drilling and large scale alternative R&D, in parallel. Why not? In fact, alternative energy research is already proceeding at a furious pace in the private sector. Can you imagine the incentive to be the first company to produce a commercial substitute for oil? If you're the CEO, you'll become fabulously wealthy, and a world hero as well.
When will alternative energy be able to scale up to replace fossil fuels? What if we follow your policy advice, and it turns out that it will take another 25 years for this to happen at a cost that won't severely damage the economy?
You can legislate research funding, but you can't legislate the pace of scientific discovery.