RWB

Will Drilling Offshore Affect World Oil Prices?

"Effect" can also be a transitive verb, meaning "to cause something to come into being" as in "to effect a change," but that was clearly no the meaing that Mr. Chinn had in mind. He used "affect" in its common verb meaning, which is roughly "to influence something."

This makes Brian Pursley's little burst of outrage even more inexplicable. Menzie Chinn's essay strikes me as reasonable and hedged, and quite willing to acknowledge that there are unknown factors. His engagement with Anon was polite and reasonable. Excellent post.

(For the record, I think we should open the OCS for geo-political reasons and to help our trade imbalance, and in recognition that fossil fuels will continue to be important for decades, even if new technologies being developed now bear fruit. However, there is little that convinces me that production from the OCS will have a significant impact on the price of energy. Still, better to spend that energy dollar here than there, right?)

Is There a Future for NG Powered Vehicles?

You mention gas being cheaper in Texas and Louisiana due to the supply originating from those areas. But this will be less and less true as the enormous Marcellus Shale is developed--it covers much of Pennsylvania and bits of other states, including New York.

Also, the infrastructure of public CNG filling stations might be less of a hurdle than you think, as it is possible that appliances sold for home use could allow for home fueling from the natural gas line that already comes to your house (for many Americans).

However, let's also consider this. Right now, we produce about as much natural gas as we consume. We import some. But if a significant portion of our automotive fleet were converted to CNG, our consumption of natural gas would explode. Pickens plan deals with this by taking all those natural gas power plants off-line and replacing them with wind farms. We'd have to do something drastic like that to prevent the cost of natuiral gas from sky-rocketing (more than it already has, that is). Full disclosure--I work for a natural gas E&P company, so skyrocketing natural gas prices would be pretty super for me personally. But for the country, not so super. I bring it up because any large-scale change as advocated here and by Pickens is likely to have some big unintended economic consequences, some good and some bad.

On Oil and Its Manipulation

Noudamon wrote: "All broken down, America receives just 12% of its daily import from the Middle East! To support the notion that unreast in that region is the logic behind our spiraling fuel costs is truly the crime of the millenium. "

America's consumption of oil is not what sets its price. It is a global commodity, and global consumption sets the price. It doesn't matter if we don't get much of our oil from the Middle East--trouble in the Middle East is likely to push futures prices higher worldwide. (And it should be noted that Africa has its own problems with oil that pushes both spot and futures up).

Peter Sterling wrote: "Its idiotic to try and legislate the oil price down. Stop buying oil from overseas first. Develop our own reserves."

Producers will always produce the cheapest oil first. Then they'll produce more expensive oil as long as they can make a profit at the current world price. Right now, there is almost no oil that is basically too expensive to get. But considering the time and capital expenses of developing new fields, and the historical volatility of oil prices, oil producers may be reluctant to dive headlong into more expensive forms of oil (oil sands, oil shales, etc.). So it's not a simple case of "develop our own reserves" solving all our problems. Even if we were to become a net exporter of oil, the oil we consume ourselves would still be priced by the world market.

We Should Pay More Attention to Nigeria's War

I worked for a seismic company in Nigeria back in the late 80s in the "transition zone" (between land and deep water) off the coast in the Niger River delta. This was before the current political uprising began. I was shocked at the amount of wealth that flowed from that area (the sea was absolutely full of production and drilling platforms), and the poverty of the residents. They lived in unelectrified huts and, unless they were fortunate to be hired as oil filed workers, worked primarily as fishermen in those deeply polluted waters. What really blew my mind were the gas flare-offs. Often oil wells produce gas in addition to oil, and if there is no easy way to market the gas, they might just burn the gas off. That's what they did here. HUGE gas flares, generating so much water vaper that clouds formed thousands of feet above them even on cloudless days.

I recall thinking--there are thousands of people onshore living without electricity--no lights, no refrigeration (which also means less safe food and fewer medicines), etc. How much would it cost to build a gas-fired power plant that burned some of this gas flare-off? I understood that some wells in the world were so remote that trying to use the gas was more expensive than just flaring it off. But this was clearly not the case here--these wells were within sight of shore, where people lived in their unelectrified huts.

No wonder they eventually got angry.

Even Democrats Should Support Offshore Drilling

I wish people actually knew what the word Marxist means. You know--putting the proletariat in control of the means of production and all that? Because there is no U.S. politician (who actually has hope of getting elected to any position more powerful than the Madison city council) who is a Marxist. Sheesh. You just look like an idiot when you throw absurd scare words like that around.

