With oil prices topping records every week, the chorus for increasing offshore drilling is growing. Will it help?
Let’s first discuss what “help” means. If we mean help in terms of providing additional supply for domestic consumption, it may help a bit. But not much, as explained below. But if we mean help in terms of bringing down prices, we know that it won’t help at all. In fact, a recent study by the Energy Information Administration, the federal energy agency that tracks energy research and data, found that increased drilling offshore in California, Florida and the Gulf of Mexico would have an “insignificant” impact on oil prices by 2030!
Offshore drilling is a political hot button, with good reason. The notorious 1969 Santa Barbara oil spill was a key trigger for creating the modern environmental movement. It also led to the Community Environmental Council‘s birth a year later. The spill was a catastrophe of epic proportions, eclipsed since by only a few manmade disasters such as the 1989 Exxon Valdez spill and the 1986 Chernobyl nuclear explosion. While technology has improved since 1969, we can’t ignore the possibility of further large spills, from platforms, pipelines or tankers. Human error is always a possibility.
But the real deal killer for increased offshore drilling — keep in mind we already have 20 or so platforms in Southern California waters and 18 off Santa Barbara and Ventura counties alone — is that it won’t make much, if any, difference to oil prices.
Oil is traded on a global market. It’s one of the few commodity markets that is truly global. As such, any supply differences must have a global impact to have an impact on oil markets. The EIA study, completed in early 2008, assumes fairly optimistic production numbers. Nevertheless, the report concludes:
» The projections in the Outer Continental Shelf, or OCS, access case indicate that access to the Pacific, Atlantic and eastern Gulf regions would not have a significant impact on domestic crude oil and natural gas production or prices before 2030.
» Leasing would begin no sooner than 2012, and production would not be expected to start before 2017.
» Total domestic production of crude oil from 2012 through 2030 in the OCS access case is projected to be 1.6 percent higher than in the reference case, and 3 percent higher in 2030 alone, at 5.6 million barrels per day.
» For the lower 48 OCS, annual crude oil production in 2030 is projected to be 7 percent higher — 2.4 million barrels per day in the OCS access case compared with 2.2 million barrels per day in the reference case.
» Because oil prices are determined on the international market, however, any impact on average wellhead prices is expected to be insignificant.
It seems clear, then, that offshore drilling won’t help us with prices — which are currently at $145 per barrel and rising.
I’ve written a lot about peak oil and peak oil exports in the past and we should, to be prudent, consider the possibility that we may, in fact, face oil shortages at some point in the future instead of “merely” rising prices. If we face a more dire scenario with oil shortages, does the discussion change?
We can speculate about such a situation and I am of the view that if we are, in fact, in an oil shortage situation — where there is literally no oil available in our region, or whatever region is at issue — then we need to make critical choices. To prevent a crisis, we need to get very serious now to ensure that we pursue energy conservation, efficiency and clean alternatives. We’re not experiencing oil shortages yet and there is a very good argument that we should leave oil in the ground in case we do witness the more dire oil shortage scenarios.
One option that has been raised is to use oil from the Strategic Petroleum Reserve. The 700 million-barrel SPR was created after the 1970s oil shocks under the same rationale. It was created to guard against actual supply shortfalls, not to help reduce prices. There are some voices — House Speaker Nancy Pelosi, D-Calif., most recently — calling for releasing some oil from the SPR to reduce prices. But by law the White House can’t do this. The law allows SPR oil to be released only during actual shortages. Some oil was released after Hurricane Katrina, due to shortages in the region at that time — not to reduce global prices.
Similarly, for regions that do have oil in the ground, we should leave that oil in the ground for the time when we may actually face shortages. With EIA concluding that offshore drilling will have an “insignificant” impact on oil prices and the need for a backup plan for actual shortages, it’s clear that we shouldn’t be lifting the offshore oil moratorium any time soon.
Are there better solutions? Of course. Dramatically improving energy efficiency and conservation in all sectors — transportation, industrial, buildings — will reduce demand for oil and other fossil fuels. And electrification of transportation over the coming decades will allow us to transport goods and people with renewable electricity — solar, wind, geothermal, biomass, hydro — instead of oil. If we are preoccupied with oil drilling, we risk diverting attention from the better alternatives. And we have limited time to make this transition before it’s forced upon us by peak oil.
— Tam Hunt is energy program director and an attorney for the Community Environmental Council. He is also a lecturer in renewable energy law and policy at the Bren School of Environmental Science & Management at UCSB.
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