Can Offshore Drilling Bring Down Gas Prices?

With gasoline prices nationally surpassing $4.00 per gallon, politicians are revisiting the idea of allowing oil companies to drill off the coasts of the continental U.S. as well as the National Wildlife Refuge in Alaska.

Alaska is probably not going to happen for environmental reasons, but what about the idea of allowing the states to decide if they want to allow offshore drilling in their areas or not? I think that plan has some merit, since it takes into consideration the potential negative impact on tourism and other issues in certain areas. States that feel the benefit will be outweighed by the costs can take a pass, but other states can allow it if they see fit. Localized decision making on this issue seems better than a federal mandate.

That said, just how much benefit would be gained from such drilling? Unfortunately, not much.

From the AP:

The 574 million acres of federal coastal water that are off-limits are believed to hold nearly 18 billion barrels of undiscovered, recoverable oil and 77 trillion cubic feet of natural gas, according to the Interior Department.

If we assume it will take 5 years to get the first drop of oil out of the ground and into our gas tanks, that the fields discovered have a useful life of 20 or 30 years from that point, and that we will be able to collect every single barrel of oil that is projected to be there (not a certainty by any means), we are looking at an incremental increase in domestic production of ~700 million barrels per year, on average. The U.S. is expected to consumer 7.45 billion barrels of oil in 2008, so 700 million represents about 9% of our consumption.

Given that world demand for oil is rising so much, the offshore oil we may be able to drill out of the ground would have little impact on gas prices because the oil market is a worldwide exchange. If we just had a U.S. oil market, then yes, it would have a decent impact, but that is simply not the case.

As a result, it is hard to see how more offshore drilling would impact gas prices at the pump in any measurable way. Even if world oil consumption was held constant, we could potentially increase global supply by about 2%. An equal drop in price would bring $4.09 gasoline down to $4.00 per gallon. It just does not help solve the real problem.

That said, it would certainly prevent our energy dollars from being shipped to the Middle Eastern oil-rich countries, so we could keep that money here. Of course, that means our oil companies in the U.S. will make even more money than they are right now, and people are already complaining about record profits for the energy industry even without offshore drilling.

Comments

[xander]

as i have posted before there seems to be a lack of understanding that the offshore areas in question are continental shelf covered waters. by definition these are waters 600 feet deep at most. relatively cheap and easy exploration and development compared to drilling and development in the 8000 foot deep part of the gulf of mexico[eg. independence hub project]. the dems are using a red herring when they say the oil cos have plenty of offshore leases. shallow water drilling and management of the oil flows is easier and quicker and cheaper to accomplish.i do not believe the poster's 5 year to get the oil out assumption and even if true the sooner we start the better.also i suspect there is drilling capacity for shallow water available [but not so for deep water drilling rigs].

[Alan vonAltendorf]

I vote for Lake Huron.

[freefall51]

I am puzzled by the confidence of certain writers saying there is such and such oil available when oil people say, you dont know until you drilled there. We have not done that yet, didnt we?

I agree that we have to do something of scale to replace oil from elsewhere. I still think that a 2 % contribution to the power supply is significant. The Germans are pushing for 25 years or so alternative energy an have only substituted 2 % of the power demand. That tells you immediately how difficult it is to find a reasonable alternative. Nothing is easy here. Then, why in the world is PBR spending a fortune on off-shore drilling if they dont believe that it is worth it.

Finally, allowing off-shore drilling would prove to the world that we take care of our own affairs. We need to gain back respect. By default the US rather look like a victim of future price increases.

We should have started long ago.

[jdspain]

"potential negative impact on tourism" you lost me after that statement. no way could you ever see the drill rigs off shore they are talking a mimimum of 50 miles off shore. You have no idea of what may lay off shore for oil , only estimates from decades ago and we need to drill to determine if profitable. Let's not look at bringing prices down and look at security issues. put the oil produced into storage in case of shortages, sell only in united states the excess if any, and build up a tax that will provide for potential major oil spill. With a fund built ahead of drilling states should be relieved of having a financial determents.

[Tom B]

9% more oil hardly seems worth the environmental risk as for the potential economic impact, I suppose the Gov't could mandate that it get used in the US market rather than exported to the highest bidder. But there is some risk OPEC would find some way to retaliate.

The future is about finding ways to use LESS oil; not about stop-gap "solutions". Tax credits for wind, wave and solar power will serve us better in the long run than political "easy-answers&quo...

[Doug fromActon]

The same people opposing shale oil development; nuclear power expansion; coal fired power plant construction; off shore drilling and Anwar Alaska development are demanding curbs on oil futures trading. This energy supply opposition is a superfecta for futures traders. When the worlds largest consumer of energy has it's hands tied to resolve supply shortages, it's a green light that oil prices are under extreme upward pressure. Untie the hands of energy companies, apply reasonable limits on power plant emissions and get out of the way of stampeding free enterprise. American industry will resolve supply needs, futures traders seeing massive supply relief will quickly close their long positions and gas prices will drop sharply. Fundamental! Elemental!

