August 23, 2011
Where can America find more income and jobs?
In January 2008, ExxonMobil and Norway's Statoil announced a promising discovery in the Julia Field in the Gulf of Mexico that may contain a billion barrels of oil. In October of that year, Exxon applied for a 5-year extension of the lease for time to develop a suitable development plan. To the company's surprise, the U.S. Department of Interior denied the request in February 2009, and has continued to turn down subsequent appeals. The company has filed a lawsuit to have the decision overturned.
The Wall Street Journal reports:
Exxon's lawsuit said the government has granted "thousands" of extensions over time. It said the government's denial of its extension relied on legal interpretations that it "had never before applied and had never before articulated." Statoil asserted in its lawsuit that no request for an extension for a deep-water development "had ever previously been denied."
Jim Brown reports that the Julia well was drilled in 6,500 feet of water to a depth 31,160 feet, numbers that continue to dazzle me with the scope of the engineering challenge involved. Brown also offers this commentary:
Exxon is known for moving slowly in developing plans for offshore production but given the complexity of developing oil fields six miles below the surface that is to be expected.
The government said Exxon did not present a firm plan for producing the oil. Duh! You have to drill it first and one exploratory well does not give you enough information to develop a "firm plan" for producing the oil in an entire lease. Nobody had ever been required to provide a firm plan in the past. This was a new and previously unneeded requirement....
Ignore the fact that thousands of workers and tens of billions of dollars would pour into this development. Ignore the fact that the federal government would receive roughly $11 billion in royalties off this development. Ignore the fact that by arbitrarily refusing the extension the production of this oil has been set back by a minimum of 5-7 years. If the lease has to go through the auction process again and someone else wins and has to develop the seismic data, drill exploratory wells, etc it could be 10-15 years before the oil is produced. This is mass stupidity at the government level.
It already took Exxon years to do all the preparation just to drill the initial exploratory well. It will take any new bidder those same years to repeat the process.
And in a separate story August 15, Brown had this:
Noble announced last week another deepwater rig was leaving the Gulf of Mexico for work elsewhere. The Noble Paul Romano had been idle since June 2010 and it now going to work for $325,000 per day for Gujarat State Petroleum in Egypt....
Since the moratorium was canceled Chevron has received three deepwater permits, BHP Billiton had four wells approved and Shell won five permits. There have been some singles awarded to other companies. The major drillers are not expecting a return to faster permit approvals until the end of 2012 or early 2013....
The rig utilization rate in the Gulf is now 54% compared to 78% worldwide.
An idle rig impacts over 1,000 workers. Some estimates are higher depending on how deep you go into the onshore support structure. Rigs have two complete shifts so a rig with 150-200 workers has twice that many with one half onshore at any given time. For an active rig there are dozens of support vessels moving men, equipment, supplies, food, etc back and forth from shore. There are the support companies like Schlumberger, National Oilwell, Weatherford, Cameron, etc, that operate as contractors to the rigs.
On shore there are supply houses, fabricators, helicopter services, regulators, inspectors, engineers, etc that work constantly to keep the rig operating.
Having these rigs on standby means they have a skeleton crew keeping the engines running and keeping the lights on. Everyone else is drawing unemployment.
That's about 10 rigs that have left the Gulf so far, and half those that remain are idle.
In other news, President Obama is planning to deliver an important speech early next month detailing the Administration's new plans for promoting jobs growth.
Posted by James Hamilton at August 23, 2011 03:06 PMdigg this | reddit
Boy, that's a harsh post.
The big players are all fine. Baker Hughes, Schlumberger, Halliburton--all are making piles of money and have plenty of work everywhere except the Gulf.
It's the local companies that have taken a pounding, the moms-and-pops, supply vessels, small fabricators--those are specifically dependent on activity in the Gulf.
