Petroleum Resources and the Outer Continental Shelf (OCS)
This blog has moved to Wired Science (as of Sept 14, 2010)
UPDATE (3/31/2010): You may have found yourself here today because of the announcement from the Obama administration to open up drilling along parts of the Atlantic coast. The post below is nearly two years old now, but the MMS (Minerals Management Service) 2006 assessment is still the most recent assessment of recoverable resources that I know of. Please point me to a more recent one if you know of one. This announcement will undoubtedly create a lot of discussion so it’s good to be aware of how much resources is estimated to be in these locations.
UPDATE (7/31/2008): I wrote this post over a month ago and it is still getting a lot of traffic. If you’d like some more recent information please check out this article from the Energy Information Administration. They estimate even less oil than the 2006 MMS report I discuss below. Furthermore, the article estimates the impact on production rates if the OCS resources became available, which is really the crux of the issue — total domestic production of crude oil from 2012 to 2030 is projected to be 1.6% higher in this case. There’s a decimal point in there … that’s less than a 2% increase in production.
As you most certainly are aware, there was a lot of news reports and jibber-jabber this week in the United States about lifting the ban on offshore drilling for oil and gas. A real discussion about this has been going on for years, but this latest flurry to make the news cycle stems from statements by Bush and McCain (along with other Republican lawmakers) that lifting the ban on offshore drilling in national waters would be beneficial for a slumping economy. Essentially, their argument is that gasoline prices will go down if we lift the drilling ban. Another version of the argument is that gasoline prices would not be as high as they are now if we had lifted the ban at some point in the past.
I’ll get to what I think about these arguments later in the post … but first I want to lay out some facts and figures. Knowledge is indeed power and these are great stats to have at your fingertips.
What is the OCS?
Much of discussion is about the moratorium on drilling for petroleum resources in The Outer Continental Shelf, or the OCS, areas of the United States, which consists of:
…the submerged lands, subsoil, and seabed, lying between the seaward extent of the States’ jurisdiction and the seaward extent of Federal jurisdiction.
The above definition is directly from the Minerals Management Service (MMS) website. The MMS is the primary federal agency responsible for managing the OCS.
Since this is a geology blog, I can’t help but comment … you’ll notice in the map below that, although the OCS name has the term “continental shelf” in it, these regions do not correspond to the actual physiographic/geologic continental shelves (in terms of water depth and type of crust). The OCS boundaries for the rifted Atlantic margin might be close, but the Pacific margin, being all subducty and transformy, generally has very narrow (10s of km) continental shelves. But I digress.
The map above is from a 2006 report by the MMS titled “Assessment of Undiscovered Technically Recoverable Oil and Gas Resources of the Nation’s Outer Continental Shelf”, which you can get here. Another area that gets a lot of press in this debate is the Arctic National Wildlife Refuge (ANWR). I’m going to have to tackle that another time … for this post, I will focus on the OCS. Note: Chris over at goodSchist.com has a nice post about ANWR.
The Ban on Drilling for Oil & Gas in the OCS
When I started researching this post, I realized I didn’t really know the history of the drilling moratorium. Most other developed countries have decided to drill and produce the petroleum resources in their offshore regions, which has led to significant revenue for some (e.g., Norway is one of the richest and most prosperous countries in Europe for a reason).
The United States Congress established a moratorium for drilling the offshore regions (with the exception of parts of the Gulf of Mexico, parts of Alaska’s North Slope, and parts of southern California) in 1981. Although this is referred to all over the place, I could not find the original congressional documents (if you can, please link to in comments below). I also could not find any vintage news reports about what exactly prompted this and why in 1981. Please educate me if you remember (I was playing with Star Wars action figures at the time and not really paying much attention to the Congressional activities).
UPDATE: A fellow blogger kindly looked up some references about the history of the OCS drilling moratorium. Check out these links over at Looking for Detachment.
How Much Oil Does the OCS Have?
