What Is The Future Of Offshore Oil Drilling in the United States?

BP has been under a lot of criticism lately from citizens, organizations and government officials because many feel that BP is to blame for the Gulf of Mexico oil well leak.  The oil well began leaking oil into the ocean over 40 days ago.  Since that time, BP has tried several different techniques to either control or halt the flow of crude oil into the Gulf of Mexico.  With government officials making comments like, “I think we’re now beginning to understand that we cannot trust BP…BP has lost all credibility, now the decisions will have to be made by others because it’s clear that they have been hiding the actual consequences of this spill”, Congressman Ed Markey.  I’ve began to wonder what will happen to future offshore drilling endeavors.  Do you think that BP wants or likes losing all of this oil into the ocean?

With quotes like that made by Congressman Ed Markey, it seems like we are going to see more government intrusion into the oil industry through regulations and/or the government trying to control aspects of the oil industry.  Do the ‘evil’ bankers ring a bell?

Suddenly, because of this one offshore oil drilling disaster, talks of putting offshore drilling to a halt have risen.  We have been drilling for oil in the Gulf of Mexico for over 70 years now and on top of that there are thousands of operating oil wells that have a good track record.  I know that the BP oil leak is major, but to consider stopping offshore oil drilling would be halting an important energy source for our nation.  Per President Obama during his BP press conference, “The government is running things…”; since when has the government micromanaged anything very successfully?

The federal government can not continue to attack BP both publicly and legally by launching a criminal investigation into BP.  The plans for this, and all oil wells are presented in detail to the federal government before drilling can begin; only after the approval by the federal government can drilling start.  BP got the plans for this oil well approved so blaming BP for this disaster seems ignorant.  This type of behavior has the potential to scare away companies and to stop future oil well development.

I would love to see the adoption of more renewable energies but we simply can not change the fact that we NEED oil and that finding sources of oil will require us to go offshore.  It is naive to think that government could/can solve this problem, that we should stop our search for oil, and that we have the ability to stop using oil.  Renewable sources have a ways to go before becoming a good replacement for oil, so until then we need to work on gathering more oil and perfecting renewables at the same time.

Sources:

BP Criminal Investigation Launched By Feds – Huffington Post

Obama under pressure on oil drilling ban – The Examiner

Dems:’We cannot trust BP’ – MSNBC

Federal Gulf Distribution by Production Rate Bracket – EIA

Offshore Oil and Gas in the US Gulf of Mexico – Wikipeda

What Caused The Deepwater Horizon Disaster? – The Oil Drum

Obama Defends Response to Gulf Oil Spill, Pledge to ‘Shut This Down’ – FoxNews

7 thoughts on “What Is The Future Of Offshore Oil Drilling in the United States?

  1. Dandyone

    “we have thousands of operating wells that have a good track record” … debatable. Lots of the problem comes from the fact that nothing is being checked. There is no oversight. Smart money says lots of them are leaking – not a lot of oil, but not zero oil either.

    “since when has the government micromanaged anything very successfully?” … since when has no government regulation/involvement allowed the free market to micromanage anything successfully? If you don’t regulate banks they take more risk than they can cover. But to your question, I will answer, they effectively ‘micromanaged’ single hull oil tankers out of U.S. waters. The free market certainly would not have done that, and there is a good chance that the Valdez would not have been the last major tanker disaster.

    “BP got the plans for this oil well approved so blaming BP for this disaster seems ignorant” … let me apply this same line of logic to a more easily grasped situation… Jim got a driver’s license (i.e. approved for driving… only one letter away from drilling) and he went out and got drunk and ran down a child on a sidewalk. Well, he was approved to drive, so blaming Jim is ignorant. Let’s blame the officer that gave him the driver’s test.

    Try this logic on for size. Here in the U.S., we have a criminal system in which we investigate people/entities that we have justifiable reason to suspect that they have broken a law. If we find evidence that a law was broken, then we present that evidence to a judge or jury and the defendant (in this case, BP) is assumed innocent until proven guilty. It is a pretty good system, though it does have a tendency to be overwhelmed by corruption. (See the case of Massey Energy paying off a judge, or the case of Exxon fighting for more than 20 years against the fine leveled against them for breaking rules and causing environmental, social, and individual damage… lots of the fishermen who lost their livelihoods are now dead. Explain to their widows or children that Exxon wasn’t guilty because they had a permit to drive the Valdez!)

