The Domestic Crude Oil Revolution - The bottom is falling out of Crude Oil Prices
The bottom is falling out of the price of crude oil, Nancy Pelosi and the Democrats are caving to the public’s demand for more drilling and now, finally, we’re seeing a revolution in domestic oil production with even more fallout in crude oil prices on the way.
In a recent appearance on The Daily Show, House Majority Speaker Nancy Pelosi joked that in the congressional battle over offshore drilling, if the Republicans “want Alaska, we’ll give them Alaska.”
Haha - too late. The fact of the matter is, Alaska drilling has already been set in motion.
In 2004, Congress quietly lifted the moratorium on oil drilling in the ecologically sensitive Northern Aleutian Basin. On Aug. 1, the U.S. Interior Department’s Mineral Management Service completed the first major step toward selling the leasing rights to oil and gas drilling companies by publishing a notice in the Federal Register calling for public comments. Apparently there weren’t enough angry liberals to halt our march toward energy freedom.
Slightly north of the Aleutian Islands in the Bering Sea on the southwestern tip of Alaska, the North Aleutian Basin straddles the Gulf of Alaska and Bristol Bay. Despite the relatively high environmental and safety risks associated with offshore Alaskan drilling compared to offshore mainland drilling, oil producers are pushing forward with little or no opposition. While Alaska boasts of having nearly half of the 88,633 miles of tidal shoreline that surround the U.S., not a single mile of it will be affected by Congress’ decision on offshore oil drilling.
The Aleutian Basin (Alaska’s “breadbasket”) has abundant stocks of pollock, cod, red-king crab, halibut and salmon, which supply 40% of the entire U.S. seafood catch. Commercial fishing generates more than $100 million a year in revenues for the region. Sport fishing and related tourism throughout southwest Alaska provides an additional $90 million a year to local economies.
“The Aleutian Islands are home to natural resources found nowhere else in the world, and the regional economy is dominated by commercial fishing,” the nonpartisan National Research Council, a part of the National Academy of Sciences, recently said in a report about the risks posed by oil spills. “Protection of the region’s natural resources is therefore a paramount public concern.”
Former Interior Secretary James Watt first leased federal offshore drilling rights in the Aleutian Basin in the 1980s over the fishing industry’s objections. A subsequent bipartisan congressional drilling ban was placed on the region as a result of the 1989 Exxon Valdez oil spill in Prince William Sound.
In 1990, President George H.W. Bush declared a moratorium on oil drilling projects in the Aleutian Basin by executive order. In 1998, President Clinton extended the offshore oil drilling ban until 2012. The moratorium remained unchanged for more than a decade until Alaskan Sen. Ted Stevens spearheaded a successful effort to suspend the moratorium in 2003. In January 2007, President George W Bush lifted Clinton’s moratorium on leasing the drilling rights in the Aleutian Basin.
Unlike other offshore areas off the coast of northern Alaska, the Aleutian Basin has relatively small amounts of estimated oil, and some of the worst weather in the nation, which is what brings much of the risk associated with Alaskan drilling. It’s in the cross hairs of a major Pacific storm track, and three to five storms batter the area a month.
So why not drill in the much calmer and less risky offshore areas of Alaska or Texas’ and Florida’s Gulf? Alaska has one thing none of the others do: shallow waters. The Aleutian Basin is the only shallow-water leasing area currently offered by the Interior Department. Roughly 80% of the area’s waters are less than 200 feet deep. The most promising drilling prospects are located in water depths of about 300 feet.
The cost of developing deep water oil fields is an order of magnitude larger than the costs of developing fields in shallow water. It costs about $600,000 a day to rent an offshore oil rig capable of drilling in the deeper waters of the Gulf of Mexico. Shallow water rigs cost only a quarter of that price, or about $150,000, to rent daily. The total cost of a large shallow-water project would be roughly $200 million, while a big deep water field would cost closer to $3 billion to develop.
In fact, the Aleutian Basin is so shallow in many places that Congress allows oil transport in small single-hull vessels–banned after the Exxon-Valdez investigation revealed the design flaw in those vessels–to operate in the area. Currently, the Aleutian Basin is among the few places where single-hull tank barges weighing less than 1,500 gross tons, which can carry nearly a million gallons of cargo, continue to operate.
Ironically, oil isn’t the only energy to be found in the area. The Aleutian Islands have the best wind-power resource potential in the U.S., according to the U.S. Department of Energy. In every season but summer, wind speeds exceed 50 mph and frequently rise above 100 mph. The westernmost Aleutian Islands experience wind speeds too high to measure–most measurement devices cannot record wind speeds higher than 128 mph. The problem with Alaskan wind energy is, where are you going to take it? Anchorage? You would have to build thousands of miles of transmission lines at an enormous cost for a few hundred thousand residents. It would take decades to pay for itself. I doubt T. Boone Pickens will make a bet on Alaska wind power like he has on West Texas wind power.
The bottom line is that as a nation we are finally moving closer to energy independence. Many flabby lips have wagged with the argument that this or than individual production project will not amount to much increased production and therefore will have little impact on the price of crude oil. The fact is though, production in most or all of our untapped oilfields will have a huge impact on price and our own energy security - much needed if the world economy is to continue making the leaps it has in the last few decades.
Look forward to continued downward pressure on oil prices (sub $100 before 2009) and even more downward pressure on natural gas, as gas production increases exponentially.
If you enjoyed this post, please consider to leave a comment or subscribe to the feed and get future articles delivered to your feed reader.
Comments
No comments yet.
Leave a comment