Offshore drilling has an ‘insignificant’ effect on oil prices
I am glad that so many in the energy debate have picked up on one of the two messages from my previous post (see “EIA to McCain: Drop offshore [drilling]“).
But in listening to the radio and TV debates, I realize that some people have the impression that U.S. Energy Information Administration said offshore drilling might eventually lower oil prices. It did not. It found that allowing offshore drilling would have no significant effect on prices as far out into the future as the analysis projected.
Why should it lower prices? Offshore drilling is projected by EIA to deliver less extra annual oil production in 2030 than Saudi Arabia announced it would add this year, an announcement that had no significant impact whatsoever on oil prices. (In fact, oil prices actually went up — see yesterday’s AP story, “Oil prices rise despite Saudi vow to pump more.”)
It is worth nothing that the EIA report Impacts of Increased Access to Oil and Natural Gas Resources in the Lower 48 Federal Outer Continental Shelf is quite analytically substantive and made relatively optimistic assumptions:
Assumptions about exploration, development, and production of economical fields (drilling schedules, costs, platform selection, reserves-to-production ratios, etc.) in the OCS access case are based on data for fields in the western Gulf of Mexico that are of similar water depth and size. Exploration and development on the OCS in the Pacific, the Atlantic, and the eastern Gulf are assumed to proceed at rates similar to those seen in the early development of the Gulf region. In addition, it is assumed that local infrastructure issues and other potential non-Federal impediments will be resolved after Federal access restrictions have been lifted.
And still, the study’s bottom line is
… annual crude oil production in 2030 is projected to be 7 percent higher — 2.4 million barrels per day in the OCS access case compared with 2.2 million barrels per day in the reference case. Because oil prices are determined on the international market, however, any impact on average wellhead prices is expected to be insignificant.
Sorry drilling advocates, but 200,000 barrels of oil a day extra in a global market two decades from now is just a drop in the bucket. Heck, Saudi Arabia announcing last week it would add 200,000 barrels of oil a day (on top of the 300,000 barrels a day they had recently said they would add) didn’t even change prices, so what with the same amount do 20 years from now?