Offshore Drilling – An Unending Controversy

One of the most controversial topics dominating the energy discussion is related to opening the remaining protected U.S. coastline to oil exploration. Questions remain regarding the impact of offshore drilling on the economy and the environment. Specifically:

• Those in favor of offshore drilling point toward lower gasoline prices and reduced reliance on foreign oil that would result from domestic drilling and feel strongly that the impact on the environment would be negligible.
• Opponents are equally adamant that the drilling would not noticeably impact the price of gasoline nor appreciably the increase domestic energy supply, and it would have a devastating affect on the surrounding ecosystem.

The chance of a meeting of the minds is remote as the discussion rapidly deteriorates into an inflammatory exchange where motives are questioned and integrity is challenged. To the extent they are available and sustainable, this article will attempt to assess the facts with the goal of relieving some of the tension around the argument.

How Much Oil is Available?

According to the Energy Information Administration (EIA), the current supply of recoverable crude oil on the off limits portion on the U.S. continental shelf is estimated at 18 billion barrels. Since the U.S. uses 7.5 billion barrels of oil per year, this would equate to slightly more than a 2-year supply assuming the EIA estimate is correct.

How Soon Could the Oil be Available?

Even if the outer continental shelf (OCS) were immediately opened for drilling, EIA studies estimate that it will be at least 10 years before any oil would be available and the amount would not be enough to materially affect world prices. The technicalities in play (i.e. leasing wells, locating the oil, and getting the oil to the surface) suggest that production wouldn’t even begin until 2020 and it would take until 2030 to reach full production, resulting in daily output of 0.2 million barrels per day (as compared to 82.5 million barrels each day worldwide).

Opponents to drilling may have a valid point in questioning the potential impact of 0.2 million barrels per day, but to argue that the time lag itself is a reason not to pursue offshore drilling seems disingenuous. The real question that needs to be answered is, “Does offshore drilling figure as part of an overall U.S. energy strategy?” And, if so, then the time lag to full production suggests starting the preliminary steps as soon as possible. If not, then the implication is that there are replacement strategies that will lessen U.S. reliance of foreign oil and keep energy prices at manageable levels.

What are the Real Objections to Offshore Drilling?

The major environmental objections to offshore drilling include:

• In offshore oil drilling, we are not just digging underground, but also thousands of feet underwater.
• In recovering oil from the ocean floor, other chemicals and toxic substances come up (e.g. mercury, lead and arsenic) and these substances that are often released back into the ocean.
• Seismic waves, used to locate oil, can cause harm to and / or disorient sea mammals.
• The mere infrastructure for drilling wells and transporting the oil can accelerate erosion and inadvertently lose marshlands and other storm buffers on shore.

Are these Objections Valid?

Proponents for offshore drilling will say that technology and stronger government oversight have led to a 99.999 percent safety record since 1975, decreasing from 3.6 million barrels of crude oil spilt in the 1970s to less than 500,000 in the 1990s. In fact, more oil spills into U.S. waters from natural sources and industrial waste than from offshore oil and gas drilling. Toxic chemicals are released at levels too low to be absorbed by fish.

Opponents state that these facts relate to the offshore operations themselves and do not tell the whole story. Marine transportation of the oil accounts for nearly one-third of the oil spills worldwide and the Mineral Management Service estimates there will be at least one oil spill per year of 1,000 barrels or more in the Gulf of Mexico over the next 40 years; and a major spill of over 10,000 barrels every 3 to 4 years. Further, though a 99.999 percent safety record is indeed impressive, that minuscule accident rate of 0.001 percent can represent disaster to those living in the vicinity of the accident.

What is the Likely Outcome?

It is uncertain whether the U.S. will risk its coastline for promises of price relief. Our view is that the answer will lie within an comprehensive strategy and approach where offshore drilling represents only a part of the solution. The numbers themselves do not seem to support offshore drilling as a primary, stand alone initiative.