Think Again: Offshore Drilling

“Stopping Offshore Drilling Is Good for the Environment.”

Not in the United States, it isn’t. When BP’s Deepwater Horizon oil rig exploded in the Gulf of Mexico on April 20, it began what is certainly the biggest environmental disaster in U.S. history. Four months later, the spill has finally been contained, but the political fallout has not, and many Americans would like President Barack Obama’s six-month moratorium on offshore drilling in the gulf made permanent.

Yet bad as the spill certainly was, such a move would actually do more harm than good. If U.S. fields closed down, oil companies would simply take their business elsewhere, mostly to countries with much weaker environmental standards. Of course, the harm wouldn’t be as visible to Americans. But protecting the U.S. coastline at the expense of other countries is hardly environmentally friendly.

With the exception of Canada, the major oil suppliers to the United States — Saudi Arabia, Nigeria, Venezuela, Mexico, and Russia — all have autocratic governments that can get away with damaging their environment without any political repercussions. And they know that protecting the environment costs money and reduces profits. So, by and large, they don’t do it.

Some of the resulting disasters remain local. Take Nigeria, which has about 2,000 active oil spills and spills an amount of crude equal to the Exxon Valdez each year. Oil fouls fields, rivers, and Nigeria’s coast. It destroys ecosystems and sickens people, but it doesn’t affect Americans.

Other environmental injuries have worldwide effects. Methane, a common byproduct of oil production, is a powerful greenhouse gas. In the United States, methane is typically captured and pumped into the natural gas system or reinjected into oil wells. Relatively little escapes. In many other countries, however, methane is simply vented into the air, where it contributes to global warming. Mexico produces less than half the oil the United States does every year, but it vents six times more methane into the atmosphere.

Finally, shipping oil has environmental costs. Oil tankers consume the equivalent of 1 to 3 percent of their oil on their voyages, which contributes to air pollution and global warming. Even worse, some tankers don’t make it. The Amoco Cadiz broke up off the coast of France. The Atlantic Empress and the Aegean Captain collided off Trinidad and Tobago, and many others went down as well (the Castillo de Bellver off South Africa, the Irenes Serenade off Greece, the Torrey Canyon off Britain, the Urquiola off Spain, etc.).

From 1971 through 2009, tankers spilled more than 40 million barrels of oil worldwide (not counting oil that was spilled because of wars, sabotage, and terrorist attacks). Exactly how much was headed for the United States is not clear, but because Americans consume one-quarter of the world’s oil, they are probably responsible for about a quarter of those spills. That amount dwarfs the 200,000 barrels spilled by the U.S. offshore oil industry during those years. The Exxon Valdez alone lost more oil than the offshore oil industry did in 30 years. Oil tankers are far safer than they used to be, but importing oil remains a risky business.

“Offshore Drilling Reduces U.S. Dependence on Foreign Oil.”

True. But it’s only half the story. The other half is that Americans’ dependence on imported oil is likely to continue until the world’s oil production peaks — and it will, eventually — when we all will be forced to use other sources of energy.

About one-third of U.S. oil production comes from offshore wells, mostly in the Gulf of Mexico. Losing that oil would significantly increase U.S. reliance on foreign oil. The United States currently imports about 12 million barrels of oil per day. Without Gulf of Mexico oil drilling, the country will need to add another 1.7 million barrels a day just to meet demand. Moreover, the largest increases in U.S. oil production are coming from deep-water wells in the Gulf of Mexico. Without them, the country’s reliance on imported oil would grow even faster.

The U.S. Energy Department predicts that U.S. oil imports will decline somewhat in the coming years because of higher oil prices. It tells us that the price of oil will probably rise to $95 a barrel by 2015, boosting U.S. domestic production as new fields become economically viable. Even so, all the major projections say the United States will continue to rely on foreign oil for decades.