As for jobs. Take a look at this map. Note the dark green states: http://cr4re.com/charts/charts.html?GDP#category=GDP&chart=PhillyFedMayJuly2011.JPG
Will Obama embrace oil? I don't think he can bring himself to do it. There will be some half-hearted acknowledgement, and then he'll go visit a solar panel facility or lithium polymer battery manufacturer. Why not visit FMC's subsea hardware production facility or Schlumberger's Palo Alto-like campus in (the unfortunately named) Sugarland, just south of Houston? Why not visit LeTourneau's steel mill in Longview, Texas, one of a few that can make the thick steel for the legs of jack-ups and the biggest mining scoops in the world? This is where real business is being done, where profits are being made and people hired. (He could stand next to the giant "We are hiring" sign outside LeTourneau's headquarters for a much-needed photo op.)
I don't think he can bring himself to do it. But it would be smart if he did.
Posted by: Steven Kopits at August 23, 2011 03:47 PM
How many jobs do reasonable models suggest the new austerity in DC will have cost us over the next five years? There are big problems in DC. Lack of alacrity in approving permits for deepwater drilling seems very, very low on the list to me.
Posted by: wcw at August 23, 2011 03:55 PM
It is disappointing to see you succumb to the type of sarcastic tone that is so prevalent in the press and blogosphere. I've always enjoyed reading your posts because of the seriousness and depth of analysis that you present. The combination of the title of this post and the sarcastic conclusion feeds into the supply side narrative (e.g., business is over-regulated) at a time when serious macro-economists know that the dominant problem we face is a severe shortfall of aggregate demand. And we are still fresh on the heals of an era of "no adult supervision" of financial markets, oil drillers, mining companies, etc.
I don't have your expert knowledge of the oil industry, and I have no information with which to rebut the charge that the government regulators are acting foolishly in this instance. I will say that, as a lifelong resident of the west coast, I don't want any oil drilling in the United States' Pacific coastal waters. Do you want to take the risk of large oil spills washing ashore near San Diego?
Posted by: Michael Hendrickson at August 23, 2011 05:33 PM
Gee, when I read about this, it was in the context of the government saying the leases had expired and the rights reverted to the government. My understanding was not that Exxon needed to drill more to make the required plan but that they weren't doing diddly and wanted to keep the field under wraps for sometime into the future while the government wanted them to develop it soon - or lease it to a company that would.
I'm not an expert on oil, but I have read about this and the information I got - which isn't from the Murdoch run WSJ - says the story is different, that it's Exxon dragging its feet.
Posted by: jonathan at August 23, 2011 05:34 PM
I loved this line:
"The major drillers are not expecting a return to faster permit approvals until the end of 2012 or early 2013...."
Interesting political dates as well. Coincidence?
Posted by: Rich at August 23, 2011 05:35 PM
These resource extraction problems always confuse my economic intuition. As a macroeconomist, I'm trained to think that higher GDP is a good thing. But as a microeconomist, I think of oil reserves as an "inventory" that we can consume now, or later, but not both. That means the GDP gain from producing the oil now has to be balanced against the opportunity cost of not consuming it later. (Much the same logic applies to the jobs created.)
Posted by: Anonymous at August 23, 2011 07:31 PM
There were no 'shovel-ready projects' because the USA is choking on regulation, not limited to Obama administration capriciousness. This is an undeniable fact.
Regulatory muck has played a role in Japan's 2 decade malaise as well. I wish we could take a lesson.
Posted by: Bryce at August 23, 2011 07:40 PM
In other, completely unrelated news, scientists continue to study the damage to the Gulf's ecosystem from last year's oil spill.
But I am sure a Professor of Economics is qualified to opine on the potential environmental damage from deepwater spills.
And I am further sure he knows how to stop blowouts on the ocean floor when they happen. Because it is very clear that BP did't have a plan to do so (like they were required to by law)
Next you will be telling me that deep water drilling in completely safe.
A misquided, and in a way, and anti-scientific post.
Posted by: fladem at August 23, 2011 08:40 PM
Exxon sat on this lease for 9 years before they found anything. That much we know.
I dont think we know the details that Exxon gave the government for future production plans so its hard to judge.
If you really want the gov't to develop its oil fields, given the information we know, its not clear that giving Exxon the extension is the best way to do that.
Throwing your hands up and exclaiming, 'well its complicated so lets just do whatever this oil company says' doesnt make for a very rigorous analysis. Randomly interjecting the word 'arbitrary' as the middle article does is a sign of sloppy, biased writing.
