Politicians have a knack for citing statistics that support their positions. Those who are opposed to increasing domestic supplies of energy are especially adept at citing statistics that make it seem as though it is “not worth it.” Government reports, while not all wrong, can be rife with such statistics.
Recently, for example, some have pointed an Energy Information Administration (EIA) report that estimated the amount of oil we could produce on the Outer Continental Shelf (OCS) if the drilling ban were lifted. EIA estimated this to be approximately 200,000 barrels per day. 1
Unfortunately, this figure – and the data it was based on – is fatally flawed. For example:
- 200,000 barrels per day is roughly equal to the daily production rate of just one new offshore platform in the Gulf of Mexico. The Thunder Horse oil production facility, which will be on line this year, is designed to produce 250,000 barrels per day. 2 The Atlantis oil platform currently producing in the Gulf of Mexico has a production capacity of 200,000 barrels per day. 3
Despite these facts, the EIA projects that lifting the bans that prevent production on 85 percent of the OCS acreage surrounding the lower 48 states will yield an amount equal to that which can be produced from just one of these platforms. Obviously, the projections are flawed.
The EIA assumed that technically recoverable undiscovered oil resources in off-limits areas of the OCS total 18.2 billion barrels, based on the Department of Interior’s Mineral Management Service’s Report to Congress (February 2006). 4 But technically recoverable resources are based on current technology and economics.
Historically, technological improvements and on-site exploration and development have increased technically recoverable resource estimates. For example, world proved oil reserves were estimated to be 521 billion barrels in 1971 when oil was $1.25 per barrel ($6.61 in 2007 dollars) and are estimated under present technology to be 1,317 billion barrels at an average price per barrel in 2007 of $67. 5
- EIA’s analysis is based on crude oil prices averaging around $50 per barrel in 2005 dollars 6 (or around $80 per barrel in 2030 assuming a 2 percent per year inflation rate), well below the current price of around $120 per barrel.
- EIA’s analysis assumes that exploration, development, and production of economical fields (drilling schedules, costs, platform selection, reserves-to-production ratios, etc.) in the OCS are based on data from fields in the western Gulf of Mexico that are of similar water depth and size. Since the majority of the resources under moratoria (55 percent) are off the coast of California, the analysis should have used data from the Santa Barbara Channel, which would have provided more realistic assumptions and higher production levels.
- EIA’s analysis assumes that leasing would begin no sooner than 2012, and production would not be expected to start before 2017. Yet, off the coast of California, some of these resources have already been leased. A report from Wall Street research house Sanford C. Bernstein says that California actually could start producing new oil within one year if the moratoria were lifted. The California oil is under shallow water and already has been explored. Drilling platforms have been in place since before the moratorium. 7 Further, Department of Interior Secretary Kempthorne announced in July a new 5 year plan that will allow leasing to start 2 years earlier, in 2010, implying production from currently unleased areas could begin as early as 2015. This new 5 year plan includes the areas under Federal moratoria. 8
1. EIA, Annual Energy Outlook 2007, February 2007, page 51, http://tonto.eia.doe.gov/ftproot/forecasting/0383(2007).pdf.
2. Thunder Horse: No Ordinary Project, http://www.bp.com/genericarticle.do?categoryId=9004519&contentId=7009088.
3. Atlantis Platform, Gulf of Mexico, USA, http://www.offshore-technology.com/projects/atlantisplatform/.
4. EIA, Annual Energy Outlook 2007, February 2007, page 51, Table 10, http://tonto.eia.doe.gov/ftproot/forecasting/0383(2007).pdf.
5. EIA, Annual Energy Review 2007, Tables 5.19 and 11.4, http://www.eia.doe.gov/emeu/aer/contents.html.
6. EIA, Annual Energy Outlook 2007, February 2007, Table A12, page 158, http://tonto.eia.doe.gov/ftproot/forecasting/0383(2007).pdf.
7. Article by Larry Kudlow, July 15, 2008, http://kudlow.nationalreview.com/post/?q=NjMyNDljNTQ5MThjNWE3YTAzYWYzMmZmNDVmMjA0ZWY
8. Department of Interior Press Release, http://www.doi.gov/news/08_News_Releases/080730a.html.
