The Oil Drum: Australia/New Zealand

I have given a lot of thought to the issue of opening up new areas for drilling in the Outer Continental Shelf (OCS) and in the Arctic National Wildlife Refuge (ANWR). My position has always been to leave that oil in place for a very rainy day. I wanted to see major conservation efforts in place before we considered tapping that oil. Opening those areas when oil was $20 a barrel would have meant that much of it would have been used frivolously.

Now that oil is over $100 - and in my opinion will be much higher in 5 or 10 years (T. Boone Pickens predicts $300/bbl in 10 years) - we will have tightened our belts a good deal by the time any of this oil could actually reach the market. Therefore, I think now is the time for Congressional hearings on opening up these areas. Let's have an open debate on the issue. However, if these areas are opened for drilling, I have a compromise that should be very attractive to those in opposition.

This is a continuation of the booklet discussed previously. A PDF of this chapter is included at the end of this story, if you would like to share it with others.

Chapter 2: Is This a False Alarm?

As we look at the answers to these questions, we will see that the production decline discussed in Chapter 1: What Is Peak Oil? appears to be nearly immediate. Available methods for offsetting this decline appear to be too little, too late. This time the alarm is real.

1. It seems like people thought we were running out of oil in the 1970s, and then all of our problems went away. Why is the situation different now?

On June 29th, the House of Representatives passed the Deep Ocean Energy Resources (DOER) act. This bill may be taken up by the Senate soon. The legislation is now in the news and the mudslinging has begun. Conservative organizations and media like the Washington Times are pushing the main agenda, which is to open up areas of the US Outer Continental Shelf (OCS) to oil & natural gas E&P (exploration and production).

Over the latest four quarters for which financial data are available, ExxonMobil has spent a greater proportion of its record profits ($36.7 billion) and cash flow repurchasing its common stock ($20.5 billion) than investing capital in oil and gas exploration ($19.1 billion). If Congress is disturbed by this juxtaposition, it ought to do something about it. In fact, Congress has the power to establish an investment climate in which ExxonMobil would be far more likely to use a much larger share of its cash flow drilling for oil and gas than spending the money boosting its stock price...

The potentially liberated OCS area, where federal rules have banned drilling, is believed to contain 19 billion barrels of oil and 86 trillion cubic feet of natural gas. Given that current U.S. proved reserves total 22 billion barrels of oil and about 190 trillion cubic feet of natural gas, the OCS oil and gas reserves unleashed by the House last month represent a huge step in the right direction. With the support of 40 Democrats, the Deep Ocean Energy Resources (DOER) Act passed the House by a 232-187 vote....

Under DOER, drilling would still be banned for the first 50 miles off the coast. However, with the approval of a state's governor and legislature, a state could repeal that ban by petitioning the federal Department of Interior to authorize drilling within that 50-mile limit. Unless a state petitioned Interior to maintain the moratorium beyond 50 miles, DOER would permit drilling in waters 50 to 100 miles offshore. To induce states to permit expanded drilling, DOER offers them a larger share of the royalties. In a concession to Florida, DOER bans drilling within 100 miles of the state's west coast....

Here, we'll take a realistic view of what's going on and investigate the question of whether opening up the OCS to drilling will save us.