    I agree with some of your other statements, but in total you are completely off the mark by interpreting a temporary hiatus on *new* drilling as a permanent shut down of gulf oil production. First, it only applies to new wells – not existing producers. Second, the point is to hault progress until the government can fix the broken regulation process. Yup, that’s right, there are members of the government that are culpable too, and we need to ferret these miscreants out and give them a dose of justice as well.

    I hear you huffing and puffing, but for all the wrong reasons. At this point in time, delaying a few offshore projects will have *very* little impact on global spare capacity. And, BTW, the oil that is produced in the Gulf is not U.S. oil. We don’t have a nationalized oil industry like so many other countries. Gulf oil goes straight to the world market where we get to compete against every other net importer for scraps. So, yes, we are talking about global spare capacity, and delaying new projects is not going to make a dent on global supply. Maybe a small ding or a chip, but definitely not a dent.

    Reply
  2. Dandyone

    Don’t blame BP?

    A few quotes from the Christian Science Monitor today (http://www.csmonitor.com/Environment/2010/0724/Disabled-oil-rig-alarm-points-to-human-failures-in-Gulf-oil-spill?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+feeds%2Fenvironment+%28Christian+Science+Monitor+%7C+Environment%29&utm_content=Google+Reader)

    “A disabled fire alarm and critical gas venting systems set to “bypass” likely became part of a complex web of human errors that contributed to the Deepwater Horizon accident…

    “Efforts to tap the depths of the earth for oil went ahead despite a litany of safety problems… [including] key decisions made by the BP company man on the rig, who last week invoked his right against self-incrimination.”

    Doesn’t sound like BP was operating within their ‘approved plans’, so your argument holds water as well as that faulty BOP held back the flow of oil and gas.

    As for the “because of this one offshore oil drilling disaster, talks of putting offshore drilling to a halt have risen” statement… there is this from the Washington Post, also today (http://www.washingtonpost.com/wp-dyn/content/article/2010/07/23/AR2010072305603.html?wprss=rss_business/special/3):

    “that [offshore safety] record has been far worse than is commonly portrayed by many industry leaders and lawmakers…

    “But federal records tell a different story. They show a steady stream of oil spills dumping 517,847 barrels of petroleum — which would fill an equivalent number of standard American bathtubs — into the Gulf of Mexico between 1964 and 2009. The spills killed thousands of birds and soiled beaches as far away as Mexico’s Yucatan Peninsula. Altogether, they poured twice as much as oil into U.S. waters as the Exxon Valdez tanker did when it ran aground in 1989.”

    Trust me, I understand and respect your fear of peak oil. You are far more educated about this story than most, and you are motivated to do something about it. Kudos. You are also correct that alternatives are not going to fill the gap.

    But please don’t let this fear take hold of your faculty for reason. You must admit that existing regulation was not up to the task. Even BP, Transocean, and Halliburton all say that a ‘perfect storm’ of sorts was required. Any number of events that should have been regulated (and many that actually were) could have changed the outcome of this incident had effective regulation with teeth been present. For instance, better testing could have prevented a faulty BOP from being installed.

    This disaster is a wake up call that the regulatory environment at all levels needs to be investigated and fixed. In the meantime, only a real gambler would accept the risks of proceeding before the system is checked and fixed.

    Imagine that a massive dam failure had just occurred, and that the problem was that regulators weren’t doing their jobs, the dam engineers knew this and as a consequence they cut corners. Now imagine there are a bunch of dams – including one proposed upstream from your family’s home – that plan to break ground tomorrow. Would you want the dam to proceed so that you could save a few cents on your energy bill?

    One last point. From a peak oil perspective, the potential for production in the Gulf – or even all offshore drilling (East, West, Gulf, and AK) – to impact the timing of peak oil is so small as to be negligible. In fact, increasing the global URR by 1 billion barrels pushes the date of peak back by only two days.

    Let’s not compound our problems out of fear of the unavoidable.

    Thanks,

    DA

    Reply
    1. Zach Hudson Post author

      Let me be clear, I do NOT think BP is completely innocent. I do, however, feel that BP is getting a lot more criticism and hate directed towards them than should be at times. Do you really believe that BP would want to save $5 million by cutting corners, but risk having a giant oil spill costing billions? That doesn’t make any business sense.

