Saturday, August 9, 2008

drilling for stupidity

I had intended to write a comprehensive piece on energy – oil and gas prices, energy policy, etc. But the elevation by McCain and the Republicans of offshore drilling above all else – not just above all other energy policy or economic policy, but above all other campaign issues – has forced me to respond on that narrow issue in order to prevent my head from exploding.

The Republicans have found their issue for the 2008 campaign: “Drill here! Drill now!” As Paul Krugman
noted in this regard, “Republicans, once hailed as the ‘party of ideas,’ has become the party of stupid.”

Let’s start by getting a few basic facts out on the table.

Oil is a globally-traded commodity. The impact of US supply increases on the price of oil need to be viewed in the context of the global markets. Price is set at the margin, and there currently isn’t much spare oil production capacity globally. Increases in demand from places like China and India combined with tight supply result in big prices increases. (The effect of speculation and other variables on price is the subject of a more comprehensive piece.) Long term prices are headed up.

The US uses approximately 25 percent of the world’s annual oil production but has less than 2 percent of the world’s known oil reserves. So even big increases in US production won’t have much of an impact on the price of oil, especially as increases in global demand outpace any marginal increases in supply.

The Bush administration’s own Energy Information Administration in its
2007 Annual Energy Outlook included a case study to determine the effect that drilling for oil on the US Outer Continental Shelf (OCS) would have on US oil production and prices (compared with a “reference case” that included no OCS drilling). They concluded:

The projections in the 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. …
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 (Figure 20). Because oil prices are determined on
the international market, however, any impact on average wellhead prices is expected to be insignificant.

The report concluded that OCS production would peak in 2025 at a meager 220,000 barrels a day, which would account for less than one percent of daily demand in the US. Of course, that would be only a fraction of one percent of global demand.

Let’s review the facts: Opening up the US Outer Continental Shelf to oil drilling now would, at peak production almost 20 years from now, increase US production by less than one percent of US daily demand, with an insignificant effect on oil and gas prices.

And that is an optimistic case. Most of the additional OCS production assumed in the Energy Information Agency report is off the West Coast, and the governors of California, Washington and Oregon (and the voters of those states) are
vehemently opposed to any oil drilling off the coasts of their states. McCain and his fellow Republicans are not proposing that state objections be overridden – their offshore drilling plan would involve drilling off the coasts of only those states that agreed to allow it. So forget the West Coast.

Moreover, the report assumed no infrastructure constraints. But as the
New York Times reported in June:

As President Bush calls for repealing a ban on drilling off most of the coast of the United States, a shortage of ships used for deep-water offshore drilling promises to impede any rapid turnaround in oil exploration and supply.

In recent years, this global shortage of drill-ships has created a critical bottleneck, frustrating energy company executives and constraining their ability to exploit known reserves or find new ones. Slow growth in oil supplies, at a time of soaring demand, has been a major factor in the spike of oil and gasoline prices.

Mr. Bush called on Congress Wednesday to end a longstanding federal ban on offshore drilling and open the Arctic National Wildlife Refuge for oil exploration, arguing that the steps were needed to lower gasoline prices and bolster national security. But even as oil trades at more than $135 a barrel — up from $68 a year ago — the world’s existing drill-ships are booked solid for the next five years. Some oil companies have been forced to postpone exploration while waiting for a drilling rig, executives and analysts said. …

“The crunch on rigs is everywhere,” said Alberto Guimaraes, a senior executive at Petrobras, the Brazilian oil company that has discovered some of the most promising offshore oil but has been unable to get at it.

Almost 100 percent of the oil companies are constrained in their investment program because there is no rig available,” he said. …

But drilling constraints are not the only problem facing international oil companies, which are seeking to expand at a furious pace after a decade of underinvestment in the 1990s. They have also had to contend with a doubling of development costs across the industry in the last five years, more acute competition for energy resources, shortages in steel, engineering and manufacturing capacity, and pressures posed by an aging work force.

