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Stock Ideas Investors Daily Edge Will Drilling Offshore Oil Make an Immediate Impact?
Stock Ideas Investors Daily Edge Will Drilling Offshore Oil Make an Immediate Impact? 
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| Will Drilling Offshore Oil Make an Immediate Impact? |
| Friday, 20 June 2008 | ||||||||
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The other day as I walked out of my building complex, I overheard a girl on the phone say… “God, gasoline was so much today!” I can’t tell you how many other times I’ve overheard similar conversations. There’s a lot of stress in the air, and it’s all because of oil. And if the general population is stressed, you can be sure that they are stressing out their local politicians. So politicians are trying everything, from trying to curb oil futures speculation to taxing big oil, and even drilling offshore. Today I’d like to focus on offshore drilling, because it’s a very important subject. Now, many people see me as a tree-hugging hippie that would rather live in a sustainable, eco-friendly tree house then a brick home with all the amenities. These people are going to assume that I think drilling for oil off the coast is god-awful and evil stuff. That’s just not the case. The reality is I think the U.S. should explore for more oil and natural gas. Not only would it bring added revenues for local and federal governments, but it would also lower our trade deficit while at the same time making us more energy independent. Plus, the U.S. Minerals Management Service estimates that 86 billion barrels of oil and 420 trillion cubic feet of natural gas can be found along the U.S. outer continental shelf, the area affected by the ban. That’s a lot. But here’s my problem with what’s happening right now. Politician’s today talk about drilling offshore as if it would be a short-term solution to high oil prices, but that simply wouldn’t be the case at all. Let’s say this law passes, and companies are allowed to drill for oil offshore, what do they actually have to do to get oil flowing? Well first, they have to do various surveys of the ocean floor to try and find promising areas. Once they find them, they have to test-drill the areas. They also need to complete various feasibility and environmental impact studies with both the state and federal government.
Once they are finally able to test drill, they have to make sure they have the equipment (which is in short supply) and then set it up out in the middle of the ocean. Now, when you’re drilling in deep water, you have to know what you’re going for. It’s not like drilling in shallow waters, where a mistake is costly, but not too costly. The equipment needed for deepwater drilling is far more expensive (and in shorter supply). It has to go much deeper and through significant rock and salt formations before it can strike oil. Any mistake made is a very expensive one. So just trying to find the oil could be expensive. Once they find oil, they have to get the infrastructure in place to transport it. If they can’t get a pipeline built, that means they have to put it all on a tanker and have it shipped back to the mainland. Did I mention there’s already a tanker shortage? This hampers the volume of oil that can flow from the well. These wells would NEVER produce as much oil per day as a gushing well from Saudi Arabia would, not in a million years. And some estimates put the costs at as much as $60 per barrel. Saudi Arabia produces oil for less than $10. Not only would the oil be more expensive, but it could also take seven to ten years before we see oil production from offshore sources. And that’s assuming a law could be approved today. But with the backlogs in the oil services industry, and the fact that there aren’t enough talented people at major oil companies, it could take even longer. Now ask yourself, does seven to ten years seem like a short-term solution? Not at all. The truth is that offshore oil would probably begin producing just in time to offset major declines in older oil fields. Just think about this, even with the record high price of oil, oil producers haven’t been able to produce more oil. According to rediff.com, “on a year-on-year basis, oil majors have seen a reduction in their production numbers. BP's production fell 2 percent, Shell's fell 6 percent and ExxonMobil's a full 10 percent.” As you can see, offshore oil will do nothing to help fix what’s happening right now. It will take at least seven years for us to see these offshore locations impact the oil supply. The only thing that can slow down oil consumption is higher prices. And with congress trying to do everything they can to lower oil prices – like offering gas tax holidays - it seems that they are doing everything they can to hamper the real solution to higher oil prices (which, ironically enough, is higher oil prices). Instead, they are focusing on speculators in the open market. A recent bill under consideration would pretty much forbid major funds from buying oil and agriculture futures on any exchange. I don’t know why in the world politicians think that it’s the markets fault that oil prices and agriculture prices are higher. First they tell you they believe in free markets, then they do stuff like this. Did they forget about a basic theory called supply and demand? I learned that one back in elementary school. You’d think they’d know it too. In school, I learned that higher prices spur innovation. As prices move higher, the market looks for the replacement. Today, that replacement means hybrids, electric cars, and hydrogen vehicles. Why aren’t politicians explaining this to the public? If you ask the average person on the street, they probably have no idea that demand from China and emerging nations has grown so much that it’s stressing the world’s supply. And they probably don’t know that the nearly 40% drop in the U.S. dollar has made oil prices more expensive worldwide. Then again, if people knew the truth they’d probably wonder what their smoking up there in Washington. It’s some potent and powerful stuff, paid for by your tax dollars. Until next time, Charles P.S. To let me know what you thought of today's article, send an e-mail to: This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
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