<![CDATA[Grist - Comment Feed for Drilling more in the U.S. won’t avert any environmental damage from drilling overseas]]> Grist Comment Feed en Comment #1 by sunflower http://www.grist.org/article/when-all-you-have-is-a-krauthammer-everything-looks-like-a-nail/ Thu, 07 Aug 2008 02:59:08 -0700 http://www.grist.org/article/when-all-you-have-is-a-krauthammer-everything-looks-like-a-nail/1 What's in it for US?

Its just nuts.  The bigger the issue the less we think about it.  It seems only personal values matter -- What's in it for me?

Oil is dirt cheap.  Water costs more than oil in Saudi Arabia.  Super tankers return to Arabia filled with seawater for ballast, the source of tar balls on beaches.  We could fill huge polymer bags of delicious fresh water in those tankers and trade water for oil.

Our offshore oil will be much more valuable in the future than it is today.  Our best investment today is leave US oil in the ground for future value and get smart with commodities trade and oil efficiency.  

US carpooling alone could save more oil than that exported by Saudi Arabia to the entire world.  Oh wait, that would cause instant demand destruction, an oil price collapse, not good for Texas.

What's in it for US?  Job security.

]]> What's in it for US?

Its just nuts.  The bigger the issue the less we think about it.  It seems only personal values matter -- What's in it for me?

Oil is dirt cheap.  Water costs more than oil in Saudi Arabia.  Super tankers return to Arabia filled with seawater for ballast, the source of tar balls on beaches.  We could fill huge polymer bags of delicious fresh water in those tankers and trade water for oil.

Our offshore oil will be much more valuable in the future than it is today.  Our best investment today is leave US oil in the ground for future value and get smart with commodities trade and oil efficiency.  

US carpooling alone could save more oil than that exported by Saudi Arabia to the entire world.  Oh wait, that would cause instant demand destruction, an oil price collapse, not good for Texas.

What's in it for US?  Job security.

]]> Comment #2 by Sean Casten http://www.grist.org/article/when-all-you-have-is-a-krauthammer-everything-looks-like-a-nail/ Thu, 07 Aug 2008 05:42:09 -0700 http://www.grist.org/article/when-all-you-have-is-a-krauthammer-everything-looks-like-a-nail/2 Oil economics

Keep production costs in mind as well.  The reason oil companies are making so much money right now isn't because gasoline demand is high (although it certainly helps), nor because supply is tight (although that helps too).  It's because the price of a barrel of crude is so high.  Yes, this is caused in part by supply & demand considerations, but the real way an oil major makes money is by having access to cheap-to-produce crude oil.  The rest of the industry - refining, shipping, retailing - is a low margin, crummy business.  But exploration and production is where it's at... so long as you are fortunate enough to own the production rights in a low-cost field.  (This is a big part of why BP isn't Beyond Petroleum anymore.  When oil was only trading for $20/bbl, expansion into other downstream activities was a growth initiative.  But when oil is trading at $120/bbl, there is nothing that BP can do with it's capital that is even remotely as profitable as pulling more oil out of fields with a $19/bbl production cost.)

This explains why 10 years ago, when oil was touching $9/bbl, North Sea oil rigs were starting to curtail production.  It also explains why today we're going like gangbusters in Albertan tar sands that have a $40 - 50/bbl cost of production.  Drop the price of oil back to $40 and you will immediately shut down the Albertan economy.

None of this is to suggest that peak oil, demand, etc. aren't factors - but rather that if we let people produce off-shore oil, they will run those rigs only so long as the market price (which, as you note, has almost nothing to do with their production activities) is higher than their production cost.  So if the price is high enough, it will all get sold on international markets and have no impact on domestic gasoline prices.  If the price is low enough, it won't operate and will have no impact on domestic gasoline prices.  So the only way it doesn't amount to more than the proverbial fart in a whirlwind is if the fields we are opening up for production are (a) really cheap to produce from and (b) of a significant size relative to global demand.  

I've not heard anyone suggest that either of those are the case (e.g., they are not going to convert us into the Saudi swing producer).  Which means that we are not going to be $700 billion richer if we drilled off Florida, nor will suddenly have no dependency on the middle east.  Might we move slightly in those directions?  Yeah, I guess so - but only to a trivial degree.  

Which raises a fun, and timely question.  What has the more trivial impact on US oil price, environmental destruction of Nigeria and US balance of payments: opening up offshore drilling or keeping our tires inflated?  I don't know the answer, but I'd sure love to see someone honest run the math!

]]> Oil economics

Keep production costs in mind as well.  The reason oil companies are making so much money right now isn't because gasoline demand is high (although it certainly helps), nor because supply is tight (although that helps too).  It's because the price of a barrel of crude is so high.  Yes, this is caused in part by supply & demand considerations, but the real way an oil major makes money is by having access to cheap-to-produce crude oil.  The rest of the industry - refining, shipping, retailing - is a low margin, crummy business.  But exploration and production is where it's at... so long as you are fortunate enough to own the production rights in a low-cost field.  (This is a big part of why BP isn't Beyond Petroleum anymore.  When oil was only trading for $20/bbl, expansion into other downstream activities was a growth initiative.  But when oil is trading at $120/bbl, there is nothing that BP can do with it's capital that is even remotely as profitable as pulling more oil out of fields with a $19/bbl production cost.)

This explains why 10 years ago, when oil was touching $9/bbl, North Sea oil rigs were starting to curtail production.  It also explains why today we're going like gangbusters in Albertan tar sands that have a $40 - 50/bbl cost of production.  Drop the price of oil back to $40 and you will immediately shut down the Albertan economy.

None of this is to suggest that peak oil, demand, etc. aren't factors - but rather that if we let people produce off-shore oil, they will run those rigs only so long as the market price (which, as you note, has almost nothing to do with their production activities) is higher than their production cost.  So if the price is high enough, it will all get sold on international markets and have no impact on domestic gasoline prices.  If the price is low enough, it won't operate and will have no impact on domestic gasoline prices.  So the only way it doesn't amount to more than the proverbial fart in a whirlwind is if the fields we are opening up for production are (a) really cheap to produce from and (b) of a significant size relative to global demand.  

I've not heard anyone suggest that either of those are the case (e.g., they are not going to convert us into the Saudi swing producer).  Which means that we are not going to be $700 billion richer if we drilled off Florida, nor will suddenly have no dependency on the middle east.  Might we move slightly in those directions?  Yeah, I guess so - but only to a trivial degree.  

Which raises a fun, and timely question.  What has the more trivial impact on US oil price, environmental destruction of Nigeria and US balance of payments: opening up offshore drilling or keeping our tires inflated?  I don't know the answer, but I'd sure love to see someone honest run the math!

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