Many Factors Cloud Cost Of Oil-Drilling Moratorium
It's not clear that President Obama's six-month extension of a moratorium on domestic oil drilling will mean a price spike at the gas pump.
But it is likely to cause deep economic pain along the Gulf of Mexico, analysts say. And it could lead oil companies to seek work in other countries.
The U.S. doesn't keep much of an oil reserve, so "every barrel you don't produce here is another barrel you have to import," said Raoul LeBlanc of PFC Energy, which serves as a consultant for energy companies and governments alike.
But there happens to be a pretty healthy global supply of oil right now, LeBlanc says, since the bad economy has dampened demand. In fact, some companies have even restricted their flow of oil, so they could easily ramp up production again.
Using more imported oil is worrisome to many for a range of reasons, including the pervasive fear of U.S. dependence on foreign oil. But LeBlanc says additional short-term imports won't necessarily lead the price of oil to shoot up. Of course, this assumes that the moratorium will end in six months.
"The longer it is, the deeper the pain," LeBlanc said.
The most immediate pain will be felt by those working on the drilling rigs (each one can employ well over 100 people), and all the companies that supply the oil and gas industry.
"There will be a lot of idle catering shops and supply boats and helicopters," LeBlanc said.
Then, of course, there are those idle drilling rigs themselves.
They cost $500,000 to $1 million a day to lease, says Michael King of FMC Technologies in Houston. He presumes many of their owners will break their contracts and ship them to places with ongoing demand.
"There are oil fields off West Africa, off Brazil and in the North Sea," he said.
That might be the most efficient use of a rig over the next six months. But it could also mean further delays once a moratorium is lifted and rigs are needed again in the Gulf of Mexico.
King says companies with existing projects also want more clarity on how the moratorium will affect them -- if at all. For example, a common practice is to "sidetrack," which means digging an underground offshoot from an existing well to make sure you get as much as you can from a large pocket of oil. King said it wasn't clear to him whether this is still allowed.
'Remarkable Safety Record'
The impact of the moratorium will increase as the months go by, says LeBlanc. That's because "petro physics," as he calls it, dictates diminishing returns: The number of barrels a day sucked out of a site decreases over time. The way oil companies keep their production stable is to keep drilling, and that will not be possible now -- at least not in U.S. waters.
Scott Tinker, the state geologist of Texas, agrees with other analysts that there is certainly a need to overhaul the approval process for offshore drilling. But he says the 3,800 drilling platforms operating in the Gulf of Mexico have a "remarkable safety record" overall. He suggests the moratorium is an overreaction.
"When there's a plane crash, we don't stop the whole aviation sector [while] we figure out what went wrong," he said.
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