Oil Prices: How Drilling Offshore will do nothing to lower prices and how we got where we are today

Wow it didn't take long for Republicans to find a cheap ploy to use politically in their favor did it? And a lot of Americans seem to be buying it hook, line and sinker.

McCain and Bush went out of their way to push for offshore drilling making the argument that if there was more oil out there that prices would drop. There's two major flaws in that argument. But before we move forward, let's review how we got here and why prices are actually inflated:



Okay so now we see that the Enron Loophole create deregulation that basically allowed Energy Companies and Banks to own the market. They could use their influence in a corrupt way to fuel a speculation bubble and essentially they could buy the market into a higher profit zone. Great for them, horrible for us.

Luckily help is on the way. The Farm Bill that Keith references, McCain voted against and Bush vetoed, was passed thanks to a veto override in Congress. That means on September 30, 2009 the loophole closes and economists predict that gas/oil prices could be lowered as much as 25-50% overnight.

Finally a light at the end of the tunnel.

What about offshore drilling? Could that also help?

From The Seminal's Jason Rosenbaum:

Reason #1: Offshore Drilling Won't Increase Oil Supplies For 7-10 Years

That's right, even if we repeal all bans on drilling anywhere in the U.S., we won't see the benefits for almost a decade:

That's the estimate from the American Petroleum Institute, the oil industry trade group. Major environmental groups think the increased supply would be at least that distant before arrival, and say it mostly would benefit Big Oil.

"It would take a decade to bring new leases into production, and then they would only line the coffers of the oil industry," said Carl Pope, the Sierra Club's executive director.

Reason #2: Offshore Drilling Only Makes Financial Sense When Oil Prices Are High

Offshore drilling is expensive:

However, analysts on all sides agree that drilling faces political, regulatory and economic hurdles. Individual states could forbid it. If exploration were allowed, permits would have to be granted, and before that environmental concerns must be addressed. Drilling also would have to make economic sense: Offshore drilling is expensive, and the more remote the site, the more costly it is.

Therefore, offshore drilling would only make economic sense if the oil tapped could be sold at a high price. Once the price of oil drops (which it is unlikely to do, but let's think hypothetically), offshore drills lose money, they get shut down, and prices go up again. Offshore drilling will not solve our gas price problem.

Reason #3: There's Probably Not A Lot Of Oil Out There

Bush and McCain tout drilling as a way towards energy independence. It's not; it's only a very short-term fix. Once we get the drilling going (remember, 7-10 years), there isn't much oil to drill:

The Interior Department offered a wide range of estimates of how much oil might be within reach of U.S. offshore drilling in a 2006 report. It estimated that the Outer Continental Shelf could hold 115.4 billion barrels. However, it also estimated that recoverable reserves off U.S. coasts in areas now banned from production probably hold only about 19 billion barrels.

…

The world consumes about 86 million barrels a day. The U.S. share of that is about 20.6 million barrels, 60 percent of them from foreign sources.

One thousand million barrels equals 1 billion, so if there are 19 billion barrels in the areas McCain would open to drilling, that's enough to provide about 920 days, or about 2.5 years, of current U.S. consumption.

That's right. Drill in all the places you can't drill now and you get (gong!) a whopping 2.5 years worth of oil. And that's assuming consumption levels stay static, which they have never done.

Reason #4: Oh, And There Are No Ships To Carry That Oil

Even if you did build the wells (7-10 years), make it economically feasable to keep them open (that means high oil prices), and tap all that oil (only 2.5 years worth), you wouldn't be able to find a ship to drill the oil and ship it back to shore for use:

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.

You can even explore for new oil fields for 5 years due to lack of ships!

Jason's first four points are incredibly valid ones (his fifth point, that speculation is not making oil prices rise is a bit off although in fairness it's deregulation coupled with the speculation that these energy companies and banks are orchestrating in concert that has created this problem so to blame it solely on market speculators would be leaving a lot of this story out). As he mentioned drilling oil might be impossible because of the shortage of drilling ships.

