Deroy Murdoch on OCS Drilling

12 August 2008

Deroy Murdoch recently wrote an editorial in the New York Post about offshore drilling titled "DEMS' OSTRICH APPROACH ON OIL." The basic thrust of his argument is that we really have no idea how much oil is under the protected OCS region, and that Obama has actively tried to cover up any exploration that would have shed some light on the issue.

Starting with his claims of cover-up, Murdoch says:
Obama's "Oil SENSE Act" would repeal the 2005 Energy Policy Act's authorization of these inventories. S.115 would leave decision makers with Carter administration maps drawn with pre-PC technology. This is like engineering a Space Shuttle mission with slide rules. Obama's bill would prohibit expanded use of 3-D seismic techniques that locate and measure underwater oil deposits.


Obama's Don't Ask, Don't Drill policy spurns these marvels and embraces outdated information gathered with obsolete instruments. This is the audacity of ignorance.

Democrats like Obama prefer not to know what riches rest off America's coasts. They resemble kindergartners who cover their ears and hum loudly to muffle their parents' unwelcome words.

However, Murdoch is being disingenuous about what the Oil SENSE Act involved. It didn't repeal the "authorization of these inventories." It repealed the taxpayer subsidization of private oil and gas exploration for the entire outer-continental region - including those that are already open to leasing (4/5 of the OCS region is already open to leasing, by the way; only 1/5 is covered by the moratorium). Since this would be a taxpayer-subsidized windfall for the companies that already owned the leases to these lands, the Oil SENSE Act sought to repeal that provision.

Furthermore, Murdoch failed to mention that this was done at the request of the President himself: "The President believes that additional taxpayer subsidies for oil-and-gas exploration are unwarranted in today's price environment, and urges the Senate to eliminate the Federal oil-and-gas subsidies and other exploration incentives contained in the bill."

So when Murdoch says that Obama "spurns" and "prohibits" exploration technology, he's not quite being honest. What the bill does is stop taxpayers from footing the bill for oil companies at a time when they're already making record profits. Let them invest in their own explorations.

However, Murdoch's larger point is that the government estimates of the oil in the OCS protected region are outdated and probably inaccurate. According to Murdoch, "Democrats like Obama prefer not to know what riches rest off America's coasts."

This is a better argument than the typical "drilling will reduce the price at the pump" line. At least Murdoch concedes that he has no idea how much oil is off the coast (even though he describes it as "riches"), and that the best estimates we have predict that it's too small to really bother with (okay, he doesn't quite concede that, but it's obviously the argument that he's wrestling with).

According to Murdoch:
In 2005, Congress mandated new, quintennial inventories, then gave Interior six months and $0 to assess how much oil and natural gas undergird the 1.76 billion-acre Outer Continental Shelf - a laughably impossible task.

"They couldn't even board a research vessel," explains a congressional staffer who studies these issues. Interior's "paper inventory," the aide adds, "examined Canadian and West African coastal data, imagined where those sediments pooled before the Continental Drift, then extrapolated to guesstimate what's off our Atlantic coast today."

The resulting document states: "Resource estimates are highly dependent on the current knowledge base, which has not been updated in 20 to 40 years for areas under congressional moratorium." Translation: "We have no idea what's really out there."
Regarding the methodology, this is what the 2005 Congressional mandate actually said:
(a) In general
The Secretary shall conduct an inventory and analysis of oil and natural gas resources beneath all of the waters of the United States Outer Continental Shelf (“OCS”). The inventory and analysis shall—
(1) use available data on oil and gas resources in areas offshore of Mexico and Canada that will provide information on trends of oil and gas accumulation in areas of the OCS;
(2) use any available technology, except drilling, but including 3–D seismic technology to obtain accurate resource estimates. . . . (42 U.S.C. 15912)
Just paragraphs earlier, Murdoch had praised 3-D seismic technology as a modern "marvel." Now he says that measuring oil with this technology is "a laughably impossible task." It's really bizarre.

Regarding the anonymous Congressional staffer "who studies these issues" (i.e., the Congressional staffer who wasn't actually involved in any of this directly), it appears that they actually could board a research vessel. The only statutory restriction regards actual drilling. Other than that, the statute explicitly says that they could use "any available technology." This nameless staffer sneers at what papers are examined as pre-existing data, yet fails to mention that the statute authorized the "use [of] any available technology" to obtain resource estimates.

Murdoch makes a good point in highlighting the uncertainty here, though. It could be that the MMS projections are too conservative. However, I'd prefer to base policy decisions on what we actually know, rather than on what we hope to be the case. Furthermore, I'd hesitate to completely shut down Congress based on a wish and a prayer about what you hope to maybe someday find underground.

Finally, I'd just like to point out that our current best estimates say that we'd see, at peak, an extra 200,000 barrels of oil per day from drilling in the protected OCS regions. That would go onto a world market that currently consumes about 86 million barrels of oil per day, and will only consume more as China and India increase demand. According to the Department of Energy, this would have an "insignificant" impact on the price of oil. Even if there were several times as much oil there as our estimates say, it would only affect the price of gas by pennies. And even if we found some giant, gaping mega-wells that pumped several million barrels of oil per day, we'd still be just as vulnerable to price-shocks, since the price of oil is set on the world market. OPEC still controls about 2/3 of the world's oil reserves, and they can manipulate the price of oil far more effectively than we can, even with our imaginary oil supplies.

UPDATE: Even under the most wildly optimistic and unrealistic scenario proposed by the National Petroleum Council (which exists "to represent the views of the oil and natural gas industries"), we'd only see another 990,000 barrels of oil per day in the year 2025. Compare that to the world market, which currently consumes about 86 million barrels of oil per day, and you're still not seeing any real impact on the price of gas.

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