The Green Lantern

What’s the Deal With Offshore Drilling?

Will it do any good at all?

Franklin Wellhead platform

John McCain is talking a lot about opening up new areas to offshore drilling, and now Barack Obama appears willing to consider the idea, too. A government report supposedly found that drilling won’t lower gas prices, but I’ve also heard that the report was flawed. What’s the deal with offshore drilling?

Three months is a long time during a presidential campaign. Back in early June, neither candidate supported any additional offshore drilling. Now, the Outer Continental Shelf has become Topic A in the presidential race.

To understand what drilling on the OCS might yield, start with the report you heard about, a 2007 study by the federal agency assigned to compile statistics about the nation’s oil usage, the Energy Information Administration. That report appears to deflate most of the arguments for drilling in the areas currently under a federal moratorium—mostly off the coasts of California and Florida. Doing so would increase oil production only by 200,000 barrels of oil a day, or just about 1 percent of the country’s daily consumption. Furthermore, that level of production won’t kick in until 2017 and will never have any impact on oil prices.

In response, drilling advocates have pointed out a number of potential flaws with the EIA estimate. The report assumes that oil companies can’t even start exploring the out-of-bounds territory for four years; if Congress did, indeed, remove its existing moratorium and states like California and Florida went along, the timeline might be pushed up earlier. In addition, the EIA based its projections on how much oil it would be profitable to drill for when prices were closer to $50 a barrel. Now that crude goes for about $115, energy companies would have the incentive to extract more of that offshore oil.

These criticisms are valid. But from the perspective of lowering gas prices, they don’t really matter. Even the most optimistic estimates about offshore drilling—the exact ones pushed by its strongest proponents—promise no relief at the pump now and only a small impact later.

Start with the timeline: The EIA assumes that the current moratorium will remain in place until 2012, when the off-limits areas would finally be open for leasing. Then it would take another five years for the oil companies to find the best drilling sites and start up their commercial wells. We’re likely to have that five-year gap before real production begins no matter when the moratorium ends—particularly since there is a major shortage in the number of rigs available for drilling. In other words, we could all agree on the merits of offshore drilling tomorrow and it probably wouldn’t increase the supply of oil until 2013 at the earliest.

Now, let’s imagine that higher oil prices make it profitable to drill more intensively offshore. These graphs (PDF) suggest that very high prices would effectively double the amount of “economically recoverable” oil offshore, as compared with what would be recoverable at $50 a barrel. That would give us 400,000 barrels a day. The most optimistic case for offshore drilling, from an oil industry group (PDF), predicts an eventual output of 1 million barrels a day.

Even that high estimate probably won’t have much of an effect on gas prices. Oil is traded on a global market, and adding 1 million barrels per day would increase global production by slightly more than 1 percent. A standard model of oil markets suggests the 1 percent change would reduce gas prices by about 3 percent over the long term—assuming that OPEC or other oil producers don’t cut their own supply in order to maximize profits. (For similar reasons, the EIA predicts (PDF) opening up the Arctic National Wildlife Refuge would lower oil prices by about $1.44 a barrel in the best-case scenario.)

What about the environmental impact? One major concern is aesthetic—voters (and the tourism industry in states like Florida) just don’t want oil rigs sullying their coastline. Offshore oil production also produces its share of greenhouse gas emissions and air pollution and poses a hazard to seabirds. And while large spills may be rare, platforms do release “produced formation water” and drilling mud, among other materials, that might be toxic to marine life. (And no, the Lantern is not convinced that this is all OK because the platforms attract their own fish.) Still, producing oil is a dirty business regardless of where it happens, and it’s worth noting that more oil spills into the water from transporting the stuff than drilling it.

The bigger danger from the push for drilling—or more exactly, the arguments used on its behalf—may be how it affects our own behavior. If we pretend that offshore drilling is a fail-safe means of lowering oil prices (or even a likely means), we may hold on to rosy and unreasonable expectations for future gas prices. (In this respect, the Lantern thinks Obama has been more honest than McCain.) That will in turn change the calculations we make when it comes to long-term decisions like whether to shell out extra cash for a more fuel-efficient car or a home with access to mass transit. As long as we’re counting on gas prices to go down, those green lifestyle choices won’t seem as attractive. We may well be surprised once again that we’re paying so much at the pump, without having done anything about it.

Is there an environmental quandary that’s been keeping you up at night? Send it to, and check this space every Tuesday.