If I Can’t Have a Magic Bullet, I Won’t Shoot

"Windmills can't provide enough power to give us energy independence (or save the environment), so let's not build any."

"Solar won't save the environment (or give us energy independence), so let's not pursue it."

"Conservation won't make us energy independent (or save the environment), so let's not conserve."

"We can't build enough nuclear plants to replace all the coal we use, so let's not build any."

"There isn't enough oil off our coast to meet our energy needs, so let's not drill for it."

There is no single magic bullet either for energy independence or significant reduction in CO2 emissions. But there is a magic bandolier: if we fire many energy bullets on both the demand and supply side, we CAN become energy independent AND we can significantly reduce CO2. We'll never get to either goal if we insist on waiting for a single solution we can all agree on. There is no single magic bullet! We need to do all of the above (and more).

There are "only" 16 billion recoverable barrels of oil offshore in the areas which would be opened up by ending the drilling moratorium begun by the first President Bush. Put aside the imponderable of what effect the release of that oil'll have on retail gasoline prices; at $140/barrel (which assumes prices don't rise further – or fall – in the eight years it'll take to get that oil flowing) that's $2.24 TRILLION that ends up in the US economy instead of going to fund terrorism abroad. Hmm. That's jobs in America. That's a lot of oil, too.

In 2007, we imported 4.4 billion barrels of oil (DOWN from 4.6 billion barrels in 2005) including imports of refined petroleum products according to the Energy Agency. We used 7.6 billion barrels altogether. Critics of offshore drilling say that we will only displace four years worth of imports – why bother? Well, forget the small matter of the $2.24 trillion dollars, suppose that in eight years time we have reduced our total oil use by 10% (it's falling fast) and that other domestic production, spurred by high prices, has remained constant (that may be optimistic). It's reasonable to assume that the entire reduction would come from imports so now we import only 3.6 billion barrels and those 16 billion barrels stretch a little further towards independence. Suppose we cut oil consumption by 20% (by using much more electricity); then we have enough recoverable oil offshore to totally replace imports for five and a half years. But during those five and a half years we continue to reduce our use of oil. If we don't watch out, we could end up energy independent this way. Point is that we need to work both the demand and the supply side.

So why don't we want to drill for oil offshore?

There could be oil spills. That's a fact; there probably will be some. Recent experience with hurricanes and offshore drilling seems to show that the technology now works to make the likely impact very, very small. There are a lot of oil rigs in harm's way in the Gulf of Mexico. Moreover, very high prices make it economically feasible to impose very high environmental requirements on leases.

Coastal states will bear a disproportionate impact. Forget that people in the middle of the country may not have much sympathy for us coasties; plans currently proposed give states both a veto and a share of the loot. If Florida and California don't think it's worth the risk to have drilling off their coasts, they can forgo the revenue and stop the drilling. Frankly, I'm not sure the states should get a choice; but what opponents are actually saying is that they're afraid the states will choose drilling. Presenting a choice doesn't erode states' rights.

It'll be eight years before the oil starts to flow. Prices at the pump won't immediately come down. I hope politicians aren't right that we're so short-sighted that we only care about this year or can't imagine even worse prices. It's probably unfair hindsight to point out that coastal oil would be flowing now if leasing had started in the Clinton-Gore administration.

President Bush (the current one) is in favor of it. So, when he was opposed to offshore drilling, which he was until yesterday, was it a good idea?

The oil companies have leases they aren't yet drilling. I suspect that some of this territory doesn't have recoverable quantities of oil (at yesterday's prices) since they lease before they drill. No reason why new leases shouldn't have strict use it or lose it provisions, though.

The oil companies are making lots of money. These leases obviously should reflect market rates with an escalator. WE'LL make plenty of money through lease revenue.

John McCain flip-flopped on this issue. Do we want another president who can't recognize changing circumstances and change policy accordingly?

 

 

Comments

[Sean]

Tom,

Excellent post, I was just having this exact conversation with my father-inlaw.

The idea of creating a "new" multi-trillion dollar industry in the US is the one portion of energy independence that gets far to little attention. A stronger US economy should equate to a stronger US dollar which will also work to decrease the price of oil.

[Tom Evslin]

CJ:

Although there may well be correction from the current bubble, I think the medium-term trend in oil prices is up AND that, even if prices were to fallback 30% or so, there's plenty of incentive for exploration of new sources of oil and energy.

I believe that the price of oil will be lower with coastal US oil than without but not nearly low enough to stifle further innovation and exploration.

Thanks for your comment.

[CJ]

Tom, you assume (incorrectly I believe) that as the price of oil drops, the urgency to find alternatives will continue. If we learn anything from the 70's it should be that American people love cheap oil and do not have the capacity to see past their next fill up.

A third dimension to this two dimensional problem (more supply, price drops) is the fact China and India will still be needing increasing amounts of energy to keep their economies growing. I would suspect that the price of oil would remain high as the for-profit oil companies would want to sell to the highest bidder.