There is no immediate gain to be had from drilling now.

In fact McCain's own advisor admitted as much:

But McCain’s message was contradicted yesterday by his top economic adviser, Douglas Holtz-Eakin, who told reporters that new offshore drilling wouldn’t help lower current gas prices:

Douglas Holtz-Eakin, a senior advisor to McCain’s campaign, acknowledged in a conference call to reporters that new offshore drilling would have no immediate effect on supplies or prices.

The Energy Information Administration says that new offshore drilling wouldn’t have “a significant impact” on gas prices until 2030.

By 2030 shouldn't we be well on our way to alternative energy? There's pretty much no excuse if by that time we're not using solar and wind energy pretty close to exclusively.

Rp

Democrats push bills that could split Republican votes...

You'd think in this world there would be some sensible Republicans out there. For the past 7 years though, it's been pretty hard to find any of them.

Luckily, Democrats are finally forcing the rational ones to make a stand. Live or die with this President and his policies and you'll pay a steep price with your constituency.

As this Washington Post article points out, the Democrats are pushing some solid bills with titles that will make it very hard for Republicans to explain to their constituents why they refused them.

Front and center is a Children's Health Insurance Program re-authorization bill. The SCHIP program has worked rather well by all accounts and expanding it seems like a good idea in the day and age where it is blatantly obvious health care in our country is unavailable to too many people.

Even Republicans know the program works and seem ready to step up and vote for it. Not President Bush though, he hates health care for children and has said he will veto the bill.

This will test the mettle of the Republicans who claim to be independent of their historically unpopular leader.

The House Democrats while not being successful on ending the war or attempting impeachment, certainly will have a lot to crow about.

A couple other bills they are working on include strengthening Homeland Security, which Bush has said he will veto and a Congressional Ethics bill which will dramatically cut the influence of lobbyists and the gifts they give to representatives.

Republicans don't like the lobbyist cutbacks because K-Street is their lifeblood. All the work they do is not for their constituents but rather for big corporations and they have always kept those Congressmen well fed at that corporate trough thanks to campaign contributions and lobbyist gifts. But they can't go back to their constituents, the ones who will be voting on them in 2008 and tell them they sided with lobbyists and special interests over the interests of the people the represent.

The Democrats though, have received high marks even from some House Republicans.

"They've had a pretty strong quarter," said Rep. Ray LaHood (R-Ill.), who praised the insurance bill as "creative" and suggested the homeland security bill would pass overwhelmingly. "The first quarter was not so good, and that's why they're not looking so good in the polls, but this quarter is looking very good for them. They can send their members home crowing about their accomplishments, and they've done it in a bipartisan way, which is exactly what they promised to do," LaHood said.

Another bill that could pass and face a Bush veto is the Farm bill. For years corporate farmers have been able to use loopholes to reap financial windfalls at the expense of the American people and family farmers who struggle more and truly need the help to stay in business.

As someone who lived on a farm for 5 years, you cannot truly appreciate the amount of work, dedication and love family farmers put into their business and certainly they are the heart and soul of what America was, is and still can be.

The bill on the House floor is intended to close those loopholes and use tighter corporate tax rules including forcing Corporations to pay their taxes rather than being allowed to use off shore tax shelters to avoid paying their tax bills.

But hey, there is ONE bill the Administration will sign. ONE bill they want passed. What could this terrific idea be?

Nuclear warhead testing.

What did you expect from the most aggressive, neo-con, chicken hawk outfit in power today?

As usual Bush comes to the rescue of the corporations and threatens another veto.

So let's run down the Bush checklist.

Children's Health Insurance = Bad.

Homeland Security = Bad.

Family Farmers = Bad.

Making Corporations pay their fair share in taxes = Bad.

Stopping Lobbyists from buying votes = No word from Bush but Republicans hate it.

Nuclear Warhead testing = Good.

Corporate tax avoidance = Good.

Sick, dying children without healthcare = Good.

Perpetual war = Good. (okay that's unrelated to what I was talking about in this column, but it's a gimmie)

-Rp