Macro Monitor

Offshore Drilling Isn't the Answer - Supply and Demand Is

The Old Wizard - Shale is one of the most expensive means of obtaining oil. You're looking at well above $60 per barrel, just for extraction. Huge investment isn't going to happen because companies are too conservative (rightfully so) about the future price of oil. That's the brute reality of the geology and the economics.

Offshore Drilling Isn't the Answer - Supply and Demand Is

First of all, thank you all for your comments -- I enjoyed reading them. Since it would be difficult to reply to each of your individual responses, I’ll attempt to conjure a “one fits all” response.

It seems that most criticism comes from my comment that, ‘opening up the artic wildlife refuge will do little to ameliorate prices.’ My reasoning stems from the fact that there are already 68 million acres currently leased offshore that contain an estimated ~70% of our oil reserves. I am not opposed to deep sea drilling in the least; in fact, the future anticipation of increased oil production can influence prices today. So, from a short-run perspective, the answer is not to open the Artic Wildlife Refuge, but to engage in contracts in the 68 million acres already leased.

From initial conception through project completion, offshore drilling rigs take years before becoming operational. An offshore jackup rig, for example, will take approximately 3-4 years before becoming operational. Construct a semi-rig, and you’re in the ball-park of 5 years. But these numbers only include construction times -- there are many other necessary steps (feasibility studies, environmental regulations, etc) that add significant time to these estimates. More information can be found here: www.eia.doe.gov/oiaf/a.... How will this help reduce demand or increase supply in the short run?

In the end, oil prices will ease when demand subsides. Eventually, as ‘Mathman Prophecy’ posted, people will spur demand destruction. This is best accompanied by maximized oil production, and significant investment in alternative energies. The profit motive will accomplish this.


PS – I strongly disagree that speculation plays a key role in the price of oil. I commented on this here: davews.blogspot.com/20....

PPS – Correction (per Investor612): President Bush, not McCain wants to open the ANWR to drilling.