Should the U.S. Allow Offshore Oil Drilling?

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To begin, quoting reserves statistics can be misleading.  The US, for example, has had about 12 years of remaining reserves for the last 40+ years.  This simple point tells us that reserves expand with exploration and development.  Access to acreage currently off limits could allow our reserve base to continue to at least support our current production levels.

While it is true that expanded access would take time to result in expanded production, the impact on price will be realized increasingly as time passes.  A key component of today's price is the view of how adequate future supplies will be in meeting expected demand.  In fact, the much lamented "speculation premium" reflects today's market tightness as well as what is expected regarding tomorrow.  If the view of the future is one of adequate supply, then at least one element of uncertainty about the market is relaxed.  Thus, an increase in future supply availability relaxes perceived market tightness, which ultimately influences price before production actually begins.

By the way, it is this point regarding expectations that most forecasting models do not capture, including the EIA's.  These models tend to indicate equilibrium along long run marginal cost curves.  The crude oil market is rarely, if ever, priced at long run marginal cost, especially when markets are tight.

Another point about the model that is cited here is that it is not "global".  Rather it is a US-centric model.  Thus, the competition at the margin will primarily be with domestic production, especially when imports are modeled as a relatively inelastic.  This can greatly understate the impact of new supplies.

One other point is that if the supplies are actually greater than the estimated 18 billion barrels, then the impact will be greater.  Not until Congress ordered an inventory of our nations resources in 2005 was an assessment done for the regions of the OCS that are currently off-limits.  Even then, the assessment is largely preliminary.  Once the leasing is organized and companies can actually make more rigorous assessments, we will actually know if it is worth drilling.  If the resource base is small, then no drilling will occur anyway, but if it is large, we maybe blindly missing a boon to our energy security, both today and tomorrow. 

As for the point about moving to clean alternative energy, I could not agree more.  But, there is a sustainable path to getting there, as I have laid out in my arguments in another area of this debate.  Also, it should be noted that natural gas is a major part of T. Boone Pickens plan, and there is a substantial amount of natural gas estimated to be in the OCS acreage currently off-limits. To me, that is the biggest potential loss of the OCS moratoria, especially as we enter a time when the low carbon intensity of natural gas is becoming ever more valuable to a sustainable energy future.