On the other hand, McCain is out on the campaign trail saying that offshore drilling could produce more oil within a “matter of months”:

"There are some instances [that] within a matter of months they could be getting additional oil. In some cases, it would be a matter of a year. In some cases it could take longer than that, depending on the location and whether you use existing rigs or you have to install new rigs, but there's abundant resources in the view of the people who are in the business that could be exploited within a period of months."

This, of course, is a blatantly absurd proposition.

But everything is true if you just say it is true in the Republican fantasy world. For example, if you have been paying attention at all you have certainly hear Republicans and their shills in the punditocracy state the “fact” that new oil drilling techniques are so safe that there wasn’t a “single spill of oil” when Hurricane Katrina hammered the Gulf Coast two years ago. I’ve personally seen this “fact” stated at least a dozen times in the corporate media. In fact, in May 2006, the U.S. Minerals Management Service (MMS) published their offshore damage assessment: “113 platforms totally destroyed, and 457 pipelines damaged, 101 of those major lines with 10 inches or larger diameter.” In all, the hurricanes Katrina and Rita caused, "124 offshore spills for a total of 743,700 gallons, including six spills of 42,000 gallons or greater.” And just to drive the point home, last month, just as the Republican “no oil spills” myth-making apparatus was swinging into full gear, there was an oil spill of 400,000 gallons that shut down a 29 mile stretch of the Mississippi River to all shipping traffic.

Offshore drilling would contribute an insignificant amount of oil to the world oil markets, but the entire environmental brunt of the drilling would be borne by the United States, and particularly costal residents. Seems like a pretty bad deal. Indeed, until a few weeks ago, John McCain supported the country’s 25 year ban on offshore drilling.

So, bottom line, this whole Republican issue of offshore drilling is a big political fraud. Offshore drilling would have an insignificant effect on the supply and price of oil even at peak production almost twenty years from now. With all the corporate media’s coverage of the presidential campaign, and with all the pundits blathering non-stop on our cable channels and on the op-ed pages of the country’s newspapers, how hard would it be to communicate these few basic facts about the issue that Republicans have elevated to the top issue of the campaign (after Paris Hilton)? It’s not all that complex.

Even Texas oilman T-Boone Pickens, who spent millions in 2004 to fund the Swift Boat sliming of John Kerry, is saying the obvious. He is now spending tens of millions of dollars to educate Americans on the futility of domestic drilling as the solution to our energy problems:

“America is in a hole and it's getting deeper every day. We import 70% of our oil at a cost of $700 billion a year - four times the annual cost of the Iraq war.

I've been an oil man all my life, but this is one emergency we can't drill our way out of.”

Pickens this week even praised Obama’s energy speech:

“I’m strongly encouraged by Senator Obama’s speech on America’s energy future. Foreign oil is killing our economy and putting our nation at risk. When I started this campaign my goal was to make this the biggest issue in the coming election and the top priority to be addressed in the first hundred days of the next administration. This issue is clearly moving up in the priority of political debate; Senator Obama’s statement is an indication that is what is indeed happening.”

If the corporate media still doesn’t understand this issue, McCain’s senior economic advisor, Douglas Holtz-Eakin, made it easier for them back in June by acknowledging in a
conference call to reporters that new offshore drilling would have no immediate effect on supplies or prices. But, like McCain, he insisted that it would send a psychological signal to the markets. When cornered with the actual facts regarding supply and price, that is the Republican fall back: Psychology. This is in line with the belief on the part of McCain’s economic mentor, Phil Gramm, that the problems with the economy are just “mental” and we have just become a “nation of whiners.”

Indeed, this psychological effect is so strong, that Congressional Republicans are already claiming credit for oil prices falling from their peak last month. You can be forgiven if you didn’t know that Congressional Republicans have been staging a slumber party or sit-down strike or some such tantrum on the floor of the House since Congress went into recess. But even if you didn’t know about this, it has
already produced lower oil prices:

House Republicans on Tuesday said their protest of Speaker Nancy Pelosi’s (D-Calif.) decision not to allow a vote on expanded offshore oil drilling has helped lower gas prices.

Heading into a third day of speeches in the near-empty chamber, Republicans acknowledged that the average price of gas and oil has declined in recent weeks. But they claimed credit for part of that reduction.

