GET ON WITH IT
There's something good that comes out of almost every crisis, and that is true even of the Oil price crisis of 2008. Case in point is the crack, however small, in the multi-decade, bipartisan stand by U.S. politicians against offshore drilling. This New York Times article today makes the point with a bit of drama:
"Gov. Charlie Crist stepped on the third rail of Florida
politics this week when he abandoned his opposition to drilling
offshore for oil and natural gas. But surprise, surprise, he did not
die.
His call for cautious reconsideration, in fact, is spreading.
In the Capitol and along the coast here minds once closed to offshore
drilling have been cracked open by the prospects of safer drilling
technology and an awareness that dependency on foreign oil has heavy
costs."
Never mind that it's primarily the Republicans for now moving cautiously in this direction, with both President Bush and Presidential hopeful John McCain publicly speaking out for re-thinking the 27-year old U.S. ban on drilling offshore between three and 200 miles off our shores.
Never mind that our neighbors in the Americas, like Canada up north, and so many countries down south have been aggressively drilling offshore for a long time with no major environmental issues. In fact Brazil recently won THE global oil reserves lottery recently, with the biggest oil discoveries in 30 years anywhere in the world, just about 200 miles from it's shores.
Even Cuba is busy drilling offshore with a little help from the Chinese, just 90 miles off our shores. Given that oil reserves under land or under sea-beds don't recognize national borders, it wouldn't be surprising if the Cubans were straw-sipping some oil that could be drilled from our side of the offshore border.
Mexico is already competing offshore with us on this "drinking straw effect".
In fact, European countries in Scandinavia and norther Europe have been deep-water drilling for a long time, yet satisfying some of the most vigilant environmental constituencies in the world.
We've been playing offshore with one-hand tied behind our back for a long time:
"Congress first adopted its moratorium against drilling on the outer
continental shelf, 3 to 200 miles offshore, in 1981. In 1990, Mr.
Bush’s father signed an executive order reinforcing the ban; Mr. Bush
promised Wednesday to rescind the order if Congress ended its
moratorium."
Oil prices in 1981 were in the mid $30 per barrel range, with of course a very different global demand picture.
What's at the root of our national objection to offshore drilling? This NY Times article offers an answer:
"The primary concern about offshore drilling has been that unsightly oil
rigs would dampen tourism, or that spills would threaten the
environment. Advocates, and even critics, say new technology has
greatly reduced the risk of spills."
Ironically, these are amongst the same arguments (aesthetics and environmental factors), against deploying wind and solar power infrastructure both offshore and on land. So much for alternative energy sources.
One of the most bullish things on the global offshore drilling front, is how things are about to change in terms of drilling capacity over the next 3-5 years. Again, an excellent New York Times piece yesterday provides a lot of good detail:
"In recent years, this global shortage of drill-ships has created a
critical bottleneck, frustrating energy company executives and
constraining their ability to exploit known reserves or find new ones..."
“The crunch on rigs is everywhere,” said Alberto Guimaraes, a senior
executive at Petrobras, the Brazilian oil company that has discovered
some of the most promising offshore oil but has been unable to get at
it.
“Almost 100 percent of the oil companies are constrained in
their investment program because there is no rig available,” he said.
As
a result, drilling costs for some of the newest deepwater rigs in the
Gulf of Mexico — the nation’s top source of domestic oil and natural
gas supplies — have reached about $600,000 a day, compared with
$150,000 a day in 2002."
But here's the good news:
"These record prices have spurred a new wave of drill-ship
construction. This boom could lead to renewed offshore oil exploration
that would eventually bring more supplies to the oil market, and push
down prices.
Already, 16 new drill-ships are scheduled to be
delivered to oil companies this year — more than double the number
delivered over the last six years combined. In fact, 75 ultra-deepwater
rigs should be delivered from 2008 to 2011, according to ODS-Petrodata,
a firm that tracks drilling rigs.
Shipyards from South Korea to Norway are working overtime to meet a huge influx of orders."
Remember these ships aren't being order hoping to find oil offshore, but to extract lots of oil that's already been found offshore around the world, that's now profitable to get at these record prices.
Also remember that energy is a cyclical industry, notwithstanding the secular demand curves oil analysts like to point to from countries like China and India. Again, the article above reminds us of the last big surge in demand for onshore drilling rigs:
"The last such boom in orders came in the late 1970s and early 1980s,
when exploration rose after the 1970s oil shocks. In the 1990s, low oil
prices and overflowing oil supplies led oil companies to cut back on
exploration drastically."
I remember that boom and bust cycle vividly from my time on Wall Street and the Middle East. History almost always repeats itself.
But for now, things are moving slowly in the right direction for consumers. And we need to nudge our politicians along, regardless of partisan lines. And not let them hide behind promises of focusing on alternative energy sources.
It's not an either/or proposition. We need to be doing it all, wind, solar, bio-fuels, nuclear, clean coal, and good-old fashioned fossil fuels, wherever we can get our hands on it. And of course do it as safely and ecologically sensitively as possible. But the more expensive alternatives on all these fronts will only pursued by the markets when prices are high.
None of it is going to happen very quickly, regardless of the choices we make, and no, it won't make an immediate dent in oil prices that would make us all happy. But turning this ship around will take a lot of time (pardon the pun). So we need to get on with it, balancing pragmatism and our ideal wishes.
That time is now, with as few political impediments as possible. And hopefully be ahead of the long-term cycle for a change.
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