Sarah Palin and many others claim that the BP Gulf oil disaster happened because environmentalists have prevented drilling in shallower waters and safer locations.
In other words, they claim that oil producers were forced into deeper, more dangerous conditions because of environmentalists.
Are they right?
BP was clearly criminally negligent, and government regulators were wholly captured by the oil industry.
But we have to take a step back to see the bigger picture.
As McClatchy pointed out last month:
Conventional U.S. oil production has been in decline since the 1970s, and near-shore production along the Gulf Coast peaked in 1997.
***
Globally, one in every 10 barrels of oil produced in 2030 will come from ultra-deepwater operations, [Leta Smith, director of oil supply research for Cambridge Energy Research Associates, a leading oil analyst] said, adding that roughly 70 percent of the deep water in the Gulf of Mexico remains unexplored.
In 1990, the deep waters of the Gulf of Mexico yielded about 20,000 barrels per day of crude oil. By 2009, that number had grown to 1 million, according to CERA.
Nine projects that are coming onstream will add at least 200,000 barrels per day this year, said CERA researchers, who expect deepwater production to account for 17 percent of U.S. liquids production this year, which includes oil and natural gas.
Today there are at least 42 active deepwater projects for exploration or production in the U.S. Gulf of Mexico or international gulf waters, and at least another five projects in the works. Seventeen of those are ultra-deepwater.
***
Outside the Gulf Coast region, Brazil is the world's most promising ultra-deepwater producer, with new discoveries in the past five years in the so-called Santos basin that experts think will make the South American giant a powerhouse in the oil business. Deep waters off the African nations of Nigeria and Angola also hold promise.
Nigeria has
next to no environmental controls. So the fact that deepwater drilling is being explored off the coast of Nigeria speaks volumes.
As the Post Carbon Institute
notes:
With Federal regulators approving a new Gulf of Mexico oil well and the Canadian government continuing to support deepwater drilling off its own coasts, it looks like business as usual for the oil industry ....
***
Anyone wanting to understand the issue should turn to an 87-page Minerals Management Service document, Deepwater Gulf of Mexico 2009: Interim Report of 2008 Highlights [which] states:
In February 1997, there were 17 producing deepwater projects, up from only 6 at the end of 1992. Since then, industry has been rapidly advancing into deep water, and many of the anticipated fields have begun production. At the end of 2008, there were 141 producing projects in the deepwater Gulf of Mexico.
If 141 producing deepwater projects in that area seems larger than expected, note that there are many more leases on oilfields in the area – 7,310 active leases in 2008 - and that the trend is towards ever deeper water. The document continues:
Over the last 15 or so years, leasing, drilling, and production moved steadily into deeper waters. There are approximately 7,310 active leases in the U.S. GOM, 58 percent of which are in deep water. (Note that lease statuses may change daily, so the current number of active leases is an approximation.) Contrast this to approximately 5,600 active GOM leases in 1992, only 27 percent of which were in deep water. There was a maximum of 31 rigs drilling in deep water in 2008, compared with only 3 rigs in 1992. Likewise, deepwater oil production rose about 786 percent and deepwater gas production increased about 1,067 percent from 1992 to 2007. Production from seven deepwater fields began in 2008, including Thunder Horse, the largest daily producer in the GOM.
So why is drilling happening in such deep waters off the coasts of the U.S.,
Canada,
Brazil,
Angola,
Nigeria and other countries?
In two words:
peak oil.
As the head geologist of one of the world's largest oil companies - the guy whose job it is to find new oil -
told me a year ago:
Yes, it is true [that we have peak oil]. We are no longer on the ascending part of the curve.
In other words, the rate of petroleum production (and also the rate of energy return for a given amount of investment) is no longer on the rising, left-hand side of the bell-shaped curve:
And the world's leading oil experts say that peak oil is real. See this and this.