Before talking about whether or not increased oil supply from the OCS and its impact on prices, it’s good to get a handle on just how much oil we can expect to find and produce. Below is Table 1 from the 2006 MMS resource assessment for undiscovered technically recoverable* oil and gas resources in the OCS regions. Reviewing the methods of calculation and determination of resources is way beyond the scope of this post. For the sake of discussion, let’s assume their numbers are correct.
The numbers are divided into oil (in billions of barrels) and natural gas (in trillions of cubic feet). For now, let’s focus on oil – I’ve circled in red the total of all four regions, which comes to 86 billion barrels of oil.
Dang … that is a lot of oil!!
Or, is it? Here’s an ultra-simplified back-of-the-envelope calculation:
> Amount of oil that could be produced from offshore U.S. = 86 billion barrels
> Amount of oil consumed per day in U.S.^ = 20.7 million barrels
> How long it would take that oil to be consumed = 11 years
If you incorporate the low and high estimates, then it would be 9 and 15 years, respectively. For the sake of argument, let’s go ahead and use the “optimistic” estimate that the OCS would give us 15 years worth of oil.
Just think of this as a different unit for oil … the volume unit is put into the context of time. Kind of like putting distance into time with the light-year unit. This doesn’t mean it will actually take 15 years to use it, it’s simply another way to visualize the amount. (Of course, unlike the speed of light, the consumption rate could certainly change, which would affect that calculation.) UPDATE3: Multiple readers/commenters have brought up the point that this ‘oil-years’ unit is misleading … I agree. I certainly don’t want anyone to cite Clastic Detritus as saying X billion barrels would last X years. It’s simply another way to visualize it. One would want to compare other resource assessments like this within that same ‘unit’.
How Long Until We Can Get That Oil?
Let’s assume the offshore drilling ban was lifted later today … just like that. Would the oil start flowing tomorrow? Of course not.
Firstly, there is currently a five-year backlog for offshore drilling rigs/ships. As other nations such as China and India start developing their offshore resources, the demand for drilling equipment as skyrocketed. Ship builders are answering the call by building more equipment but, as you might guess, building a vessel that can drill in 3,000 m of water and 8,000 m into the subsurface can’t be done on a weekend.
Secondly, drilling an exploration well is but one step in a long process of getting the resource to market. Depending on the depths and other geologic factors, just drilling a hole to test the hypothesis of the presence of oil could take several months. Then, the company, country, or joint-venture needs to decide whether or not to proceed with the project … sometimes they do, sometimes they don’t. If they do decide there’s enough oil to make the project economic then a development plan needs to be hammered out … those other wells need to be drilled. That’s just the drilling … we haven’t even gotten to the actual production facilities yet! You get the picture. Depending on water depths, distance from pipelines, and so on and so forth, getting an oil field online from time of discovery can take anywhere from a few years to more than a decade.
Thirdly, only a handful of fields would come online in, let’s be optimistic, a decade from now (2018). It’s not like those 86 billion barrels are all going to magically be delivered to the refineries all at once. It would take many decades to deliver that resource.
Commodity Trading and the Price of Oil
Another part of this discussion is the fact that oil is a commodity like any other and is traded on an open market. Fluctuations in price are driven by the interactions of the traders themselves. I would be way out of my bounds if I went any further down this path trying to explain the dynamics of commodities trading. I don’t have a deep understanding of how that all works.
Some argue that lifting the ban will “send a message” to the rest of the world that we are serious about increasing our own domestic supply, which will influence the commodities traders and thus the price. My intuition (for what it’s worth) is that it might drive the price down for a short time. Daily/weekly fluctuations in the price of oil do seem to be influenced by global events, economic announcements, and so on. But, over the long term (months to years), the price seems to be driven by basics of supply and demand.
Opportunism for Pro-Drilling Advocates
Finally … the op-ed part of the post!
It should be obvious to most, that the politicians who favor offshore petroleum resource development are citing the current high-gasoline-price situation as the main reason for why the drilling ban needs to be lifted. The argument is simple: lift the drilling ban > oil exporation/production occurs > oil supplies increase > gasoline prices go down.
