Yellowdogtexan
06-23-2008, 05:57 PM
This is amusing http://www.huffingtonpost.com/2008/06/23/impossible-finding-expert_n_108692.htmlBut is there one credible economist or energy analyst who actually believes that offshore drilling could have a short-term impact on the market dynamics?
The Huffington Post took on the task of finding an expert who thought that Americans would, within the next decade, receive relief at the pump from McCain's plan. Querying the entire scope of the ideological spectrum -- and putting aside the debate over whether or not offshore drilling was sensible policy -- the consensus seemed to be that if the presumptive GOP nominee was persuading voters that he could help decrease their gas bill, he was either living in a political fantasy or being disingenuous.
We started out with the conservative crowd, the one seemingly most predisposed to the idea of drilling.
"There is no question it would take quiet a bit of time for this to come to the market," said Max Schultz, an energy analyst for the Manhattan Institute. "But it was the same argument that was used any time over the past ten years, that it would take too much time for this stuff to have an affect... Having a couple million extra barrels on the world market would eventually help ease those markets."
Other expressed similar, qualified skepticism about the short-term benefits of McCain's plan.
"Would starting to drill now do anything for consumers in the near future?" asked Ken Green, an energy analyst with the American Enterprise Institute. "The answer to this one, again in my opinion, is probably not, since it'll take so long for new oil or gas to come to market. There is some small chance it would have immediate benefits if the current price of oil is fueled by spectators convinced that supply will continue to remain stagnant in the face of growth. They could take a commitment to drill as evidence that supply constraints will loosen, resulting in lower prices (or slower increases), making oil futures a weaker investment that would trade for less."
Added Jerry Taylor, a fellow at the Cato Institute, "I think it would have an effect, just not a major effect. The odds are you couldn't get any significant amounts of crude from coastal areas within the next decade. Offshore rigs, if you want to go get one, tough luck. They are all leased out. Even if the infrastructure is there, it would be hard, but the infrastructure isn't there... But markets react to future developments and even if the crude is not flowing, the project itself could have an impact on markets."
But the assertion that offshore drilling could have an impact on oil prices by placating oil speculators is itself a contested proposition. And some analysts insist that it is wishful thinking that the market would suddenly perk up because of the prospect of more supply.
"There are a number of problems with that argument," said Rob Shapiro, formerly undersecretary of commerce under President Clinton, and co-founder and chairman of Sonecon, LLC. "First of all I don't think anyone thinks that within the time period of futures trading, that there would be enough additional supply to effect global future prices. Second of all, the market will look at this not only in terms of, 'there is more supply,' but also, 'there is more supply at substantial greater costs to recover than current supply, and with substantial new liabilities' -- the communities that are going to sue them when they destroy their beaches."
Indeed, as Taylor pointed out and as a number of independent studies have emphasized, there are a host of loopholes, costs, delays and uncertainties that make offshore drilling far from a sure oil market boom. There is a five-year waiting period just to lease land for drilling, and even more time on top of that to get a contract for the oil rigs. The American Petroleum Institute recently acknowledged that there is a dearth of equipment to drill on the land and coasts that are already accessible. And depending on the size of the station being built, and the possibility that oil may not be found immediately, it could be upwards of ten years before crude is even brought to the surface.
The Energy Information Administration estimated that oil from these sites would hit the market around 2017 and peak around 2027. Rushing the process would likely only result in less supply. "The faster we try to drain the less efficient the drainage," said Dr. Ralph Byrns, Professor of Economics at UNC-Chapel Hill. "If we drain it dry and still get 14 billion barrels of oil [the President has suggested 18 billion], that itself would still take 20 years."
Which brings us to the other side of the ideological spectrum, where analysts and experts not only see offshore drilling as a relatively fruitless enterprise, but precisely the wrong type of solution to achieve energy independence.
"Oil companies make more money on oil they own as long as the price stays high," said Marc Cooper, Director of Research for the Consumer Federation of America. "So the primary effect of drilling offshore will be increasing the profit of the oil companies. Today when they make a deal to drill in Saudi Arabia, they deal with the local government who takes all the rent. When they own their own oil, when they go to the outer-continental shelf, they don't have to pay OPEC."
A Democratic analyst, who spoke on the condition of anonymity, had a more nefarious explanation for McCain and President Bush's support for the offshore exploration: "If you wanted to go into Iraq, you saw 9/11 as a way to do that. And if you want to do offshore drilling, you see $4.00 a gallon gas as a way to do that."