Posted by: jason11 at August 23, 2011 10:12 PM
Should you mention political worries about the BP spill? Why not promoting jobs in oil-saving measures and renewables?
Posted by: Ignacio at August 24, 2011 01:07 AM
The economics of bad energy and environmental policies are starting to show their ugly side.
To believe otherwise is to believe that those bad policies which protect us from potential bad outcomes out weigh their actual economic impacts.
Energy is the oil of our business, and our businesses rely on raw resources. Energy is being attacked by EPA. Those needed raw resources, many of which are available here, are slowly being choked back due to regulatory restrictions on mining and drilling in new areas or expanded in existing producing areas.
Please understand regulations have both good and bad effects. Right now the bad economic effects are more evident.
Posted by: CoRev at August 24, 2011 03:31 AM
I propose a different question: What is standing in the way of greater job creation? There are many fruitful answers. When you distill these to their essence you will find the core obstacle at Pennsylvania Avenue.
Posted by: JBH at August 24, 2011 03:34 AM
Don't forget the expensive ObamaCare mandate. That's a lot more money -- every year, forever -- than the Social-Security-trust-fund-draining "payroll tax cut" that Obama wants to boost his re-election chances.
Any business considering expansion would certainly consider the ObamaCare mandate, and that burden makes alternatives like off-shoring or automating more attractive relative to hiring.
Posted by: W.C. Varones at August 24, 2011 04:07 AM
Because of low natural gas prices, relative to 2008, the rig count for rigs drilling for natural gas is down, but the rig count for rigs drilling for oil shows a different picture:
Posted by: Jeffrey J. Brown at August 24, 2011 04:41 AM
The New Republic has a symposium on its webpage: “Is There Anything That Can Be Done?” Peter Diamond opines: “Social Security is the place to start.” This kind of silliness from a Nobel Prize winner. Then Felix Salmon: “There’s no shortage of work. There’s a shortage of workers … and global labor mobility is top of the list of prescriptions.” Huh? The inanity goes on with Stephen Rose’s: “What’s So Bad About A Slow Economic Recovery?” And the epitome of bankrupt thought from White House advisor Jared Bernstein: “The only games in town are fiscal or monetary stimulus … .”
Richard Posner, though, mostly gets it: “The persistence of the depression, however, is due in part at least to surprising failures of the Obama administration—poor leadership, poor management, the sponsorship of incomprehensibly complex health care and financial regulation laws that have created widespread uncertainty that has discouraged consumption and investment, and the inability to explain the nature of the economy’s problems to the general public.”
Now my point is just this. It is way past time that America learns what the rubber-hits-the-road impediments to growth really are. There are more than several. This blog can help. Americans need hope now, and for sure they need to know the real skinny when they go to the polls next year.
Posted by: JBH at August 24, 2011 05:29 AM
I'm glad to see a slowdown in the Gulf oil extraction business. Too bad it didn't happen earlier.
Someday, of course, that oil (IF it really exists in those quantities... which is not at all certain, since Exxon and Statoil admit they haven't much info) will be worth far more than it is today.
Posted by: wallyfurthermore at August 24, 2011 06:14 AM
Any exploration of why the rigs are idle, or why the permits are not being issued "quickly"? Possibly because it's cheaper to have your employees collect unemployment than to actually implement the correct safety measures. We don't have to remember too far back to understand the consequence of loose regulations in this field.
Posted by: DBG at August 24, 2011 06:22 AM
The incentives are clear. Increase fossil fuel prices while subsidizing green energy. The cost of this folly is born by the poor who must devote an ever-increasing share of their income to energy. The cost is also born by the workers who lose their jobs in the fossil fuel industry. I seem to recall a number like , 2 lost jobs for every green job created?
I don't have a problem with repsonsible subsidization of promising green energy alternative, or responsible regulation of the fossil fuel indistry. However, the Obama agenda of gutting the domestic fossil fuel industry is obvious and unecessary.
Posted by: tj at August 24, 2011 06:32 AM
If we allow that the economy is energy-constrained--and we clearly cannot grow our oil consumption even at current prices--then the best single way to stimulate the economy is to provide more energy. That's why jobs are growing in the oil patch and struggling elsewhere.