Bush's New Drilling Proposal: Fixing a Hole

Mmarrkk: Contract renegotiation doesn't happen? Hell, if we were to open ANWR and the continental shelves to E&P (and I think we should) I, if I were negotiating the leases on behalf of the government, would make renegotiating old leases a pre-condition to bidding on new leases. I guess what I'm saying is that the government should be tough in lease negotiations--just like a private landowner should. Especially now.

I think I was clear that I understand (from direct personal experience) why and E&P company doesn't drill on a lease right away. In fact, there are more reasons than those you state, including inability to marshal enough resources right now (due to capital costs and labor availability) and desire to "tie up" a lease to prevent a competitor from getting it.

Bush's New Drilling Proposal: Fixing a Hole

Mixter--as one who works in E&P, you are right that just because you own a lease doesn't mean you have the capacity to drill right away. It's as true of leases of private land as with government leases.

But since this is true, I don't see any problem with the government getting the best deal possible, and charging for undrilled leases, as opposed to letting E&P companies just park on them for (potentially) the entire lease period. This is not a deal that could have been struck in, say, 1997, when oil was cheap. But now that it's expensive, lease-holders--includi... the U.S. government--have a leverage to negotiate (or re-negotiate) a "put-up-or-shut-up" lease. Certainly I'd do that if I were a private landowner negotiating a lease.

Speculators Continue to Drive Oil Higher at Risk of Global Recession

Good grief. Do you guys get your blog-comment ideas straight from the RNC? According to the EIA, ANWR has about 11 billion bbl of oil. According BP, in 2007, the U.S. consumed about 20.6 million bbls per day. So ANWR has 531 days worth of oil. Let's say this number is tripled if we add in offshore drilling on the East and West Coast. That's four years worth of oil (assuming we could pull it out of the ground that quickly). And keep in mind that oil is a in international commodity, so any oil we produce and consume here will be priced at the same price as oil from anywhere else (minus differences in price for the quality of the oil--sulfur content, etc.--and transportation costs). We consume about 29% of the world's oil, so adding this much oil into the world supply would drop the price--a little bit. But considering that our share of the world's oil consumption is dropping due to the growth of other economies, that savings is likely to be pretty negligible.

I say this as someone who works in the E&P business and would like to see ANWR and the continental shelf open to more E&P. But I think people need to get some perspective on just how little a difference ANWR would make. Maybe ANWR combined with bringing back the 55 mph speed limit combined with much stricter CAFE standards would make a significant difference. But we can't control how much oil is consumed by other countries, so I doubt if there is anything the U.S. alone can do to significantly change the price of oil.

The Great Oil Deception: Part Two

As someone who works in the E&P business, I can tell you that while scarcity of exploration resources (and thus pricing power on the part of the Halliburtons and Schlumbergers of the world) is part of the increase in cost, and inflation, it is simply a fact that easy-to-find-and-produ... oil has been found and produced. We come up with extremely clever (but very expensive) new technologies to make the harder to find and recover oil accessible. But even factoring out inflation and oil tools pricing power, it costs more. Look, it's easy to understand. A vertical well that required no stimulation and was not very deep was cheaper to drill than the kind of super-deep, directional, fractured wells of today. Period.

BP CEO: Three Oil Myths

Resource nationalism makes good sense if you are lucky enough to live in a country that produces more oil than it consumes--especially a country that doesn't have much else going for it, like Saudi Arabia. Leaving oil in the ground provides income for future generations. The fact that it hurts the world economy right now is, frankly, someone else's problem. The fact that it encourages a modicum of research and investment in alternative energies in consuming nations is not a worry, because no matter what, you know that civilization is going to need oil for decades to come. If I were running Kuwait or Saudi Arabia, I'd slowstep drilling and new production too.

Nationalizing Oil: Well-Intentioned, But Wrong

I love the "extreme binary choice" form of argument--either we have a libertarian system, or we're basically Cuba. So helpful in framing the issues! Thanks!

If Maxine Waters scares you, you are a dolt. She represents the fringe point of view of the Democratic party, and holds little power to push her views onto the country. She does provide handy scary sound-bites for Republicans to exploit, though! At least she's good for something!

Is Oil a Bubble? Part 3

CLH wrote: "Kahn---Very good analysis. Almost the entire problem is caused by the democrats."

As someone who supports E&P in Anwar and other currently off-limits areas, I find this kind of talk disengenuous. It skips over the fact that Republicans controlled both houses of Congress and the executive branch for six years--if they had really really cared about ANWAR drilling, they could have forced it through. Especially after 9-11.

For whatever reason, it has not been a high priority for Republicans until now--when it can conveniently be used as a talking point to blame Democrats for high gasoline prices. I don't want to turn this into a political debate, but it seems that if you are looking for people to blame for keeping ANWAR undrilled, you have to look at both parties, not just the Democrats.