Peak oil doesn't mean that the oil flow will suddenly stop. What it does mean is that more and more extreme methods will be used to find and extract oil, such as deepwater drilling or crushing literally tons of sand to squeeze out some petroleum.
Energy and oil expert Byron King explains in a new interview:
[Interviewer] We know about peak oil already. But… is it really THAT bad that we’re having to search for oil buried beneath 12,000 feet of water? And after the water, another 10,000 feet of dense rock? That’s a lot of risk to take. Seems to be proof for the end of cheap oil theory, right? [Byron King] Exactly. The days of drilling a hole beneath the soil in Texas, inserting a pipe and watching oil gush out are gone. We’re never going back to those days.
It gets into what we’re dealing with here in the search for deep sea oil… The energy industry has to go deeper and deeper to make things work. Risking more and more capital – and unfortunately, lives – along the way.
Look at what we’ve seen in the last 20 years or so, since 1990, when the oil industry really started to go deep. There was something like an “arms race” to develop better and better deepwater technology, to go for the next levels down. We’ve seen this race to deeper and deeper water. And it’s all because the so called “cheap oil” is gone.
It used to be that drilling at 1,000 feet water depth was the edge of technology! You know, back then in the early 1990s it was 1,500 feet, then it was 2,500 feet, then it was 5,000 feet…7,500, 10,000. Now they’re drilling at 12,000 feet of water.
***Offshore development is the future of oil. The oil industry wouldn’t be taking these risks if cheap oil was still with us. We’re just starting to scratch the surface of this deep-sea stuff. The cheap stuff’s gone. Gotta go offshore…
The cheap stuff - and the less dangerous to get stuff - is gone.
Because oil companies will go to more extreme measures and operate in more dangerous conditions to extract oil, there will be more accidents. As the Guardian reports:
One industry insider, who asked not to be named, said: "Major spills are likely to increase in the coming years as the industry strives to extract oil from increasingly remote and difficult terrains. Future supplies will be offshore, deeper and harder to work. When things go wrong, it will be harder to respond."
And because it will be so expensive to produce, companies will try to cut corners - just as BP did with the Deepwater Horizon drilling operation.
Therefore, there will be more catastrophic accidents, which are much harder to clean up than a little oil gusher in the nostalgic oil fields of Texas.
Unless we switch to smarter forms of energy, the Gulf oil spill will end up simply being one of many catastrophes.
Note: While there are many promising prospects for alternative energy, it is important to be honest. Many types of alternative energy currently either use more energy than they produce, require substantial amounts of fossil fuels or toxic chemicals to produce, or only appear economical because of massive, hidden subsidies (I'm all for subsidies, as long as they are out in the open). Of course, oil is massively subsidized as well.
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Well the cheap stuff is certainly gone. There are still "massive" reserves held on land in tar sands, which are distastefully expensive to refine but are less likely to cause immediate environmental disaster or loss of life. The decision to go ultra-deepwater is a calculated one, weighing the chance and costs of disaster against a consistently higher overhead for the same payload.
ReplyDeleteIf we quit subsidizing oil and started pricing it according to the traditional laws of supply and demand, then the jump to alternatives would be much easier. Currently oil companies are handed tax breaks even while they are abusing overseas tax havens and not being prosecuted for it. We don't charge consumers for their environmental impact like some European countries, we don't take world supply (essentially an unknown) into account when pricing it, and we don't account for the costs incurred by our government and military to maintain our cheap access to it and support its use (how much of our highway budget would be better spent on high speed rail or other forms of mass transit? - certainly alot of it).
Deepwater spills are an interesting scenario though, especially post-peak. Leaks of this magnitude and difficulty are bound to drain a good portion of reserves from their locale. It may ultimately be the lost product that coaxes Big Oil to wait for deepwater. When it is properly expensive enough they won't need to cut any corners while drilling and will get not only more money per gallon but more gallons and less money spent on cleanup and PR.
Do you think it would be interesting or worthwhile to frame peak oil in terms of diminishing marginal returns?
