The Oil Drum

Offshore drilling is again in the news, with many saying we shouldn't drill now. Drilling will take more than 10 years for most of the oil in question. I believe that we need to start the process now, partly because the expected impact of peak oil will make drilling in future years much more difficult, and partly because technical advances within the petroleum industry have helped overcome some previous objections to drilling.

Locations of concern include coastal waters such as those near Florida; the Outer Continental Shelf (OCS) (beyond state coastal areas); and the Arctic National Wildlife Refuge (ANWR).

The views in this article are my own, particularly the peak oil views. Many of the comments about technical issues are based on discussions with the American Petroleum Institute (API). I recently participated in an API bloggers conference phone call on the subject of "Exploration and Production." We talked about offshore drilling and ANWR. A listing of the people involved can be found here, and a transcript of the call can be found here.

Hat tip: Climate Progress and Jerome's dKos Diary.

The U.S. Energy Information Administration (EIA) recently did a detailed study of the likely outcome of offshore drilling for their Annual Energy Outlook 2007, “Impacts of Increased Access to Oil and Natural Gas Resources in the Lower 48 Federal Outer Continental Shelf (OCS).” The sobering conclusion:

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.

And the impact of the projected 7% (!) increase in lower-48 oil production that might result in 2030 thanks to opening the OCS is … wait for it …

… any impact on average wellhead prices is expected to be insignificant.

Also be sure to check out Andrew Leonard's piece on offshore drilling too.

Sands are shifting for oil supply

The world continues to run rapidly out of oil and natural gas, which points to dramatically higher prices in a handful of years.

That was the message from Henry Groppe, a lanky Texan who advises oil companies and investors around the world about the world of prices. His firm, Groppe, Long & Littell, is based in Houston and was founded after he did stints as a chemical engineer for Saudi Arabia's Aramco, Dow Chemical, Monsanto and Texaco.

"The fundamentals always prevail, which is that the minute you start producing, you are depleting your resource," he told an audience of investors last week at a conference sponsored by Calgary's Pengrowth Energy Trust.

He showed production curves in the North Sea and Mexico that are catastrophically sudden in terms of their declines.

"This has a huge impact on the economies of Britain and Mexico," he said. "Britain became an oil importer this year for the first time in decades."

Oil production worldwide peaked months ago, but figures and prices don't reflect that yet because the production of liquids stripped from natural gas has been filling the gap, he said.

A first step toward appropriately pricing a barrel of oil is to remove all subsidies for its production and consumption. The NY Times has an indepth article today about the Federal law that has allowed offshore drilling without royalty payment.

..the Bush administration confirmed that it expected the government to waive about $7 billion in royalties (for oil drilling) over the next five years, even though the industry incentive was expressly conceived of for times when energy prices were low. And that number could quadruple to more than $28 billion if a lawsuit filed last week challenging one of the program's remaining restrictions proves successful.

If prices are low, that would seem like a good incentive to keep it in the ground, but oh no we must drill that stuff no matter how hard it is to recover.

Many Libertarians say "The government does not have any money it does not first take" implying a form of despotism is in play. Well I say that the government cannot receive any money that its citizens or its representatives do not allow it to legally - anything else is despotism.

However, it seems that some elected governments will actively refuse to receive money in exchange for selling the public's assets on publicly owned land or off the coast. Some might say that the government taking any money encourages despotism. I would say that giving it away to corporations for free is the real despotism.