The Huffington Post took on the task of finding an expert who thought that Americans would, within the next decade, receive relief at the pump from McCain's plan. Querying the entire scope of the ideological spectrum -- and putting aside the debate over whether or not offshore drilling was sensible policy -- the consensus seemed to be that if the presumptive GOP nominee was persuading voters that he could help decrease their gas bill, he was either living in a political fantasy or being disingenuous.
We started out with the conservative crowd, the one seemingly most predisposed to the idea of drilling.
"There is no question it would take quiet a bit of time for this to come to the market," said Max Schultz, an energy analyst for the Manhattan Institute. "But it was the same argument that was used any time over the past ten years, that it would take too much time for this stuff to have an affect... Having a couple million extra barrels on the world market would eventually help ease those markets."
Other expressed similar, qualified skepticism about the short-term benefits of McCain's plan.
"Would starting to drill now do anything for consumers in the near future?" asked Ken Green, an energy analyst with the American Enterprise Institute. "The answer to this one, again in my opinion, is probably not, since it'll take so long for new oil or gas to come to market. There is some small chance it would have immediate benefits if the current price of oil is fueled by spectators convinced that supply will continue to remain stagnant in the face of growth. They could take a commitment to drill as evidence that supply constraints will loosen, resulting in lower prices (or slower increases), making oil futures a weaker investment that would trade for less."
Added Jerry Taylor, a fellow at the Cato Institute, "I think it would have an effect, just not a major effect. The odds are you couldn't get any significant amounts of crude from coastal areas within the next decade. Offshore rigs, if you want to go get one, tough luck. They are all leased out. Even if the infrastructure is there, it would be hard, but the infrastructure isn't there... But markets react to future developments and even if the crude is not flowing, the project itself could have an impact on markets."
But the assertion that offshore drilling could have an impact on oil prices by placating oil speculators is itself a contested proposition. And some analysts insist that it is wishful thinking that the market would suddenly perk up because of the prospect of more supply.
"There are a number of problems with that argument," said Rob Shapiro, formerly undersecretary of commerce under President Clinton, and co-founder and chairman of Sonecon, LLC. "First of all I don't think anyone thinks that within the time period of futures trading, that there would be enough additional supply to effect global future prices. Second of all, the market will look at this not only in terms of, 'there is more supply,' but also, 'there is more supply at substantial greater costs to recover than current supply, and with substantial new liabilities' -- the communities that are going to sue them when they destroy their beaches."
Indeed, as Taylor pointed out and as a number of independent studies have emphasized, there are a host of loopholes, costs, delays and uncertainties that make offshore drilling far from a sure oil market boom. There is a five-year waiting period just to lease land for drilling, and even more time on top of that to get a contract for the oil rigs. The American Petroleum Institute recently acknowledged that there is a dearth of equipment to drill on the land and coasts that are already accessible. And depending on the size of the station being built, and the possibility that oil may not be found immediately, it could be upwards of ten years before crude is even brought to the surface.
The Energy Information Administration estimated that oil from these sites would hit the market around 2017 and peak around 2027. Rushing the process would likely only result in less supply. "The faster we try to drain the less efficient the drainage," said Dr. Ralph Byrns, Professor of Economics at UNC-Chapel Hill. "If we drain it dry and still get 14 billion barrels of oil [the President has suggested 18 billion], that itself would still take 20 years."
Which brings us to the other side of the ideological spectrum, where analysts and experts not only see offshore drilling as a relatively fruitless enterprise, but precisely the wrong type of solution to achieve energy independence.
"Oil companies make more money on oil they own as long as the price stays high," said Marc Cooper, Director of Research for the Consumer Federation of America. "So the primary effect of drilling offshore will be increasing the profit of the oil companies. Today when they make a deal to drill in Saudi Arabia, they deal with the local government who takes all the rent. When they own their own oil, when they go to the outer-continental shelf, they don't have to pay OPEC."
A Democratic analyst, who spoke on the condition of anonymity, had a more nefarious explanation for McCain and President Bush's support for the offshore exploration: "If you wanted to go into Iraq, you saw 9/11 as a way to do that. And if you want to do offshore drilling, you see $4.00 a gallon gas as a way to do that."