Will More Drilling Mean Cheaper Gas?

[HAL 9000 96]

Wednesday, Jun. 18, 2008

Will More Drilling Mean Cheaper Gas?

By Bryan Walsh

On Wednesday morning President George W. Bush urged Congress to overturn a 26-year ban on offshore oil drilling in the U.S., and open a part of the Arctic National Wildlife Refuge (ANWR) for petroleum exploration. Flanked by the secretaries of Energy and the Interior, Bush also proposed streamlining the construction process for new oil refineries, and explained that these moves would "take pressure off gas prices over time by expanding the amount of American-made oil and gasoline." Coming a day after Republican presumptive presidential nominee John McCain made a similar appeal to enhance domestic oil exploration, Bush was sending an unsubtle election year message to the American public: I care about the economic toll of $4 a gallon gas, and Democrats in Congress, who have opposed such an expansion, don't.

But there's a flaw in that logic: even if tomorrow we opened up every square mile of the outer Continental Shelf to offshore rigs, even if we drilled the entire state of Alaska and pulled new refineries out of thin air, the impact on gas prices would be minimal and delayed at best. A 2004 study by the government's Energy Information Administration (EIA) found that drilling in ANWR would trim the price of gas by 3.5 cents a gallon by 2027. (If oil prices continue to skyrocket, the savings would be greater, but not by much.) Opening up offshore areas to oil exploration — currently all coastal areas save a section of the Gulf of Mexico are off-limits, thanks to a Congressional ban enacted in 1982 and supplemented by an executive order from the first President Bush — might cut the price of gas by 3 to 4 cents a gallon at most, according to the Natural Resources Defense Council. And the relief at the pump, such as it is, wouldn't be immediate — it would take several years, at least, for the oil to begin to flow, which is time enough for increased demand from China, India and the rest of the world to outpace those relatively meager savings. "Right now the price of oil is set on the global market," says Kevin Lindemer, executive managing director of the energy markets group for the research firm Global Insight. President Bush's move "would not have an impact."

The reason is simple: the U.S. has an estimated 3% of global petroleum reserves, but consumes 24% of the world's oil. Offshore territories and public lands like ANWR that don't allow drilling may contain up to 75 billion barrels of oil, according to the EIA. That may sound like a lot, but it's not enough to make a significant difference in a world where global oil demand is expected to rise 30% by 2030, to nearly 120 million barrels a day. At best, greatly expanding domestic drilling might eventually lower the proportion of oil the U.S. imports — currently about 60% of its total supply — but petroleum is a global commodity, and the world market would soak up any additional American production. "This is a drop in the bucket," says Gernot Wagner, an economist with the Environmental Defense Fund.

Still, with Americans hurting at the pump, it may be difficult for environmentalists and other opponents of increased domestic drilling to resist the push for more oil, whatever the cost. As recently as his 2000 Presidential run, McCain had been against offshore drilling, but he changed that position Tuesday, arguing that individual states should decide for themselves. (He remains against drilling ANWR, however, pointing out that "we called it a 'refuge' for a reason.'") The Republican Governor of Florida, Charlie Crist — considered a possible vice-presidential candidate — also flip-flopped, backing McCain's position. Though Democratic Senator Barack Obama and most of his party are against the proposed expansion, McCain and his supporters may have the public on their side: a recent Gallup poll found that 57% of Americans believe we should open up new territories to drilling. "It could help in the long term," says Bruce Bullock, director of the Maguire Energy Institute at Southern Methodist University. Still, he acknowledges that even expanded drilling is unlikely to bring prices down much.

Though offshore drilling conjures up fears of catastrophic spills, the petroleum industry rightly argues that safety measures have improved considerably in recent years. A 2003 report by the National Research Council found that only 1% of the oil that entered U.S. waters came from petroleum operations, like the offshore drilling platforms that run in the Gulf of Mexico — which also weathered Hurricane Katrina without massive spills. If it can be done in an environmentally friendly fashion — and with oil companies themselves footing the bill — opening up some new territory to drilling might be worth it. The reality is that our economy will run on petroleum for the foreseeable future, and that while investing in alternatives is the only way to secure truly low-cost energy over the long-term, we'll still need oil for decades more. But any attempt to increase supply must be coupled with even heavier investment in energy efficiency and other methods to decrease oil demand — an approach that, to his credit, McCain has said will be a key part of his energy policy (although in the Senate he has skipped or voted against every fuel efficiency bill since 1990, according to the League of Conservation Voters). In any case, Bush's plan is unlikely to be realized — the Democratic-controlled Congress remains against it, and Bush can't open up the new territory on his own.