[Mmarrkk]

Tom B: "environmental risk"?? Get real. Companies today can and do operate offshore GOM without disturbing the environment. Its a red herring.

And to those that say "its just a small amount...a drop in the bucket", why are we reverting to these goofy little light bulbs instead of incandescent bulbs? The savings are really small, so why bother?

[rockhound]

Even if the 9% number is all that is obtained, this is very significant in itself. The other question that needs to be addressed is what will gas prices be WITHOUT this 9% contribution, as well as the additional contributions that will presumably come from other high price-induced exploration elsewhere in the world. Will it be $10/gallon before we think that additional continental shelf drilling is warranted?

Alternative energy needs to be developed aggressively, but in the meanwhile, we had better try to bridge the gap with greater levels of domestic energy.

[paulk8756]

Even the ANNOUNCEMENT of such a reversal in U.S. exploration policies would go a long way toward holding down sharply escalating oil and natural gas prices.

Unfortunately, the more likely reversion we're going to see is oil resuming its climb toward $200 and gasoline at $8 a gallon as a result of the Democrats success in continuing these moratoria in Congress.

Not to mention the prospect of Obama's election as president. Ironically, were that to occur, we might actually get a break at the pump as Wall Street and the world economy go into freefall.

[maximax]

paulk8756, did you also say that the economy would go into a freefall before bill clinton got elected? i surely don't know, but i would bet you did. but i don't think it can get any worse, unless you work for haliburton or similar, profiting from bush's horrendous foreign policy. the announcement of drilling the us coast will not make a difference, just as iraq's recent announcement that it's oil reserves may actually be much bigger than hitherto estimated made any difference to the crude price. For years non-opec supply has massively disappointed, underperforming forecasts, the burden of proof now lays with the optimists. iraq oil is real, and on a 10-yr horizon i am more optimistic about that than us coastal oil which is an unknown quantity. why not look for a solution on the demand side? ah that would require changing one's own habits, how annoying, can't blame congress/obama/anyone for it. damn. life is tough.

[paulk8756]

Maxi,

All well said, friend. However, if you think I'm a fan of Big oil, GM, GW, or for that matter, John McCain, you're mistaken. But whether it's the good times of Ronnie or Bill, or the problems that have taken place with GW and Jimmy Carter, we have to play the hand we're dealt.

We need to explore for and develop our domestic energy reserves no matter how much is there. For no other reason than our national security, if you will. We won two World Wars that way in the last century, and the longer we postpone this vital activity, the more likely it is to happen again.

If nothing else, at least McCain understands that. Obama on the other hand is an unknown quantity. My own thinking is Obama's going to be our next president, and there's virtually NOTHING he's ever said or done in his life so far that leads me to believe he's up to the task.

So, we'll see. If he's are next president, I'll wish him the best, because if he's successful, our country should be, as well.

[paulk8756]

And Maxi, you realize of course that if the D's are unsuccessful in this gambit, and gas prices go to $6-8 as a result, it will set the Liberals back 30 years. Not a gamble I'd be willing to take myself, but like the rest of us, I'll be stuck with the results.

[jUST A hICK]

Everyone seems to forget that less money spent on foreign oil also has an effect on the value of the dollar.Ceteris paribus, we would see an increase in the value of the dollar,and hence a further lowering of oil prices.
Also consider that OPEC, being a cartel, will start producing more before additional home production comes on stream in order to: 1)maximize present value of their reserves,and 2) decrease the price of oil and thus lower projected returns to domestic oil producers thus decreasing economic incentives to explore at home.
Yet yesterday we have Brack Obymymama, saying that drilling offshore wouldn't solve anything till 5 years out. Ok, Brak, then tell me:1) What do you propose to do that will, the first day you take office, lower the pain at the pump? and 2) Why you would rather have America keep sending its money to people who would like to see us suffer? and 3) What do you seem to know that we don't that 5 years from now additional domestic oil production won't be needed?
And here's a reason to get excited about offshore drilling: It's an unknown quantity, and could be much bigger than any of the estimates out there.For an example look to offshore Brazil.

[howsie]

700 million barrels at a net-back of $100 per barrel results in $70 billion. I'd say let's do it because it is better to benefit domestic Oil Co shareholders than OPEC. Our congressmen don't understand this: the concept of making money instead of spending it.

[Aalan]

Poor Chad--tries to voice a moderate opinion and gets shouted down by revved-up extremists.

