EIA says offshore drilling will have “insignificant” impact on prices. Saudis just proved EIA’s point.

I am glad that so many in the energy debate have picked up on one of the two messages from my previous post (see EIA bombshell: Offshore drilling “would not have a significant impact on domestic crude oil and natural gas production or prices before 2030″³).

But in listening to the radio and TV debates, I realize that some people have the impression that U.S. Energy Information Administration said offshore drilling might eventually lower oil prices. It did not. It found that allowing offshore drilling would have no significant effect on prices as far out into the future as the analysis projected.

Why should it lower prices? Offshore drilling is projected by EIA to deliver less extra annual oil production in 2030 than Saudi Arabia announced it would add this year, an announcement that had no significant impact whatsoever on oil prices. [In fact, oil prices actually went up — see yesterday’s AP story, “Oil prices rise despite Saudi vow to pump more.”]

It is worth nothing that the EIA report “Impacts of Increased Access to Oil and Natural Gas Resources in the Lower 48 Federal Outer Continental Shelf (OCS) is quite analytically substantive and made relatively optimistic assumptions:

Assumptions about exploration, development, and production of economical fields (drilling schedules, costs, platform selection, reserves-to-production ratios, etc.) in the OCS access case are based on data for fields in the western Gulf of Mexico that are of similar water depth and size. Exploration and development on the OCS in the Pacific, the Atlantic, and the eastern Gulf are assumed to proceed at rates similar to those seen in the early development of the Gulf region. In addition, it is assumed that local infrastructure issues and other potential non-Federal impediments will be resolved after Federal access restrictions have been lifted.

And still, the study’s bottom line is

… 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.

Sorry drilling advocates, but 200,000 barrels of oil a day extra in a global market two decades from now is just a drop in the bucket. Heck, Saudia Arabia announcing last week it would add 200,000 barrels of oil a day (on top of the 300,000 barrels a day they had recently said they would add) didn’t even change prices, so what with the same amount do 20 years from now?

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3 Responses to EIA says offshore drilling will have “insignificant” impact on prices. Saudis just proved EIA’s point.

  1. Earl Killian says:

    It is also worth mentioning that offshore drilling won’t provide additional energy security either.

  2. Cyril R. says:

    Drilling more oil is fine with me. Under one condition: for every dollar of gov’t and private investment in offshore drilling, at least 10 dollars must be spent on plugin hybrids and another 10 dollars on overall vehicle efficiency.

    That should pretty much solve the whole silly debate about drillin’

  3. Jerry Richter says:

    What about these two new commercial on TV that say we have plenty of oil in US for 60 years of energy.. US Dept. Energy or something… Jerry