The other part of the story is that worldwide peak oil is coming. “Peak oil” is the term used to identify the time at which world oil production hits its high point and begins to decline. The downturn is inevitable because the world’s oil supply is finite, and we’re using it up at the rate of 73 million barrels a day.

This is not a wild-eyed environmentalist fantasy. Production has already peaked in 60 countries. U.S. oil production, for example, peaked in 1970 at 9.6 million barrels a day; the United States now only produces about half of what it once did. Even if the Energy Department’s predictions about new growth in U.S. oil production come true, the country will never again produce anything close to the 1970 level.

At the risk of belaboring the obvious, the problem with peak oil is that despite the fact that the oil supply will begin to shrink, demand for oil will continue to increase because of the world’s growing population and the surging economies of China, India, and other developing countries. The growing gap between supply and demand will drive the price of oil up and cause economic pain around the world.

The pain is likely to be severe. Ninety-five percent of U.S. transportation — from automobiles and airplanes to ships and trains — is fueled by oil, according to the U.S Energy Information Administration. The United States is beginning, ever so slightly, to develop alternatives such as biofuels and electric cars, but there’s still a long way to go. If current trends hold, Americans won’t move away from oil — or imported oil — until world production peaks, and they have no choice.

“We Shouldn’t Drill Until the Government Gets Its Act Together.”

No. A retooling of the U.S. Minerals Management Service (MMS), which oversees offshore drilling, is certainly in order, but waiting for a perfect world makes no sense. The regulatory problems are well on their way to being solved. The blitz of publicity given to oil-industry regulation after the spill and the first round of bureaucratic reforms announced by Interior Secretary Ken Salazar in May are already having a huge impact. The people in charge of safety and environmental protection are now in a separate agency, which no longer reports to the administrators who are under pressure to increase oil revenues. They are also getting more money for inspections and more time to conduct them. Their work is also being monitored by reporters looking for a sensational story. Together, these
changes will make offshore oil a lot safer.

Before the blowout, MMS actually seemed to be doing a pretty good job. There had been no major oil spill from an offshore platform in U.S. waters since 1969. Both the number of spills and the amount of oil spilled into the ocean had been declining decade by decade since the 1970s. Offshore drilling was getting safer even as more oil was being produced. The result was that both government regulators and oil companies let complacency and overconfidence set in. MMS became a captured agency.

When outsiders do not carefully watch government agencies, bureaucrats often fall into the trap of wanting to help the only people who do pay attention to them — the people the bureaucrats are supposed to regulate. MMS lost sight of the public interest and began caring too much about the oil industry. Inspections were skipped; environmental-impact reviews were waived; and MMS regulators accepted the assurances of oil companies that equipment such as blowout preventers worked, rather than testing it themselves. After all, the oil industry was focusing its money and attention on the regulators, and everyone else was ignoring them because there were no disasters to generate newspaper headlines. The fact that MMS did BP favors by not conducting enough safety inspections and not following up on problems it found is hardly surprising.

But all that ended when the Deepwater Horizon rig exploded and collapsed into the Gulf of Mexico. The world started watching MMS, Congress held hearings, and Obama reorganized the agency. The attention did the trick. There will be no more skipped inspections, waived reviews, or delayed repairs. In the aftermath of the disaster, both the oil companies and the newly reorganized and renamed Bureau of Ocean Energy Management, Regulation, and Enforcement will do anything they can to avoid another major spill. Just as with airline security after the 9/11 terrorist attacks, the Gulf waters became a lot safer the day after catastrophe struck.

There will no doubt be more reform of the rules and agencies regulating offshore oil drilling, including in the energy bill coming out of Congress. Given the first response from the White House and the close attention from the news media, however, there is little safety gain to be had from maintaining the moratorium on offshore drilling.

“The United States Should Save Its Oil for Later.”

Nonsense. The idea of conserving resources for the coming world of peak oil seems appealing at first, but it does not survive close scrutiny. The first problem is that it would require the United States to abandon its free trade policies and return to the two-tier system of oil pricing that was in effect decades ago.