ReplyDeleteThank for this. I agree that BP has been extremely negligent and to blame it on environmentalists is ridiculous because if environmentalists had there way oil would not be used at all. The location of the drilling is irrelevant. Have you seen the live video feeds of the oil spill? They are very interesting. http://cbt20.wordpress.com/2010/06/04/watch-pbs-real-time-feed-from-the-gulf-oil-lea/
ReplyDeleteI'm so glad to see an update on this site. It made my day. Keep it coming!
ReplyDeleteI don't think anyone in the oil industry plans multi-billion dollar off-shore investments based on the pronouncements of peak oil theory hawkers.
ReplyDeleteSouthern Gentleman, I would be very curious as to what tax breaks and subsidies the oil industry receives. My own impression of the oil industry is that it operates within a very hostile regulatory regime in the United States and in Europe. It is uniformly villified and excoriated by the body politic. The government has never bailed out a failing oil or gas company.
Jardinero1,
ReplyDeleteWell, there were the Bush era oil industry tax cuts to start with. Halliburton benefited from these cuts even though they headquarter their subsidiaries overseas to dodge Uncle Sam (including some "headquarters" that are nothing more than a corporate-size PO box).
There was the Bush-era Minerals Management Service passing out contracts that were almost criminal in their concessions to Big Oil. There are several expensive safety measures that are required by other developed countries but not by the US, but also just the mineral rights themselves were extremely undervalued in these contracts.
The refineries in the US, such as those along the Gulf Coast, get generous tax credits and abatements at the local and state level that effectively function like subsidies. The whole economy in that area is underpinned by the salaries paid by these companies, so they are practically begged not to leave.
These refineries also regularly pump well above the legal amounts of pollutants into the air and just pay the relatively small fine if they get caught. The fines are often less than what the company stands to gain from a toxic release.
Southern Gentleman,
ReplyDeleteReferences would be useful. The only tax cuts the oil industry ever received were Carter era accelerated depreciation allowances. Those were phased out during the Reagan administration.
Halliburton is not an oil company.
I would appreciate some reference to concessions which the MMS made.
Refineries in Harris County, Texas where I live pay the same tax rates as everyone else. You can type in Exxon or the like on the appraisal district and check that yourself. There are no other taxes in Texas to abate for a refinery.
Nobody is begging a refinery not to leave. Nobody has to. You can't just move a refinery. It is nearly impossible to get permits for a new refinery anywhere in the USA. Even if you could, refineries, are multi-year, multi-billion dollar investments requiring thousands of well educated people to build and operate. Refineries also are more profitable when they are placed in close proximity their final markets.
Your last paragraph, if true which it is not, is not for want of oversight. The refineries here in Harris County are under the oversight of the EPA and the TCEQ. Refinery operators spend great sums both in house and on consultants to stay in compliance. It really is not as simple as paying a small fine. It is not even about avoiding the fine. There is Texas tort law to deal with and no business wants to be a defendant in an environmental liability case with a Texas jury.
Jardinero1, I beleive you are looking for this link. It is the S.395 Bill passed in 1995. Section 3.B(ii) removes taxes to larger and larger oil quatities resulting from deeper and deeper wells. Wells over 800 meters receive the highest benefit. Taxpayers subsidize deepwater drilling.
ReplyDeletehttp://thomas.loc.gov/cgi-bin/query/F?c104:5:./temp/~c104bSDPf7:e18822:
Jardinero1,
ReplyDeleteDon't you remember Bush's curious "energy bill"? How quickly we forget, eh? LOL!
President Obama has proposed rolling back the oil industry tax breaks that you suggest don't exist. He just talked about it at Carnegie Mellon University in Pittsburgh a couple weeks ago. I guess he'll be excited to know that they don't exist, thanks to Ronald Reagan.
FYI, a quick Google of "Bush oil industry tax cuts" got about 6,000,000 results. That's gotta hurt...