Friday, November 28, 2008

Off Shore Drilling

There have been calls to grant the oil companies additional leases, specifically in northern Alaska and for offshore drilling. The argument is that by giving new leases to the oil companies, America will be able to get rid of high gas prices and its dependency on foreign oil. Indeed, both presidential candidates have jumped on the bandwagon as it appears that more and more Americans are biting into this load of bullcrap.

And a load of bullcrap it is. First of all, why allow the oil companies new leases if they have yet to explore many of the areas on which they have permits on, but have yet to commence exploration. We are not talking about one or two unexplored areas, but almost one third of the permits given to the oil companies remain unexplored. The oil companies are like little greedy boys that want second helpings after having eaten only one bite of their meal. No, oil executives, finish your plates up and eat all your vegetables before asking for more. Finish exploring ALL the areas in your current portfolio before putting your claws into new territories.

Next, it will be years before we see the first drops of oil that would result from granting new permits. Expeditions need to be mounted to do geological surveys, test drills need to be made, and a whole infrastructure needs to be built before the those first drops flow through the pipeline.

Furthermore, America is so addicted to oil that now the majority of the crude it consumes is of foreign origin. America consumes a quarter of the worlds oil, but only has reserves equal to 3 percent. There is no way that America could reduce its dependency on foreign oil even if we drilled everywhere and pumped out all the domestic reserves. Given current consumption patterns, America will always be dependent on foreign oil for the majority of its needs.
So, drilling is not the answer. Supply is not the dominant factor in oil prices. However, what has proven very effective in lowering the price of crude by half in only 3 months is a dramatic reduction in demand. Every month, Americans consume fewer billions of gas compared to last year. By making small changes to their driving habits, Americans have forced the price of gas down fro over $140 per barrel to around $70 per barrel in 3 months. Imagine what we could do to the price at the pump if we made an additional little effort by converting our fleets such as city buses, delivery trucks, postal trucks to bio-diesel, propane, and other alternative fuels. In just a couple of short years, we could reduce consumption by several billions of gallons more than we could ever drill, and we would be able to do it within a very short time span.