Russ McBee

Today, President Bush rescinded an executive order signed by his father which affirmed the ban on offshore oil drilling (with the exception of a small area off Southern California and a specific region of the Gulf of Mexico). The move was almost entirely symbolic (and political), since federal law also bans offshore drilling (except in those two areas). In order for offshore drilling to resume, Congress would have to pass a law permitting it. The President's executive order neither rescinds nor weakens the current ban.

On a superficial level, the entire endeavor smacks of one big charade, an election-year Kabuki meant to sway gullible voters.

On signing the order, Bush said this:

"Failure to act is unacceptable," the president said, asserting that obstructionists in the Democratic-controlled Congress have been blocking progress on energy exploration and that "now, Americans are paying at the pump."

Not surprisingly, that is complete nonsense. President Bush's very own Department of Energy says that drilling in those off-limits areas on the Outer Continental Shelf would have no significant effect on prices or supplies, and the very beginning of production of those reserves would be ten years away, at least. In the following quote, the "access case" means the opening of those areas now off-limits. The "reference case" means the status quo:

The projections in the OCS access case indicate that access to the Pacific, Atlantic, and eastern Gulf regions would not have a significant impact on domestic crude oil and natural gas production or prices before 2030. Leasing would begin no sooner than 2012, and production would not be expected to start before 2017. Total domestic production of crude oil from 2012 through 2030 in the OCS access case is projected to be 1.6 percent higher than in the reference case, and 3 percent higher in 2030 alone, at 5.6 million barrels per day. For the lower 48 OCS, annual crude oil production in 2030 is projected to be 7 percent higher—2.4 million barrels per day in the OCS access case compared with 2.2 million barrels per day in the reference case.

So, production in the restricted area of the OCS is at least a decade away, and no significant production would occur until 2030. Even then, OCS oil would amount to no more than an extra 200,000 barrels per day. Given the fact that we consume over 21 million barrels per day just in this country (and 85 million barrels per day worldwide), that marginal 200,000 barrels per day is a trivial contribution. It would have no measurable effect on prices or supplies, and it would only serve to increase environmental risks.

Extended drilling in the OCS simply isn't worth it.

The point that the Republicans tend to gloss over is this (from that same DOE link):

Because oil prices are determined on the international market, however, any impact on average wellhead prices is expected to be insignificant.

Any oil drilled from the OCS (or ANWR) would be sold to the highest bidder, on the open market. Unless the Republicans are willing to support a ("socialist") law that requires OCS and ANWR oil to be sold only in the US, the oil from those regions would be sold on the international bourses, just like all the rest of the oil in the world. Since the US consumes about 25 percent of the world's production, that means 75 percent of all the oil from OCS and ANWR would be sold to India, China, Indonesia, and all the rest of the world.

That leaves one fourth of the OCS production (or a measly 50,000 barrels per day) for US consumption. That can hardly be said to fulfill the promise of "energy independence."

So, why the GOP push for drilling in OCS and ANWR all of a sudden?

Obviously, election-year politics accounts for a lot of it. With gasoline at $4 per gallon and rising, the GOP is desperate to change the subject away from the fact that they utterly failed to create a sound, sustainable, or meaningful energy policy when they were in control of all branches of government. They're desperate to keep the public from thinking too awfully long about the legacy of Dick Cheney's secret energy task force, and they certainly don't want people thinking too much about the relationships between Bush's economic policies, the declining value of the dollar, Bush's foreign policy, the war on Iraq, and the price of oil. It's much more expedient to distract the public with fantasies of exclusively American petroleum fueling our economy.

A couple of other motivations may be at work as well. First, President Bush may believe that the mere threat of increasing production (however small that increase may be) could serve to spook speculators away from investing in oil futures. He might think that if he can push production higher, even by a small amount decades into the future, the investors throwing billions into commodities futures might be scared away from that market and back into stocks. That effect, of course, would be minimal and short-lived, but it might be part of the equation.

On a more fundamental (and cynical) level, I think it's important to note that the single most significant line item on an oil company's balance sheet is the size of its proven petroleum reserves. As the oil companies face declining reserves without ongoing, large discoveries year after year, their assets will naturally decline over time. This would be catastrophic for their stock prices over the long haul. However, if the oil companies can book new reserves offshore, even if they have no intention of exploiting those reserves, their balance sheets would be propped up for several more years, and so would their stock prices.

I wouldn't be a bit surprised to learn that the GOP's push to drill in ANWR and offshore has little to do with the election, but instead has everything to do with the stock prices of their favorite companies in the hydrocarbon industries.