The variable that most people don't seem to grasp is; if we are going to reduce our oil imports by 9% -- or 20%, or 60% -- we can and must do that by learning to economize. We already did it once, and there's much better technology available now.
It would cost us nothing, for example, to start building and driving smaller cars. Next, for the price of a couple dozen oil-drilling platforms (more or less) invested in electric-grid efficiency, public transit, and alternative-energy subsidies, we could save far more fossil fuel than any drilling program.

And then, 50=60 years from now when oil is not just expensive but actually rare, we would still have it in reserve. That would be a lot smarter than anything I've heard in the "drill now" panic attack. Are we going to leave our children and grandchildren anything other than trillions of dollars in debts?

[todaysits]

I could care less about wildlife or environmental impact. All I want to do is scream down the highway in my "gun metal black" hummer with the air on, windows down, sigarette lit, and radio blareing...let the wildlife cross in front of me. Kidding.

All the bleeding heart tree huggers need to losen up. We're getting to a point where the choice between gas and a meal is a reality.

[Everyday Joe]

I think the whole issue of oil price rise last year is geared to a larger scheme of Bush's friend to open up the Oil fields locally. This whole issue of exponential oil price increase may be to achieve this target by bush's friends

[paulk8756]

You bring up a good point. Geologists estimate there are some three trillion barrels of oil on earth. We've used a trillion, we know about the second trillion, and they expect there's another trillion yet to be discovered.

Unless you believe experts like world famous astrophysisist Thomas Gold. This group believes that oil isn't a "fossil" fuel at all, but a substance that occurs naturally within the earth. They also think there's as much as a HUNDRED TIMES MORE of the stuff than is
presently thought to exist.

And, by the way, unless we explore for and find more domestic oil, we won't have to worry about our national debt because we'll be BROKE. Right now, we're sending $700 BILLION overseas a year to oil exporting countries. What if current prices were to DOUBLE from here...?

[twistandshout]

I really try to keep an open mind about these things, but Bush is a crisis follower, a Milton Friedman shock opportunist. Higher gas prices means higher outrage among the masses means less thinking. So drill, drill drill becomes the mantra.

This is just another opportunity to take advantage of a crisis, just like 911-Iraq and even Katrina.

Follow the money is all I say.

Now this does not mean I'm completely against drilling, just means I would like to see a COMPREHENSIVE energy solution and vision. Not just Drill, drill, drill.

[zenalgorithm]

Things don't have to be so complex. Watch this, it truly simplifies everything. It seems to be to easy of a solution:
www.youtube.com/watch?...

[Calvin C.]

My God, an air car!

[aoxomoxoa]

Let's not drill, or build new refineries, or dig coal, or build new reactors, or subsidize solar, or jeopardize birds with wind power, or create hydrogen cars, or even conserve. Let's just curl up in a ball and wait for the enemy to come and take it all from us. Yeah, that'd be cool!

[The CorretCall]

For every dollar we keep home due to our own production, that's one less dollar for crackpots running most of these oil producing countries.

Also- we need to give ourselves a little breathing room to get to "alternative fuels" and build out the infrastructure.

None of the current "alternatives&quo... are the answer. I hear politicians say we can't drill our way out of this, perhaps that's true. But I know for sure we can't grow enough corn our out of this, or harvest enough sunlight or wind our way out of this, or plug in our cars our way out of this... we haven't found the alternative yet, by drilling and increasing our own production, at least add some time to get there.

[ajay4777]

Picture this. There are unreasonable people in the world. These unreasonable people want to kill us. These unreasonable people own resources that we rely on to live, and to defend ourselves against unreasonable people who want to kill us. Our alternatives...

(A) Keep giving them money and maintain our dependence on their resource. (B) Develope the same resource of our own. (C) Develope alternative resources.

Weren't multiple choice the easiest kind of exam. Eliminate the stupid answer and at least guess from the better alternatives. If multiple alternatives are given (B and C) you got it!!!!!

[User 213085]

Which part of the global nature of the oil market and the pathetic 9% output increase do people not understand about this article? Are the readers so naive as to think that the oil companies will ship all the oil from domestic drilling back for use in the US rather than selling them to the highest bidder on the global market? And who ever made the previous silly comment about economy of scale---clearly does not understand economy of scale. Perhaps one should realize that a 9% saving in energy from changing to CFL light bulbs DOES mean something because you can multiply energy savings per household to the tens of thousands or even millions of household that also decrease energy use by switching light bulbs. THAT's economy of scale. Here, the 9% increase in oil output through domestic drilling is describing the TOTAL oil reserve. Theres nothing to multiply. Nothing to scale. A 9% higher TOTAL output. Now I am no PhD in math, but I really doubt that will be enough to significantly drive oil prices down.
Furthermore, with all these talks about demand and supply, it's ironic that people only see the supply side. Maybe if we pay a little more attention on the demand side of things it may have a much more significant impact on overall oil prices than the pathetic 9% increase in supply that people seem to be obsessed with.
Or maybe it's the good ol' American entitlement we simply cant shed thats fueling (no pun intended) all these arguments about offshore drilling. After all, how DARE they make me pay $4 a gallon! I want my SUV and my cheap gas, so damn it drill more! Who cares if the rest of the world is paying twice as much for gas?

