Offshore drilling in U.S.–how would we benefit since oil companies would be the ones drilling?
I wonder about this as they are in the business of making profits. Yes, it will provide more oil/gas, BUT they’ve got to build more refineries, etc., and they are going to charge someone for that expense (us) and then make a profit off the gasoline they sell. It isn’t government owned, like in Venezula where they are only paying pennies per gallon, so it will be big business as usual, at the expense of our environment. Even with these high prices we’ve paid and been paying, those oil companies have received record profits–I don’t see that changing even if we drill locally. I am for an alternative, environmentally safe type of energy–what do you folks think? As Lewis Black says, get a bunch of scientists together and put them in a room, surround them with the military, and give them a deadline to come up with a workable safe energy source or they’ll be killed!—Just kidding, but it was funny………..
February 13th, 2010 at 3:19 pm
In simple terms, offshore drilling would increase the supply of oil. The demand would remain constant, so the price goes down.
In reality, it’s a lot more complicated than that. In theory, oil is a commodity, and the price is the "marginal" cost. That is, they sell it to us at not much more than it costs them to produce it. Otherwise, we’d just go buy it from a competitor who’d be happy to take all the business in exchange for slightly lower profits.
The oil companies love to point out that although their aggregate profits are large, their profit margins actually aren’t all that high. They’re lower than in a lot of other fields. It’s just that the total is so big because the companies are so big. They can’t lower the price much without making the profits disappear entirely.
But it’s still more complicated, since there are various forms of collusion, preventing the price from falling to the marginal cost. Some of that collusion may be illegal, but if it happens overseas, there’s nothing to prevent it.
Further, prices won’t change soon, since the actual drilling can’t take place for years, after a fair bit of exploration. Who knows what the price will be then, so tracking the actual gains would be impossible. It’s further complicated by the long-term contracts, where people try to lock in the price of gas today to hedge against rises in the future, which both brings future prices right now and hides price drops.
And it’s yet more complicated because you have to price in environmental effects. Either you can pay before (with more expensive drilling techniques) or after (paying for cleanup), but you do pay.
So… ther’s the supply and demand answer, and the complex answer, which is more, uh, complicated.
February 13th, 2010 at 3:19 pm
You’re right in many ways. It’s a short term solution to a long term problem, and it will only put off longer our dire need to get our energy elsewhere. It’s politically popular for some reason, though. I guess people figure that if we can get our energy from our own resources, we’ll somehow avoid the market forces of world oil trading. I guess the reasoning behind giving permission to drill stems from Reaganomics, and I don’t agree. I believe our public policy should encourage alternative energies by making fossil fuels less attractive.
February 13th, 2010 at 3:19 pm
Actually it is better to use foreign oil at this time while it is cheap, as it gets more expensive we can drill here and sell the really expensive oil to the Arabs .
February 13th, 2010 at 3:19 pm
I am assuming you mean how will this help the U.S?
From an economic viewpoint:
It will help by creating jobs to build all those refineries that you mention. All of those refineries will require countless materials, parts, pumps, pipes, welders, electricians etc etc from various business contractors that large companies (such as oil companies) use. These large oil companies will then need to find the oil and enlist help from Oilfield service companies. Are you seeing how such an idea starts to generate jobs? I don’t understand you concern for "charge someone for that expense (us)"…they will likely have to PAY billions in order to do this. Yes you are right, you will pay for gas to drive you car, that is the product they sell. It’s a business. Now, whether it will lower the costs we see here, hard to tell. I think it will only delay it.
From an enviromental viewpoint:
I agree, it does not do much for the environment but there are various techniques that could be used such as CO2 seaquestration once these wells have been drilled. This is a tough issue to discuss, but remember you posted this in "engineering" and I can assure you that if engineers could design or come up with something that is the miracle cure they would have long ago. Also remember to approach these renewable energy types with caution & realize too that everything is a business today, and many of these technologies will never see a return on the investement and essentially never even pay for themselves. Solar energy is probably my best example of this as it is expensive to produce, maintain, and yet does not deliver that much power. Granted, it’s clean, but it certaintly is not free.
