Sunday, June 22, 2008

PostHeaderIcon Obama and McSame are Both Wrong on Energy

(and both right, too.)

I guess it's too much to ask during the political silly season for a real discussion about what needs to happen regarding U.S. (and world) energy policy.

Offshore Drilling:
Obama is correct in asserting that this will have no immediate effect on prices. He is wrong, however to assert that opening up more offshore acreage is unnecessary.

McCain is correct in asserting that there are potentially large reserves that can be tapped in currently embargoed U.S. waters. He is incorrect to assert that tapping these will provide any immediate relief at the pump.

Long-term, the U.S. will need stable and local sources of hydrocarbons -- not just for energy, but for all the products that require it as part of the manufacturing process or as the base material.

Two reasons to open up more acreage for exploration: we need to find out what is there (and commercial) and it needs to be in the queue for eventual development. Once doesn't happen without the other.

Obama's surrogates point to the fact that there is still a lot of already available acreage on public lands that hasn't been explored or developed. They ignore several factors:

  1. Competition for exploration and development resources -- there just aren't enough drill ships and skilled people to put to work to bring these things online any time soon. It wasn't that long ago that most oil companies were laying people off and certainly not hiring. Drill rigs were idled, dismantled or sold overseas.
  2. Rising costs -- it used to cost between $100-$150K per day to run an exploration drill ship. That cost today is between $175K and $250K -- depending on how deep you're going. Deepwater wells routinely start at a water depth of more than 6000 feet -- and that's just to get to the ocean floor... they then have to go down another 3 - 4 miles to hit paydirt.
  3. Current crude oil prices at these levels are less than 3 years old... many of the prospects that are now looking okay wouldn't pass economic muster 5-8 years ago -- and it takes that long to get from discovery to development.
  4. The "public land" that they talk about also includes all the onshore acreage that has been sitting idle for years because (despite the hype) shale oil is still uneconomic.
  5. Environmental permitting for every phase is still a byzantine mess.
  6. Did I mention the technical complexity of doing all this under a mile of water -- on engineering marvels that cost more that $1B?

Does this mean that we can drill our way out of this? Absolutely not, but a comprehensive energy policy is going to have to include a long-term U.S. resource plan. (Until someone comes up with a wind-powered airplane...)

McSame's surrogates are equally fuzzy with their math... more on that in future posts.

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