June 19, 2008

Republicans Fail to Understand That We Cannot Drill Our Way to Lower Gas Prices

From President Bush to the Senate Republican leadership, from Vice President Cheney to Senator McCain, the Republican energy policy can be summed up in three words: drill, drill, drill. The recent flip-flops by President Bush and Senator McCain to grant new access for offshore drilling comes as the Big Oil companies have spent $188 billion in stock buybacks over the last five years instead of investing significantly in increasing supply here and abroad. Meanwhile, at a recent House hearing, an ExxonMobil official testified that it was only investing $100 million over ten years on renewable energy.

The Democratic Policy Committee has put together a fact sheet laying out how we cannot drill our way to lower prices at the pump.

The U.S. demand for oil is 25 percent of world oil supply, but our reserves are only three percent or less of the world's oil reserves. More access to the Outer Continental Shelf (OCS) is not going to keep OPEC from setting the price of crude or impact prices. In its 2007 Annual Energy Outlook on the impacts of increased access to oil and natural gas resources in the Lower 48 Federal Outer Continental Shelf, the Energy Information Administration found that:

"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. Leasing would begin no sooner than 2012, and production would not be expected to start before 2017. 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. For the lower 48 OCS, annual crude oil production in 2030 is projected to be 7 percent higher-2.4 million barrels per day in the OCS access case compared with 2.2 million barrels per day in the reference case. Because oil prices are determined on the international market, however, any impact on average wellhead prices is expected to be insignificant."

Approvals for drilling on federal lands is at an all-time high

There were 4.6 million acres of federal onshore lands leased for oil and gas development last year, which is up from 2.6 million in 2000.

There were almost twice as many wells spud on federal lands in Fiscal Year 2007 than in Fiscal Year 2000 (5,343 wells in 2007 vs. 2,861 wells in 2000)

Approvals of Applications for Permits to Drill (APDs) on federal lands by the Bureau of Land Management increased from 2,580 in 1997 to 7,124 in 2007.

APD approvals have nearly quadrupled on federal lands since 1996.

The fastest way to bring on new production is for the oil industry to develop what is already leased

There are 44 million federal acres under lease onshore - but 31 million acres are not producing.

There are 2,200 producing leases on the OCS and 6,300 non-producing leases.

There area 41 million acres under lease in federal waters offshore, but 33 million of these acres are not producing.

Drilling activity in the United States is at a 20-year high

The current U.S. rig count is at a 20-year high - up 92 rigs from May 2007 to 1,839 rigs.

In the past 10 years, the U.S. rig count has more than doubled (from 855 in May 1998 to 1,839 today).

Drilling in the Arctic National Wildlife Refuge is not the answer

If opened, not one drop of oil would come from the 1.5-million acre Coastal Plain of the Arctic Refuge for seven to twelve years. The Energy Information Administration assumes that production will not occur for at least10 years.

According to the Energy Information Administration, peak production will not occur for 10 to 11 years after initial production. As a result, we will have to wait for 20 years before maximum production from the Arctic Refuge.

Advocates of drilling argue that if we had opened the Arctic Refuge 10 years ago, we would already be seeing production from that area. Perhaps at peak production, which wouldn't occur for 25 years, oil from the Arctic Refuge would reduce gasoline prices by a few cents -- but only for a short time.

Last year, Congress enacted tougher motor vehicle fuel efficiency standards on a bipartisan basis. These standards are projected to result in a savings of 1.1 million barrels of oil per day in 2020 -- over half the oil the U.S. currently imports from the Persian Gulf.

Vast areas of federal land have been under oil and gas lease for nearly 10 years in the National Petroleum Reserve Alaska (NPR-A). We have opportunities to produce in an environmentally responsible way from the NPR-A, which is located on the North Slope west of the Arctic Refuge.

The NPR-A is comprised of 23.5 million acres of federal land set aside by President Harding to secure the nation's petroleum reserves for national security purposes.

There is currently 3.8 million NPR-A acres under lease (this is more than twice the size of the Coastal Plain of the Arctic Refuge), but there is no production in the NPR-A.

The Bureau of Land Management initiated a new round of NPR-A leasing during the Clinton Administration. Lease sales conducted in 1999, 2002, 2004 and 2006 generated a high level of industry interest.

Only 26 exploratory wells have been drilled on this 3.8 million acres and no production wells have been drilled.

The NPR-A is estimated to hold 9.3 billion barrels of technically recoverable oil. This is 1.7 billion barrels more than the estimate of for the Arctic Refuge.

Parts of the NPR-A have been leased for 10 years, and we haven't seen one drop of oil from these federal lands. Why should we expect anything different if we were to lease the Arctic Refuge?

Leasing is already occurring on the Outer Continental Shelf

In 2007, the Minerals Management Service held three oil and gas lease sales on the federal OCS in the Central and Western Gulf of Mexico and in the Beaufort Sea in Alaska:

This year, MMS has held sales in the Central and Eastern Gulf of Mexico and one in the Chukchi Sea.

Lease Sale 206 (March 2008) in the Central Gulf of Mexico:
o Set the record for high bids since area-wide leasing began in 1983 (high bids were $3.67 billion).

o Offered 29.8 million acres estimated to contain .8777 to 1.457 billion barrels of oil and 3.653 to 5.892 trillion cubic feet of natural gas.
Lease Sale 224 (March 2008) in the Eastern Gulf of Mexico:

Offered 546,971 acres estimated to contain 100 to 140 million barrels of oil and .16 to .34 trillion cubic feet of natural gas.

Lease Sale 193 (February 2008) in the Chukchi Sea:

Offered lease sale area estimated to contain 15 billion barrels of recoverable oil and 77 trillion cubic feet of natural gas.

First lease sale in the area in 17 years.

During the last Congress, new areas of the OCS were opened. This includes an area in the Gulf of Mexico that contains approximately 1.3 billion barrels of oil and 5.8 trillion cubic feet of natural gas. In addition, a moratorium previously applicable to the North Aleutian Basin offshore Alaska was lifted.

Oil Shale Development Slowed by Economic and Technological Barriers, not by Congressional Moratorium on Premature Commercial Leasing

In spite of many statements to this effect by Republican Senators, oil shale development has been slowed by economic and technological barriers, not by congressional moratorium on premature commercial leasing.

In fact, the Bureau of Land Management currently is conducting an active oil shale research and development leasing program on federal lands in the West.

This program is intended to give industry an opportunity to develop commercially viable technologies for producing oil from oil shale.

We need the technology to produce commercial quantities of oil shale, but what we don't need is a speculative and premature commercial leasing program.

According to an expert from the RAND Corporation, "establishing a broad-based commercial leasing program within the next five years is not necessary and, in fact, may be detrimental to oil shale development."

In 2005, Congress enacted an unrealistic time frame for issuance of commercial leasing regulations. Last year, Congress enacted a provision that would slow down the issuance of these commercial leasing regulations.

Issuing commercial leasing regulations before the technology is proven is highly problematic. The results of new research will be needed to develop workable regulations. Allowing commercial leasing before the technology is available could also lead to speculation and inhibit production.

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