Start-up delays, global market pressures cited

Increased American production from offshore drilling – such as at this oil platform pictured off California in 2005 – would not necessarily mean lower prices for Americans because oil is a global commodity whose price is set by global supply and demand. (Bruce Chambers/Orange County Register via associated press/file)

Provided by: Globe Staff / June 20, 2008

President Bush and Republican presidential candidate John McCain have called this week for lifting a federal moratorium on offshore oil exploration, arguing that taking action to increase domestic oil supplies will help drive down prices.

But analysts say that renewed offshore drilling would have little impact on gas prices anytime soon.

It would take at least a decade for oil companies to obtain permits, procure equipment, and do the exploration necessary to get the oil out of the ground, most industry analysts say. And even then, they add, the amount of new oil produced would probably be too small to significantly affect world oil prices.

Some analysts point out that the wells the United States now depends on are being depleted, and that new exploration could at least help offset that decline in supply from existing wells.

Expanded offshore exploration also carries with it some environmental risks, from oil spills to destruction of habitat to vibrations that damage sea life, which environmentalists say could have catastrophic consequences that far outweigh any potential benefit from further offshore drilling. But other analysts say that improved technology means the risks are much smaller than a generation ago. In this view, a sensible compromise approach would be to make decisions on potential drilling sites on a case-by-case basis.

Americans’ anger over $4-a-gallon gasoline apparently has prompted greater public support for renewed offshore drilling. A Gallup poll last month found that 57 percent of respondents favored such drilling while 41 percent were opposed. Democratic candidate Barack Obama supports the moratorium.

The debate over expanded oil exploration has always been polarizing – recall the ferocity of the fight over whether to drill in the Arctic National Wildlife Refuge – but some analysts are calling for a more moderate tone.

“Clearly, drilling is not the solution to our oil dependence, but any serious energy proposal has to be comprehensive and include more oil supply and production off the outer continental shelf,” said Robbie Diamond, president and founder of Securing America’s Future Energy, a nonpartisan group committed to reducing the nation’s dependence on oil.

In the short term, oil prices could go down slightly if Congress lifts its moratorium on new offshore drilling, which has been in place since 1981, because the market would factor in the prospect of additional oil supplies later on. But the actual oil would not be produced for 10 to 12 years.

And in any case, increased American production from offshore drilling would not necessarily mean lower prices for American consumers because oil is a global commodity whose price is set by global supply and demand.

“Suppose the US produced all its oil domestically,” said Robert Kaufmann, director of the Center for Energy and Environmental Studies at Boston University. “Do you think oil companies would sell oil to US consumers for one cent less than they could get from French consumers? No. Where oil comes from has no effect on price.”

And there is not likely to be enough new American oil to make much of a difference, Kaufmann and others said. About 86 billion barrels of additional oil may lie offshore, according to the US government’s Energy Information Administration. Of that amount, about 18 billion barrels are subject to the moratorium. Much of the rest lies in areas that are too expensive to exploit or that oil companies have not yet tapped for technical reasons, fueling the industry’s desire for fresh territory.

“We’re picking over bones,” said Cathy Landry, a spokeswoman for the American Petroleum Institute. “If we had new acres, we could hypothetically make a big find. We need oil and natural gas in the future.”

But in the best-case scenario, Kaufmann said, the United States could only produce an additional two to four million barrels of offshore oil a day – not enough to shift the global supply-demand balance in a world market that now consumes about 86 million barrels a day and is growing fast. About a quarter of that consumption now occurs in the United States.

Kaufmann said that by the time any additional offshore oil got to market, much of it would merely offset losses from the depletion of current oil fields. Meanwhile, oil producing nations can easily keep supply constant by limiting capacity if they know the United States is adding more.

“There’s nothing on the supply side that we can really do to disrupt OPEC’s ability to influence prices,” he said.

Environmentalists argue that the pollution caused by drilling could compromise fragile ecosystems for very little economic benefit when the United States should be focusing on conservation – the cheapest barrel of oil, they like to say, is the one we don’t have to buy – and developing better renewable energy sources.

They point to a number of environmental risks. Drilling fluids contain toxic chemicals. If oil is found, one of the waste products is briny water that also contains toxic chemicals. The noise from drilling could harm some sea animals, such as whales. And the oil would also have to be transported by pipeline or ship, creating its own environmental impacts. Then there is a risk of spills.

“Today we think offshore oil drilling could be the final straw in the unfolding collapse of New England fisheries,” said Priscilla Brooks, director of the Ocean Conservation Project at the Conservation Law Foundation, which successfully fought a proposed drilling lease on Georges Bank in the late 1970s.

But Nancy Rabalais, executive director of the Louisiana Universities Marine Consortium and a scientist who has studied the effects of offshore oil production in the Gulf of Mexico, said that she believes expanding offshore oil exploration would not pose terrible risks to the environment because the effects are relatively contained, and the industry is well-regulated.

Henry Lee, who teaches energy policy at Harvard University’s John F. Kennedy School of Government, said he believes there is a middle ground. There is no panacea, he said, for solving America’s energy problems, so it may be best to lift the prohibitions on offshore drilling, and carefully consider the oil potential and possible environmental costs in different locations on a case-by-case basis.

“Each side, I think, is not being reasonable about this,” he said. “I want to do the analysis and figure out what the implications are.”

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