[ajay4777]

Whew!!! I missed that. 9% is much too small a step in the right direction. Lets do nothing. No, wait, we can all change our light bulbs. Yea, that's the ticket.
Who does everyone have to think in such an all-or-nothing mindset? Drill, change light bulbs, develope alternatives.... lots of them. Solar, wind, geothermal, etc. And sure, it will take years.. SO WHAT! We can do it.

And the environment... we should be proud of our accomplishments in protecting our globe and use what we have learned without the teary-eyed hysterics over past mistakes....save the (whales, polar bears, seals, wolves, salmon, frogs.....) We haven't been perfect, but we're getting better, and we CAN have it all.

[tuckfinitee]

What aox said plus much, much, more. We're billions of years away from an energy shortage. The idea that any human beings should live poor to "save" energy is beyond ludicrous. Why do the propaganda rantings of scientific/economic illiterate political thugs have any influence? It's ultimately traceable to cowardice.

[Davo]

If 9% more domestic oil is not important, how would you feel to lose 9% right now? Take Nigerian oil out of the picture. Or any of a dozen other current sources and watch what happens to oil and fuel prices. What is the matter with people who think even a few percent are not significant? Drill here, Drill now.

[LOGICAL1]

ANY WAY YOU LOOK AT IT OFF SHORE DRILLING IS NOT THE ANSWER FOR LOWER GASOLINE PRICES, IT'S JUST A SMALL BANDADE ON A VERY LARGE WOUND. IF YOU LOOK AT THIS ISSUE TO PUT THE BLAME ON THE REPUBLICANS OR DEMOCRATS THE REPUBLICANS, AND YOU USE COMMON SENSE YOU WILL SEE THAT THE REPUBLICANS ARE BY FAR THE BLAME. HERE BARE SOME FACTS:
1. GASOLINE PRICES ROSE WHILE THE REPUBLICAN CONGRESS WAS
THE MAJORITY. WHY DID'NT THEY ACT ON IT THEN?
2. GEORGE BUSH WAS ELECTED PRESIDENT BY THE PEOPLE OF THE
UNITED STATES OF AMERICA YOU WOULD THINK HE WOULD ACT
IN THE BEST INTEREST FOR THE PEOPLE OF THE U.S. wHEN THE
DEMOCRATIC CONGRESS PROPOSED TO PUT PRICE CONTROLS ON
THE OIL COMPANIES, GEORGE BUSH SAID HE WILL VETO THE BILL
STATING "THIS IS AMERICA AND WE DON'T PUT PRICE
CONTROLS ON ANYTHING".
3. WHEN JOHN MCCAIN STATED HE WOULD GIVE THE FEDERAL TAX
ON GASOLINE FOR THE SUMMER MONTHS,IT SOUNDED GOOD!
UNTIL BARACK OBAMA SAID IT WOULD SAVE THE PEOPLE ONLY
$10.00 A MONTH AND GET THEM TO BUY MORE GAS. ANOTHER
BANDADE IDEA BY THE REPUBLICANS.
4. IT SEEMS TO ME THAT THE DEMOCRATS WANT TO CLOSE THE
WOUND WITH STITCHES, BY NOT GIVING US SHORT TERM
SOLUTIONS THAT WON'T WORK,AND THE REPUBLICANS WANT
TO PUT A BANDADE ON IT SO WE WILL VOTE THEM BACK INTO
OFFICE.
5. REMEMBER THE 2008 MID TERM ELECTIONS GASOLINE WAS A
TAD OVER $3.00 A GALLON, THEN ABOUT A MONTH BEFORE THE
ELECTIONS IT WENT AS LOW AS $1.90 A GALLON. AS I AM
WRITING THIS TODAY GASOLINE HAS GONE FROM A HIGH OF
$4.30 A GALLON DOWN TO $$3.90 A GALLON. DO WE HAVE LESS
OF A SHORTAGE, LESS CONSUMPTION OR ARE BUSH'S BUDDYS
THE SAUDI'S WORKING WITH HIM TO GET MCCAIN IN FOR
PRESIDENT?????

I PREDICT THAT GASOLINE WILL GO DOWN AS LOW AS $3.25 A GALLON AT LEAST ONE MONTH PRIOR TO THE ELECTIONS. IT WILL THEN SHOT RIGHT BACK UP TO THE $4.00 TO $4.50 RANGE AFTER THE ELECTIONS, NO MATTER WHO WINS.