We have all seen by now the commercial where Boone Pickens warns that we “…cannot drill ourselves out of this energy crisis…” At the same time, the White House asked Congress to lift the ban on offshore drilling in the moratoria areas of the Outer Continental Shelf (OCS) and polls show that a large majority of the US population believes that offshore drilling can lower gasoline prices. To find out where the truth lies, let’s look at some data so that we can decide if lifting the ban on OCS drilling is a sound business decision.
How Much Oil May Be in the OCS?
From the EIA 2007 Annual Energy Outlook [i](AEO) and the 2007 report[ii] issued by the National Petroleum Council (NPC) we learn that there may be about 60 billion barrels of undiscovered but “technically recoverable” oil resources in the lower 48 OCS. Only about 19 billion barrels of these oil resources are in moratoria areas (in the Atlantic, Pacific, Eastern Gulf of Mexico and off the shore of Alaska) precluded by law or public policy from leasing and development. The other 41 billion barrels of undiscovered oil resources, or almost 70% of the undiscovered OCS oil resources, are in areas that are open to leasing and development.
We should keep in mind that the term “undiscovered technically recoverable oil resources” means that this oil has not been discovered yet. The expectation is that this oil will be recoverable with available technology, but it is not certain that it will be economically recoverable. We should also keep in mind that offshore oil is expensive.
How Certain Are We About Finding Oil in the OCS?
The NPC report notes: “There is significant uncertainty in resource estimates for those areas of the Outer Continental Shelf (OCS) subject to long-standing moratoria or presidential withdrawal. In the north, mid-, and south Atlantic, most of the west coast, and portions of the eastern Gulf of Mexico, the last acquisition of geophysical data and drilling of exploration wells occurred from 25 to 40 years ago. There were a few prospective discoveries at that time and numerous indications for the potential occurrence of oil and gas.”
A NY Times article[iii] adds the following: “… The biggest problem is that much of the coastal United States, subject to a drilling ban since the early 1980s, has not been thoroughly explored for oil. Neither the industry nor the government has any definitive idea how much could be recovered. In order to hazard a guess for some areas of the Eastern Seaboard, the government has had to inspect geological maps from Morocco, which was connected to North America more than 100 million years ago…”
How Fast and How Soon Can We Produce the OCS Oil?
The NPC report presents the following projections:
- By 2025, oil resources from OCS moratoria areas could increase U.S. crude oil production by more than 1.0 million barrels per day.
- Nearly 2.8 billion barrels of crude oil could be produced between now and 2025, production that would not be realized if the existing moratoria were continued.
The 2007 AEO also reports that production would not start before 2017, but projects that access to OCS will increase the lower-48 offshore crude oil production by only 200,000 barrels per day.
The previously cited NY Times article quotes David Kirsch, an oil analyst at PFC Energy, who claims that “…if the most promising areas off Florida and California were opened for drilling, their peak production in a decade could be as little as 250,000 barrels a day – less than a quarter of what the gulf produces now…”
What is the Projected Impact on Oil Prices?
The 2007 AEO states: “… 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… 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… Because oil prices are determined on the international market, however, any impact on average wellhead prices is expected to be insignificant…”
What Will Be the Impact on US Oil Production Rates?
In the final analysis, the oil production rate is what counts. Figures 1 and 2 present two different scenarios for future oil production rates. The AEO projections of Figure 1 show that OCS access will have a minimal impact on the production rate after 2017. Figure 2 shows a (much) more optimistic scenario that uses the estimates of the NPC report and assumes that all the 19 billion barrels of OCS oil are economically recoverable (money is no object!). Even then, however, the projection shows a small shoulder in the US oil production around 2025. Is this enough to scare the oil speculators and keep oil prices down?
Figure 1: Lower 48 offshore crude oil production in two cases from 1990 to 2030 (pg. 52 of Annual Energy Outlook 2007).
Figure 2: Comparison of model predictions with and without the 19 billion barrels of estimated OCS oil resources. Historical production rates are shown as red dots.
Dr. Kyriacos Zygourakis is a professor in the Department of Chemical and Biomolecular Engineering at Rice University.
(Note: Commentaries do not necessarily represent ASPO-USA’s positions; they are personal statements and observations by informed commentators.)