Keeping the oil for later use would have no effect if, once it was finally pumped out of the ground, it sold at free market rates. There is no point in hoarding if you are going to share your hoard freely with the world when it is needed. So the United States would have to return to the system of price controls that President Reagan abolished in 1981: U.S. oil would be sold to American customers at a reduced price, while world oil prices would continue to surge upward.

The problem with price controls is that they send consumers the wrong message. If there is a shortage of oil, the last thing the government should do is to encourage oil consumption by creating artificially low prices. A two-tier pricing system would make consumers happy in the short run, but it would cause a lot of harm over the long term.

The second problem is that peak oil is probably coming a lot sooner than most people think. A growing number of academic studies suggest that though peak oil is not about to strike the world’s unprepared economies immediately, it is a problem that we will have to face within a decade or two.

Using different methods and assumptions, scientists have offered a range of predictions. Pessimists, such as retired Princeton University geology professor Kenneth Deffeyes, think we have already hit peak oil and that world production will start declining soon. Optimists, such as the U.S. Geological Survey’s researchers, argue that peak oil might not arrive until 2037. Probably the most realistic prediction comes from the UK Energy Research Centre, which says that it is most likely to arrive between 2020 and 2030 — probably late in the decade.

If that’s the case, now is a good time to start preparing. It takes years to tap an undeveloped oil field — and longer if it is offshore. So even if the United States insists on saving its black gold for later, it will have to start drilling now to be ready for the coming oil crunch.

“Ending Offshore Drilling Is Realistic.”

Sorry. Here we have another environmentalist fantasy. There are two reasons why the drilling won’t end until the oil runs out. In the short term, the economic needs of Gulf Coast states will keep the oil flowing. In the long term, skyrocketing gasoline prices will drive out every other concern.

Obama’s moratorium was immediately attacked not only by the oil companies, but by a wide range of Gulf Coast residents and their elected politicians. Sen. Mary Landrieu (D-La.) pointed out the core of the problem when she wrote, “The oil and gas sector directly employs some 15 percent of Louisiana’s workforce.” She might have added that the money those people spend employs a lot of other people. The White House says that 23,000 jobs could be lost. Another recent study estimated that the moratorium would cost $2.1 billion in lost output and $487 million in lost wages. The states along the gulf are too dependent on the oil industry to let it die. That is why, despite the Deepwater Horizon oil spill, a majority of Gulf Coast residents still want to expand offshore oil drilling, according to recent polls. Together with pro-drilling Republicans in Congress, they form an alliance that environmentalists cannot defeat.

Peak oil will only increase support for drilling. When peak oil comes, gasoline prices will move up — fast. And it won’t be only Sarah Palin calling to “drill, baby, drill.” In the summer of 2008, when gasoline prices peaked, so did public support for offshore oil. National polls showed that 70 percent or more of the public wanted increased drilling. And Congress responded by letting the moratorium on new offshore drilling lapse.

Polls now show that a majority of the American public no longer favors increased offshore oil drilling, though a majority of people living along the Gulf Coast do not share that view. Yet history tells us that a few years from now, as memories of the Deepwater spill fade and if gasoline prices begin to rise as the Energy Department predicts, the number of offshore-drilling supporters will rise with it. Even Califo
rnians, thought to be bitter opponents of offshore oil drilling, respond to gasoline prices. During the 1979-1980 oil crisis, sparked by the Iranian Revolution and the Iran-Iraq War, polls showed that a majority of Californians wanted more drilling off their own coast. Only 10 years after the 1969 Santa Barbara oil spill, Californians had decided that the high price of gasoline was more important to them than the risk of another disaster.

The implication is clear. Sooner or later, we will hit peak oil; gasoline prices will surge upward; the public will demand that Congress open the Gulf of Mexico and U.S. coastal waters to oil drilling; and Congress will bow to the will of America’s outraged drivers. The oil industry — at the request of the American public — will get every drop. Bet on it.