There are several layers of complexity in this issue, but the two aspects that I’ve discussed in this post, the estimated amount of undiscovered oil and the time it would take to get it to market, are not mentioned by these politicians. Reporters, other bloggers, and, even more telling, those that actually work in this industry, have mentioned this:
As politicians debate whether to open federal offshore waters to oil and natural-gas drilling, there is agreement on at least one point: It isn’t a short-term fix.
If the bans were lifted tomorrow, it would be at least seven years — and likely as long as a decade — before the first oil began to flow off the coasts of Florida, California and the eastern seaboard.
“Is it going to happen overnight? No,” said Dan Naatz, vice president of the Independent Petroleum Association of America. “Is it going to solve all of our nation’s energy problems? No.”
That’s a report from The Wall Street Journal quoting the vice president of the Independent Petroleum Association of America (bold emphasis mine). These people actually work in the industry … they know what’s up.
McCain should know better, he should know the realities of the oil and gas industry … instead he’s pandering:
…[McCain] said his proposal would “be very helpful in the short term resolving our energy crisis.”
He’s specifically saying the “short term”. He’s not talking philosophically about energy independence in the 21st century or anything like that. He’s talking about right now. UPDATE: McCain has back-flopped, or flip-tracked, or something … he’s now saying that the short-term benefits of opening up drilling will be “psychological”. Okay, so no immediate economic benefits after all … darn. UPDATE2: U.S. government’s top energy forecaster says allowing drilling “would be a relatively small effect” on prices.
All of the sudden, lifting the ban on offshore drilling is the most important issue of the day for some conservatives (e.g., here). Now, let’s be clear … I’m not saying that allowing development and production of these resources wouldn’t impact our dependence on foreign oil in the long term. It most certainly would. My point is that implying that lifting the ban would somehow magically result in an immediate return to cheap (and sustained) gasoline prices is disingenuous. Moreover, if you do peruse the pro-drilling websites, you probably won’t find much quantification of undiscovered resources … just phrases like “vast amounts” and “a lot”. If long-term prices are indeed driven by supply-demand, to what degree will 15 oil-years affect global supply-demand dynamics?
The debate over whether or not to lift the ban should continue. It is an important debate because it will keep the overarching problem of energy in the forefront. When the drilling moratorium was enacted I presume it was primarily to protect areas from direct impacts of drilling and production – it was local to regional. Now, superimposed on the direct impacts, is the global problem of eventually burning those hydrocarbons for energy and its subsequent impact on the atmosphere.
My wild speculation prediction is that we will end up opening some areas to drilling over time. It certainly won’t be all at once … it will take decades and be done in a piecemeal fashion. And it’ll probably end up being way offshore to minimize coastal impacts (and the nimby effect). Why do I think this? Two words: dependence and demand. I recommend watching the 2006 documentary film A Crude Awakening. It is mostly about supply issues (i.e., peak oil), which is a topic for another day, but they also effectively communicate our dependence on oil. As we transform the way we power our world and our attitudes towards consumption (which I’m confident we will … because we have to), oil will still be a part of the mix … not the majority even, but a part.
Finally, underlying all of the facts, figures, and opinions expressed above is the big-picture geopolitical aspects of resource nationalism. Most of the rest of the world’s nations have a state-owned oil company. When citizens of those countries say “our oil” it is an accurate statement. Even though the United States does not have a national oil company, I’m starting to hear people use the phrase “our oil” when discussing resources that happen to be within our borders. Is it not a free market? Can’t any other company, including other nation’s state-owned companies, come in and develop it if they win the bid in the lease sale? If so, can’t they then transport the resource away from the U.S. if they really wanted to? Why does lifting the ban on offshore drilling in the United States equate to more of “our oil”? Would Americans favor nationalization of oil resources if that meant lower prices?
Anyway … I only bring up this last point to stimulate some discussion. I haven’t studied the intricacies of this topic or what the potential ramifications would be in any detail. I just thought it was interesting to see the “our resources” meme spread throughout the commentary this week.
* “undiscovered technically recoverable resources”, or UTRR, refers to the amount of oil we can extract with current (or very near-future and foreseeable) technologies without taking economic feasibility into account