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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.

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'.

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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.

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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.

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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.

Here's what the head of the EIA said a few months ago:

However, Guy Caruso, who heads the federal Energy Information Administration, said consumers would see little savings at the pump.

"It would be a relatively small effect, because it would take such a long time to bring those supplies on," Caruso said during a briefing at the Center for Strategic and International Studies on the EIA's new long-term international energy forecast. "It doesn't affect prices that much."

Most energy experts say it would take five to 10 years to find oil in the closed areas and bring the crude to market. Caruso said the additional supplies would amount to only a couple of hundred thousand barrels of oil a day.

"It does take a long time to develop these resources, and therefore the price impact is muted by that," he said.

   "For every problem, there is a solution that is simple, neat, and wrong."

    H.L. Mencken

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