I think the market is responding to the fact that we are here talking,” said Rep. John Shadegg (R-Ariz.) at a joint press conference with other GOP lawmakers. “I think the market realizes this kind of pressure from Congress may, in fact, lead to a change in policy.”

The Republican members did not answer questions about whether they would take the blame if gas prices go up again.

Indeed, Republicans are now threatening to shut down the government if they don’t get a vote on offshore drilling. McCain is picking up on this theme. At a biker rally in South Dakota this week, McCain was yelling, “Tell them to come back and get to work!” he said, referring to Congress. “Tell them to get to work!” (There is no small amount of irony in this call on the part of McCain. He is the only member of the Senate who has missed more than 50% of the votes in the current Congress, having missed fully 63% of the votes since January 2007. He has missed every single Senate vote since early April and hasn’t attended a single committee or subcommittee of the Senate Commerce Committee all year. He has also skipped 32 of the last 36 meetings of the Senate Armed Services Committee.)

As Gail Collins wrote in the New York Times (“

The Energy Drill”):
“Tell them to come back and get to work!” John McCain yelled out. “Tell them to get to work!”

This was at a biker rally in South Dakota where McCain was wooing the crowd by demanding that Congress return to Washington and do something about the energy crisis. Demanding that Congress come back from vacation to do something is a time-honored political gambit. But is it the best line of attack for a senator who last showed up for a vote himself back in early spring? Perhaps not.

Also, there was the problem of tone. McCain has sometimes been charged with sounding like a cranky neighbor yelling at kids to get off the lawn. This time, he turned into a cranky neighbor who hires you to cut his grass and then follows you around, pointing out blades that you missed. …

While McCain … has now embraced [offshore drilling] as if it is not only the solution to our energy problems, but also the key to eternal salvation. Really, it’s a little scary. You can’t help wondering if he’s been captured by some kind of drilling cult.

“We’re not going to pay $4 a gallon for gas because we’re going to drill offshore, and we’re going to drill now. We’re going to drill here. We’re going to drill now!” he told the bikers. McCain is not at his best when he’s trying to rally a large group of people. He pushes too hard and sometimes winds up sounding less enthusiastic than, um, loony. It was under this exact circumstance that he volunteered Cindy for the Miss Buffalo Chip contest, though I truly do not believe he knew about the topless part.

McCain has been making this pitch quite a bit. In fact, as Obama points out, he frequently seems to be promising to drill through the floorboards of the stage where he’s speaking. Through constant repetition, he’s trying to fool the public into believing their gas prices will come down in the foreseeable future if more coastal areas are opened to drilling. And nobody really believes that, including John McCain. …

Since offshore drilling will have no effect on domestic oil prices in the short term, this is really a debate about how we want to be getting our energy supplies ten or twenty years from now. McCain and the Republicans party want to continue to base our energy policies on fossil fuels. But global warming alone demands that we devote our efforts to breaking that addiction. A junkie doesn’t solve his problems by stealing money for his next fix. If we are still desperate to increase our oil supplies by a fraction of one percent twenty years from now, we are in BIG trouble.

But John McCain and the Republican party want to focus the 2008 campaign on an energy policy built around the prospect of cheap gasoline.

Reminds me of the Sheryl Crow song "Gasoline":


Sam D said...

You are forgetting one crucial thing. According to the Dept. of Energy, the oil corps are EXPORTING an average of 1.6 million barrels of refined oil products a day to foreign recipients. That's 1.6 million barrels of oil pumped from OUR lands and refined on our soil that is subtracted from our oil supply each and every day. Compare that to the 200 thousand barrels a day we can hope to be pumping by drilling in the coastal waters.

It's a scam, my friends.

Jumper said...

For some odd reason, no one is mentioning drilling for natural gas offshore. This somehow does not follow the Official Script. I agree about the oil, but natural gas has a tad more hydrogen BTUs in it than oil, and a whole lot more than coal. If energy is fungible, gas is a transitional energy source not to be neglected. It's the perfect source in readiness for a carbon tax. It decreases CO2 per BTU. Of course, I promote an effort for huge increases in wind, solar, and geothermal. But if that's not sufficient, then gas beats coal and oil.