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Tam Hunt: Will Offshore Drilling Help Ease Our Energy Crisis?
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.
» wrote on 07.16.08 @ 10:48 PM
Oil prices actually closed at $134.60 yesterday. They’ve been falling as President Bush has begun calling for more domestic exploration offshore and lifted the moratorium.
» wrote on 07.17.08 @ 04:00 AM
Even after reading your entire article, I’m not convinced that increased production won’t help our current situation. Regardless, we have an obligation to be drilling for the oil that we have on our own soil, so long as we have need for that form of energy. I’d rather see more rigs off our coast than to see boats coming in from the middle east.
And as long as everyday people have $15-$30k tied up in the form of a car they drive, you won’t see people jumping on board for alternative transportation and conservation that doesn’t ensure that they won’t lose all of that money overnight or over 5 years. Which means we will need oil as long as we have people with cars, which means we need to look at taking responsibility for the system we are in and providing for ourselves when we can with what we have. Drill Here.
» wrote on 07.17.08 @ 04:55 AM
Wrong answer, Tam. Just the threat of drilling has already caused oil prices to drop. We need a multipronged approach to a long term energy policy that is free of political grandstanding and true-believer thinking on all sides. Use oil for things that move - gasoline is an incredibly efficient way to package energy. Build clean coal, wind, and nuclear powered plants to generate electricity. Expand drilling from existing platforms. Increase exploration and production on US soil and in US waters in order to cut, long term, the proportion of oil we import. Stop the economically absurd subsidies for ethanol from corn - it is a thermodynamically flawed solution - it takes 2 calories of energy to produce enough ethanol to produce 1 calorie of energy.
» wrote on 07.17.08 @ 05:44 AM
Same very tired arguments, bad data, questionable sources. Remember high school economics? When there is an increased demand and a decreased supply, the price will go up. Duh! The world is laughing at us because of people like Nancy Pelosi and Tam Hunt.
» wrote on 07.17.08 @ 06:24 AM
We don’t need to drill for more oil. Take the amount of money that you would spend for gas in your car for a month and go buy a bike. When we pay as much for gas as Europe does then we might have a little something to bark about...until then, walk, take a bus, ride share...do something other than depend on oil.
» wrote on 07.17.08 @ 08:03 AM
Oil drilling is fine as long as there are no spills/leaks. The problem is, that is a fantasy land, there are always spills. We know this very well in Santa Barbara, the 1969 spill decimated wildlife and tourism in Santa Barbara.
Crude oil stays on the surface so it spreads and is terrible for birds as it reduces their ability to insulate themselves from the colder California ocean, while it’s also toxic - they prune themselves, putting oil over themselves. So they either die of hypothermia, oil toxicity or starvation. A tiny oil spill occurred in San Francisco last November and it wasn’t until May that it was cleaned up and it was a fraction of the spills seen in the gulf. It reached as far north as the pristine Pt Reyes national park.
Leaks plague the gulf to this day, which is why Texas is not known for its beach tourism like in California.
If we invested say $1 trillion in alternative fuels like vertical-farming algae biofuel, rather than $1T in Iraq, then we would have alternative fuels right now. If we dedicated 10% of New Mexico to algae farming for biofuel, we could have enough fuel for all of the cars in the United States. There is also solar, promising technologies like Tesla’s electric car. The oil we pump out from Santa Barbara won’t make a dent in our fuel usage pattern. It is speculation to state that the drop in oil prices is due to oil drilling speculation.
“I don’t like to call it a disaster,” because there has been no loss of human life.
“I am amazed at the publicity for the loss of a few birds.”
- Fred L. Hartley, president of Union Oil Co.:
» wrote on 07.17.08 @ 09:17 AM
Oh, please Amy M. The many people who live upcounty and work in Santa Barbara are going to bike to work? Multiply that situation by millions and you have reality in the USA. Alternatives are great and should be pursued but in the meanwhile oil is not an option, it is a requirement.