Even as Democrats and Republicans squabble over a relatively small amount of petroleum, we're missing out on the opportunity to truly break our addiction to crude. This week the Senate again failed to renew the tax credit for renewable energies like solar and wind; the credit, which expires at the end of the year, is key to the healthy growth of low-carbon alternatives. Without it, "the industry will simply stop," says Santiago Seage, CEO of the Spanish company Abengoa Solar. With energy demand skyrocketing, we'll need more oil, and alternatives like solar, and demand-side measures like toughened auto fuel efficiency standards, or tax incentives for Americans to purchase less wasteful cars. We'll have to include action on global warming, like the recently defeated Warner-Lieberman carbon cap and trade bill. A study by the Massachusetts Institute of Technology found that under the bill, U.S. petroleum consumption would drop by nearly half by 2030 — savings far in excess of the amount of oil we could ever pull from Alaska or the coasts. "We can't drill our way out of this and we can't conserve our way out either," says Bullock. "We need both." Fair enough. But the sad truth is that neither drilling nor conservation will have an immediate effect on rising gas prices, even if they do have an immediate impact on the presidential race.

*****************

Now that last paragraph should be enough to tell even the Dems in Congress to get their Sh!t together or leave office. (for those that want to ignore the cliff notes highlights above)

[GaryC 7]

Cheaper gas today? Nope. Avoiding $10/gal gas in 5 years, yes. Pretty short sighted view there. Those numbers are also vastly different from others I have seen. The point is that we don't know what is there until we look for it. To just throw up our hands and say there isn't anything we can do to find our own oil is clearly self defeating.

This article is merely towing the democratic party line. If we were to exploit all our reserves- ANWR, offshore, oil shale and oil tar we could replace what we now import from the ME. This story deliberately uses the most pessimistic estimates and does not take into account that we we look we find more oil.

[HAL 9000 96]

Thanks for your opinion, Gary.

I do think, however, that known offshore deposits have pretty predictable volumes once studied via satellite and sampling techniques.

But yes... share your numbers and we can adjust the math. Twice the actual amount? Fine. That reduces prices in said time by double. 3.5c/gal to 7c/gal.

Not quite the adjustment most guzzlers want to hear.

And I think the party line argument is quite inconclusive. Do check out the last paragraph one more time.

Edited June 19, 2008 by maviwaro

[mawilson 2,133]

Cheaper gas today? Nope.

Sure - for a day or two - then the speculation game will continue

Let's not overreact, ok? Oil will be back down to $75.

[GaryC 7]

It's out there. There are proven reserves on our coastal areas in addition to ANWR. You know as well as I do that estimates vary wildly and we will not know for sure until we are allowed to look.

There is an even bigger reserve that is there, the Green River oil shale formation. There is more than a trillion barrels of oil in that, more than the ME has. I don't have time to find the US government link as I am getting ready for work. Here is a story about it though.

http://www.stansberryonline.com/PRO/0704OI...OIL-COL-49.html

A quick search will find a more credible source. Look it up.

[HAL 9000 96]

Cheaper gas today? Nope.

Sure - for a day or two - then the speculation game will continue

Let's not overreact, ok? Oil will be back down to $75.

Lets sure hope so.

Speculation is a part of the game and yet should be totally controlled from exaggeration.

[Dan J 277]

It's out there. There are proven reserves on our coastal areas in addition to ANWR. You know as well as I do that estimates vary wildly and we will not know for sure until we are allowed to look.

There is an even bigger reserve that is there, the Green River oil shale formation. There is more than a trillion barrels of oil in that, more than the ME has. I don't have time to find the US government link as I am getting ready for work. Here is a story about it though.

http://www.stansberryonline.com/PRO/0704OI...OIL-COL-49.html

A quick search will find a more credible source. Look it up.