What do I think we should do? Nuclear Energy. Zero Emissions, creates lots of jobs to build and maintain the plants, and the energy content is similar to fossil fuels. But a lot of people don’t understand nuclear energy and are more afraid of it then they should be.
EDIT: Above I mention refrineries…I meant drilling platforms, offshore rigs, etc.
February 13th, 2010 at 3:19 pm
Everyone is in favor of an alternative to oil based fuels, but until one is discovered and becomes available at a reasonable price, we are going to remain dependent upon oil. There is no reason that we can’t drill for oil and work on alternatives.
We will not need to build new refineries. We have the refining capacity already. The only difference would be that our refineries would be refining oil pumped by an American company instead of purchased from a foreign company.
Now, how will we benefit from offshore drilling? Let me count the ways:
First of all, the drilling will be on land owned either by the states or the federal government, depending on where they will be drilling. So, the government will be getting paid a lot of money for the oil that is drilled. (The usual percentage is around twenty five percent.) So, we, the taxpayers will all benefit that way. Drilling for oil offshore employs many, many people–roughnecks, welders, geologists, clerks, accountants, lawyers, sailors, etc. So drilling for oil offshore will put a lot of people to work. That is a major benefit. All of the people in the section above will be paying taxes. When the oil is sold, the states and federal government collect quite a bit in the way of tax revenue, benefiting us all. We will not be using dollars to buy the oil from foreign countries, thereby lessening our outflow of money and strengthening the dollar, making it easier for Americans to buy foreign goods. The profits earned by the oil companies will either be reinvested in finding more oil, there by increasing economic activity further or be paid out as dividends to shareholders. You know how the biggest single group of investors in securities are? Retirement funds are–pension plans, profit sharing plans, 401(k) plans, etc. So, any profit that the oil companies make with either lead to more investment or go to pay investors, most of whom are just working stiffs with a retirement plan. Consumers would be have cheaper oil to power their cars and heat their homes. The bottom line is that everyone would benefit from offshore drilling.
February 13th, 2010 at 3:19 pm
I completely agree with Soliton’s response. Drilling for oil & natural gas within the US benefits everyone and not just oil companies. That includes the US Government, State Governments, many other companies, plus very high paying jobs for individuals. We should be concentrating our efforts on decreasing our dependence upon foreign oil imports instead of continuing to import 75% of our needs as we due at the present time. That includes drilling in the US for both oil & natural gas plus development of alternative energy sources. Just look at what has happened over the past few years with US natural gas development. New, unconventional resources of natural gas (mainly shale gas) are being developed due to implementation of newer technologies resulting in a large increase in US natural gas production and lower natural gas prices to the consumers.
If the US can find economical methods to extract oil from the oil shales located mainly in Colorado and Utah, we will have another huge resource for energy. However, that is proving to be a challenge to the many companies operating small pilot projects within the oil shales as permitted by the US Government.
There are all types of research going on as to alternative energy sources and we have been developing the majority of those alternatives since the 1970’s just too slowly for most folks. Having a thorough US energy policy exploring all our alternatives is very much laking at this time and not likely to occur under this administration.
February 13th, 2010 at 3:19 pm
The larger the supply, the lower the price of the product. Peope/stores have the product in great supply, if they wish to sell it they must have the lowest price. Speculation has more of an impact on price than supply & demand. Speculation is based on the fears or jitters of the buyers.
If they are buying oil that will not be on the market until January, they speculators pay what it takes to get their hands on the oil. They have no idea what the market will look like then, but you pay the price thay speculated on.
An alternative, environmentlaly sage form of energy will face the same problems. We have those fuels, the problem is that they are more expensibe than the petroleum based products. Someone is making a profit off them, similar to the profit made by big oil. Some day, big oil will be a thing of the past, however, there will be someone or something to get an unfair share of a person’s income.
The rules of the game seem to indicate, the average person is not suppose to make too much money or keep too much of their hard earned wages. History is full of the people who pay, & the people who receive the payments.
Maybe Congress could be put in an adjoining room & not let out until they straighten out a few of their messes. The same military could keep them there, just a simple cost saving measure.