      I realize the oil leak is a disaster and it is causing HUGE economical (fisherman in the area for example) and environmental problems. There are several instances were the government did not help, probably did the opposite, the issue. One example being the federal government turning down foreign help, thus delaying the time (2 month delay i believe) before we were able to get oil skimming barges from other countries (http://english.aljazeera.net/news/americas/2010/06/20106301322305348.html). This has been reported on by several news agencies, but not many MAJOR agencies like CNN, MSNBC types. This help would have been helpful before the oil got to shore, but why rush right.

      Also, I wanted to mention what I consider to be a pretty good example of government not running something well and the market running something much better. The first example that comes to my mind would be the package shipping/delivery industry. United States Postal Service (USPS) vs. FedEx/UPS. Do you see USPS making money or offering stellar service? Granted USPS typically offers decent service, but the last I knew USPS has a larger mail loss % than either FedEx or UPS. Overall, the private companies offer better service, at a good price, and they don’t lose billions of dollars a year.

      Reply
  3. New York City AC contractors

    Off shore drilling will probably keep going until we find other energy sources. It’s pretty inevitable really. We need to depend less on electricity too. Cut back on using ac units and heaters by fixing air leaks in the home. Every man made convenience seems to damage the earth somehow. We need to find balance to make it work and save the planet.

    Reply
  4. Dandyone

    Here’s one place to start if you want to see how gov’t regulation worked well… it eliminated (well… greatly reduced) slavery. Not just in the U.S. but elsewhere as well. There are lots of places where gov’t regulation of labor practices make working conditions inhumane.

    In the wake of the last oil crisis (twin shocks of ’73 and ’79), the U.S. went on a deregulation binge, and the world went on a “free trade” binge. What was the impact? It allowed the U.S. economy to recover by shipping jobs overseas to places with weak labor laws, and we ended up wearing the output from sweatshops on our feet.

    Among the industries to be deregulated was the banking industry. This allowed risks to be taken at a level that was imprudent.

    So, the elimination of tariff and non-tariff barriers to trade had positive and negative impacts on both the U.S. and our trading economies. Arguing the net benefit is a futile exercise. It’s like lighting a man’s head on fire while his feet sit in an ice bath and saying, “No problem, his average temperature is fine.”

    A point that we can’t argue over is that globalization has caused consumption of oil to increase. So now we find ourselves tied into a global economy that requires oil to function under BAU.

    Meanwhile, deregulation of the banking sector allowed the creation *and* abuse of CDOs, CDSs, MBSs, mark-to-market asset pricing, and over-leveraged investments being made by super banks. Some regulation would have been welcome, even if it caused an economic slowing… which it would have.

    So, for every example you can think of where government has done a bad job of regulation, I can match you with cases where industry has done a bad job of self-regulation. In the early days of the oil industry, boom and bust cycles were extremely severe. Prices would shoot from less than $10 per barrel to more than $100 and back again (2007 dollars). This is not good for industry or consumers.

    The first form of regulation within the oil industry came from the monopoly called Standard Oil… which operated using tactics that are illegal today. Rockefeller called it giving the competition “a good sweating”. Under monopolistic control, price volatility declined, but was still high. But power and wealth accumulated in the hands of a very few crooked capitalists at the expense of the millions of workers.

    Eventually the trust was broken up (only after *extensive* pressure from the public), and the TXRC was tasked with regulating prices by controlling the output of individual producers. If the price went too high, they would allow producers to increase production, and if the price dropped, they reined production in. Look at a historical price graph and you can see how good a job the TXRC did at maintaining a steady price. All the while oilmen got rich and were able to manage investments because they could count on a certain price.

    In 1970 U.S. production peaked, and the TXRC lost all real control. The prices climbed, and they lifted the production limit only to find out that producers were pumping at full throttle.

    There is good regulation and bad regulation and good regulation done poorly.

    Along these lines, I’m glad you bring up the point of our weak ass media. Our media is weak because there is very little government funding of public media. There is a peer reviewed research paper that explains this. I couldn’t find a link, but I’m sure you can find this on your own. The basic premise is that competition from public media raises the bar and forces the private media to respond.

    One last thing on regulation. This from The Globe and Mail. Talisman energy is asking the state to regulate the industry… http://www.theglobeandmail.com/globe-investor/tax-us-police-us-talisman-urges-ny/article1668600/

    Reply
    1. Zach Hudson Post author

      Government micro-managing is different than regulation. I agree that limited regulation is good. Micro-managing is more like running an entity or telling an entity to do something directly (Like, Fannie Mae/Freddie Mac = disaster).

      Reply

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