Oil shale is much more expensive to refine. Prices have to remain high for that to be profitable. Otherwise the government would have to provide subsidies to encourage oil shale refinement.

[mawilson 2,133]

Cheaper gas today? Nope.

Sure - for a day or two - then the speculation game will continue

Let's not overreact, ok? Oil will be back down to $75.

Lets sure hope so.

Speculation is a part of the game and yet should be totally controlled from exaggeration.

Don't know if you saw the link I posted yesterday but John Authers is spot on.

[HAL 9000 96]

It's out there. There are proven reserves on our coastal areas in addition to ANWR. You know as well as I do that estimates vary wildly and we will not know for sure until we are allowed to look.

There is an even bigger reserve that is there, the Green River oil shale formation. There is more than a trillion barrels of oil in that, more than the ME has. I don't have time to find the US government link as I am getting ready for work. Here is a story about it though.

http://www.stansberryonline.com/PRO/0704OI...OIL-COL-49.html

A quick search will find a more credible source. Look it up.

Yes, I already know its pretty chock full of oil. We'll see how long it takes technology to overcome the problem with loss thaks to decreases in inefficiency and less-than-saturated levels in shale deposits.

I believe there is a maximal level of saturation that shale can hold and that is where estimates can change... downwards. Its all in the math.

And, being non-renewable, it just defers the problem for the next generation as other oil markets increase their consumption to match ours.

Cheaper gas today? Nope.

Sure - for a day or two - then the speculation game will continue

Let's not overreact, ok? Oil will be back down to $75.

Lets sure hope so.

Speculation is a part of the game and yet should be totally controlled from exaggeration.

Don't know if you saw the link I posted yesterday but John Authers is spot on.

Totally caught it just now.

[Saddle Bronc 124]

Noticed that almost all ignored the other source of oil--Alberta's TarSands, which have quintuple the reserves of the Muddle East!

Also, Alberta has massive reserves of clean coal (which can also be "oilified", albeit more expensively than TS oil).

[Dan J 277]

Just because we have places to drill, does not mean the economics can support it.

With the offshore oil, its likely that oil companies will have to pay large royalties to the states to get them to go along with it. The prices have to remain at a certain point, for an oil company to be willing to make the investment into the infrastructure needed to get that oil.

If the current oil prices are largely a result of speculation due to a weak dollar, what company is going to make the business decision to drill, when its going to cost them more money to get the oil than they can sell it on the market? This is a long term investment, as none of these well will start producing oil for 7-10 years.

There is plenty of oil shale. But it takes more energy to extract the energy from oil shale. Its only profitable if the prices remain high.

[HAL 9000 96]

I may not be an expert in that field but from what actual miners have stated in one or two Discovery Channel type shows I've seen is that the cost of mining it and the inefficiency in the process reduces the actual yield by orders of magnitude.

Edited June 19, 2008 by maviwaro

[Dan J 277]

I may not be an expert in that field but from what actual miners have stated in one or two Discovery Channel type shows I've seen is that the cost of mining it and the inefficiency in the process reduces the actual yield by orders of magnitude.

If it takes you more energy to produce than the energy you can extract, your simply wasting your time.

[HAL 9000 96]

I may not be an expert in that field but from what actual miners have stated in one or two Discovery Channel type shows I've seen is that the cost of mining it and the inefficiency in the process reduces the actual yield by orders of magnitude.

If it takes you more energy to produce than the energy you can extract, your simply wasting your time.

Kind of like a good weight loss strategy.

[Sheriff Uling 3]

It's out there. There are proven reserves on our coastal areas in addition to ANWR. You know as well as I do that estimates vary wildly and we will not know for sure until we are allowed to look.

There is an even bigger reserve that is there, the Green River oil shale formation. There is more than a trillion barrels of oil in that, more than the ME has. I don't have time to find the US government link as I am getting ready for work. Here is a story about it though.

http://www.stansberryonline.com/PRO/0704OI...OIL-COL-49.html

A quick search will find a more credible source. Look it up.

Despite the argument that refining cost are high, the question becomes why has it been under the radar? Very interesting...