Do we need to drill for off shore oil?
04-06-2010
The United States uses over 20% of the world’s oil production, but by some estimates have only 3% of the world’s oil reserves. We reached our peak oil production back in 1970. Oil production has declined since that time, yet our consumption has increased. We import most of the oil we consume.
The importation of oil causes us to send over a billion dollars per day overseas to foreign oil producers, many of them countries run by dictatorships, and to countries that are hostile to our national interests. These foreign payments are like a huge tax on our economy, retarding our growth, and reducing our domestic jobs.
Most of our remaining oil reserves are located off shore. BP is the largest producer of oil in the Gulf of Mexico. The BP oil spill was a result of BP drilling into a large reservoir of oil in deep water.
If we were to stop drilling for oil off shore, we would increase our dependence on foreign oil, which would have a very negative effect on economic growth and job growth. Marginal decreases in world oil production may also increase the price we pay for oil, further hurting our economy.
Barack Obama understands this dependence on oil. As he stated in his speech at Carnegie Mellon University yesterday; “Now, I understand that we can’t end our dependence on fossil fuels overnight. That’s why I supported a careful plan of offshore oil production as one part of our overall energy strategy.”
Off shore oil drilling is both expensive and has risks as evidenced by the recent oil spill. The decision to continue drilling is about costs and trade-offs. I have even heard suggestions that oil companies drill two wells for each actual well they drill. One would be a relief well that would be ready in case the actual production well blew out of control. This would be hugely expensive. Each well drilled in deep water can cost $120 million or more per well.
Oil production in the world may be reaching peak production. The depletion of large existing reservoirs can’t be made up from production of new, typically smaller reservoirs. This could cause oil prices to go considerably higher as countries bid against each other for this valuable commodity.
The United States is actually in a good position on energy if we take advantage of our natural resources. We have developed the drilling technology to unlock a hundred year supply of natural gas from oil shale deposits. Drilling in these deposits has some risk of contamination, but no where near the risks as recently demonstrated by deep water off shore drilling.
We have the technology to switch our major consumers of oil; cars, trucks, home heating, to natural gas. If we can switch the these users to natural gas, we will start enjoying the economic benefits of this fairly quickly:
1. Reduce our importation of imported oil.
2. Reduce our trade deficit.
3. Reduced consumption will reduce the price of oil.
4. Natural Gas burns cleaning than oil so we reduce pollution.
5. Natural Gas emits less Carbon Dioxide than oil.
6. Producing domestic Natural Gas will create millions of new jobs.
7. Building new cars and trucks will create new domestic jobs.
If we can substantially reduce our consumption of oil then we will reduce our need to drill for oil off shore. At that point we can shut down dangerous oil production without harming our economy. I don’t believe Barack Obama will shut down off shore oil production because of the negative effect on jobs and the economy. He is going to need to show that he can improve the economy and create jobs if he has any chance of being re-elected. He should stop playing politics and pass the Natural Gas Act as quickly as possible.
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