» wrote on 07.17.08 @ 11:20 AM
A few facts ignored in these comments:
The world oil markets are not at all related to supply and demand, but mere speculation as a commodity, as evident by the past few months of high supply, lowering demand, and still increasing prices.
Oil development from offshore California will go to China anyway.
» wrote on 07.17.08 @ 02:16 PM
OH, Milty you are so uninformed.
BULLETIN >>
Crude closes below $130 a barrel for the first time since June 5
7/17/2008 3:00:10 PM from Marketwatch
Just a coincidence, right?
» wrote on 07.17.08 @ 07:47 PM
I love the comments about how Bush’s symbolic lifting of the off shore drilling ban has caused the price of oil to drop. They’re just precious. It’s like the people who deny global warming because the Northeast had a colder-than-average winter. Or those masters of logic that see event A followed by event B and claim an obvious cause and effect relationship.
Think, people!
» wrote on 07.18.08 @ 07:33 AM
Awake, you like many others in this country, are in serious need of economics lessons. I’m guessing here, but is it possible that you are so loath to give Bush credit for anything that you deny the laws of supply and demand? Consider: Bush lifts the moratorium, speculators are concerned that this will eventually increase the supply of oil, speculators sell, oil prices drop - immediate reaction, Econ 101.
» wrote on 07.18.08 @ 08:49 AM
Two things. Oil prices are high in part because the dollar has declined 50% against the Euro over the last 7 years. The dollar is weak because of our negative trade balance and the biggest component of that is imported oil. If we reduce imported oil this will strengthen the dollar and oil prices will be lower. Secondly part of the oil money going to the Midwest ends up supporting terrorists. Wouldn’t it be better to keep that money here and use part of profits to fund alternative energy projects? Why send the excess profits overseas?
» wrote on 07.18.08 @ 10:13 AM
this looks like more of the age-old Santa Barbara environmentalist attitude of not in my backyard. Won’t it take just as long to get wind, solar and bio energy projects permitted as it would additional wells on existing offshore platforms. Seems all of these options need to be give efficient and quick permitting processes so everyone can stop pointing their fingers at “their energy option” as the best solution. The solution is a mixed portfolio. Stop slamming oil and start laying out the plans for the windmills and the solar panels and let oil do their thing...that they have done safely and effectively for years.
» wrote on 07.18.08 @ 02:30 PM
Environmentalism has evolved into just another big business with highly paid leaders, budgets, marketing, ... Supply and demand is reality and career enviros like Tam don’t live in the private sector. Please spare us the never ending references to the ‘69 oil spill - who is using technology from 1969 for anything? Tam is just looking out for his paycheck but high energy prices will be the only thing that will force our government to tune out Tams and develope a real energy program.
» wrote on 07.20.08 @ 12:19 AM
“Please spare us the never ending references to the ‘69 oil spill - who is using technology from 1969 for anything?”
http://www.ibtimes.com/articles/20061226/oil-spill.htm
26 December 2006 @ 12:53 pm EST
HOUSTON (AP) - Workers were trying to contain an oil spill Tuesday in the Gulf of Mexico that dumped 21,000 gallons after a pipeline ruptured.
» wrote on 07.20.08 @ 02:29 AM
DRILL.
» wrote on 07.20.08 @ 07:15 AM
Ya gotta love this one. Nancy Pelosi, Speaker of the US House of Reps, has declared that a vote on offshore drilling will not happen in the House because she says so. BTW, CNN/Opinion Research Corp reported a poll indicating that 73% of Americans now think that drilling should resume. But Nancy, a Democrat from San Francisco, knows better. Another one who accomplishes nothing, but apparently objects to everything.
» wrote on 07.20.08 @ 07:17 PM
Remember high school economics?
When people go to college, they find out that what they learned in high school is often at best a crude approximation of what they were taught in high school. College—you should try it. Although even an elementary school student can understand that starting a process now that will take 20 years to produce results is not a current increase in supply. An elementary student can also understand that demand is not constant, and is much more malleable than supply of a expendable natural resource.
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