Over a year after the Deepwater Horizon disaster, the Department of the Interior is issuing drilling permits as never before! Oil companies are back to work! And oil production in the gulf is at a high not seen since... um, 2003!!!
Err... not so much.
Nearly all of the "new" deepwater permits being issued are resumptions of existing permits that were suspended after the Horizon disaster. It took nearly a year for the Department of Interior to issue the first of these, and unimpressed Louisiana Senators have since resorted to hardball tactics in order to speed up the pace of permitting. More often than not, when Interior speaks of "offshore permits", they are likely referring to shallow water permits rather than the high yield deepwater permits that were disproportionately affected by the moratorium.
With a high unemployment rate and one of the lowest per capita income figures in the lower 48, Louisiana cannot afford to let their relatively highly paid oil and gas work force remain idle. Since the moratorium, estimates range from 8,000 to 18,000 jobs lost as a direct result of the moratorium. A year ago, Lafayette hosted a "Rally for Economic Survival" in an attempt to shine the media spotlight on the economic devastation of the spill brought on not by the Horizon disaster, but by the arbitrary government imposed moratorium. As the argument goes in the oil industry, the overreaction by the Interior Department largely ignores the lack of major spills in the gulf over decades of drilling and production, and shutting down all drilling in the gulf is much like grounding all domestic passenger flights after a single airline crash. But for as much noise and congressional pressure that the region has put out, Interior still makes the rules, and that is where their leverage ends.
As a part-time resident of Louisiana and employee of the gulf oil industry, I don't need any further proof beyond what I see with my own eyes on a daily basis... third party support contracts at their lowest point since the early 90s, idle infrastructure and equipment everywhere you look, contracts, equipment, and personnel going overseas, and rounds of layoffs that just keep on coming.
So far as production being way up and oil companies not exercising existing lease blocks, it is difficult to separate the ignorance from the distortion of those making these statements.
There is PRODUCTION, which involves existing wells pumping oil for years on end, and there is EXPLORATION, which involves high dollar and high risk new projects where the lease of the drilling rig alone can be over half a million dollars a day. This is where most of the money is made, particularly for third party support contractors in the oilfield who have been hit hard by the moratorium. Killing off exploration while pointing to increased production can be likened to choking somebody by the neck while stating that their increased heart rate shows that they are doing just fine.
And why exactly would companies not exercise leases that they already own and are sitting on? If they were not allowed to drill on the leases they hold, that would be one reason. If they were not allowed to bid because future lease sales were suspended that would be another. But the most likely reason is that companies won't drill if they think there is nothing down there. With the cost of each new drilling project easily reaching into the millions and an oversupply of natural gas, drilling for anything short of large oil finds makes little economic sense. Add to the mix that Interior keeps on moving the goal and changing the rules, and now you are living in the Gulf of Mexico.
I am not knocking green energy or thinking that my oil and gas job will be around forever. But I believe that we should, particularly in a down economy, be rethinking energy subsidies of all kinds, and let the markets determine what is a viable energy source and what is not. Like it or not, right now it is oil and gas. The infrastructure that brings you relatively cheap oil from across the world is not going away, but if you make it hard enough for energy to be produced here in the US, the exploration assets will go overseas and take the US jobs with them. In fact, it is already happening. Drilling rigs which lose hundreds of thousands of dollars a day when idle will not choose to remain idle indefinitely.
"Big Oil" lives in an effective 40-50% tax bracket. The more they make, the more revenue that pours into the government. What do they do with much of their "record windfall profits"? More exploration of course, so that they can make MORE money, which generates MORE federal taxes. Furthermore, one of the largest non-tax sources of federal revenue remains oil and gas leases, the bulk of which comes from offshore sources.
In conclusion, the Department of Interior's promise to keep their "boot on the neck" of BP manifested itself as a "boot on the throat" of the entire US offshore industry. Arguing that boosting domestic production will not help our current economic situation is moronic. If the president truly wakes up thinking about how to get people back to work, he can put ideology aside and put 13,000 people in Louisiana back to work tomorrow. And then he can go back to sleep.
Since being issued a resumption permit, Exxon Mobil a couple of weeks ago announced one of the biggest finds in the gulf in years. The oil is here, folks... lets produce it with US labor for US consumption.
For a slightly less editorial view of things we can do TODAY to fix the current US energy crisis, check out the below PM article.
10 fixes for the New Energy Crisis
Please watch this space for a future rant on the effect of the oil industry and the BP spill on the Louisiana marshes and coast.
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