Within the oil sector, a handful of areas stand out, of which Jim is highlighting one here.
GoM: Gulf of Mexico production will be off 600 thousands barrels per day (kbpd) by mid next year compared to May 2010 (pre-Macondo). This is about 10% of US crude production and worth about 38,000 FTE years by our estimation.
Alaska: Shell anticipates up to 1.8 mbpd of incremental crude oil production from Alaska in the next decade, about 9% of US consumption. That's as much as the entire Gulf of Mexico production and critical for the state of Alaska.
Shales oils: Shale oil production is booming, particularly in states with significant amounts of privately held land. The map alluded to above corresponds pretty well with shale producing states. Note the poor performance of Montana, also a shale state, but with land largely held by the government. A new big challenge will be the Monterey shales in the San Joaquin Basin in California. The state used to produce as much as 1 mbpd in 1990, it's now at around 0.2 mbpd. The Monterey shales have vast potential. Will California allow its development? The state has the second highest unemployment rate in the country--unbelievable, really. (The Energy Policy Research Foundation has a very nice piece on the Bakken shales--well worth reading.)
Pipelines: That shale oil has to get to market. The Keystone XL and other pipelines are critical. These have to be approved and built.
So, the Gulf is one piece of the puzzle. The Macondo blow-out was tragic, but the Gulf rebounded quite quickly. For 40 years, the oil business operated essentially safely there.
Should we now shut everything down when the country's economy is struggling? Are the unemployed not worthy of our attention? The associated jobs are largely good-paying, blue collar jobs: construction, drilling, and logistics.
Prices are giving us very clear signals. What's expensive in the economy, if you believe the commenters here? Oil, food and other commodities (eg, gold). Then economic development should focus on producing these commodities.
Posted by: Steven Kopits at August 24, 2011 07:24 AM
This is far from the only obstacle that the Feds have place on oil producers. For example, the governor and legislature of Virginia are on record calling for exploration and production of oil and gas in waters off the Virginia coast. Yet the feds refuse to allow any activity.
Posted by: LowSmoke at August 24, 2011 07:44 AM
Sorry, but to be credible you'd have to let the Administration explain their action. I don't have any personal hostility to off-shore drilling per se, but both the environmental risks and net economic benefits are less compelling that what the industry advocates. We don't have a real discussion only competing lobbying efforts. Hard to discern facts and judgement with that as only discussion. All I know is that to listen to the industry-- natural gas obtained thru fracking is totally benign and if you'd buy that one, we have some toxic waste sites we'd like you to build on.
Posted by: Eclectic Observer at August 24, 2011 08:11 AM
The title and the content seem to have precious little or no connection to each other.
I'll tell you how 'merica can generate jobs and income.
Meaningfully deregulate intellectual property. Most patents have to be made null and void. (ex. no software patents, no process patents) The process of enforcing the patents left have to be restrained, so it is not the intellectual equivalent of a shakedown. "Nice business you have there. It's a shame I have patents that I won't discuss that I'm positive you use. Just pay me an annual license fee and I'll be on my way. Much cheaper than the courts..."
Meaningfully deregulate copyright protection. The "Happy Birthday" should be public domain by now, so too Mickey Mouse.
Once ideas can flow freely, jobs will come.
Posted by: A-meh-ric-a at August 24, 2011 08:42 AM
There is still no American appetite for stiff fuel excise tax increases. In fact, the Tea Partiers want to scrap the federal excise tax on fuel and allow individuals states to set their own tax. Wasn't Republican party presidential hopeful Michelle Bachmann just now blaming President Obama for high gasoline and diesel prices? OK....
Would anybody like to hear about my neo-decoupling theory? The US economy stagnates--literally. And the rest of the world continues to grow. American stock markets do surprisingly well while 'real Amerikans' and their politicos openly question the racial and cultural inferiority of the mulatto president, while stubbornly clinging to colonial-era entitlements to cheap land, water, food and fuel and a healthy but expensive commitment to the American version of the White Man's Burden....
P.S. The USA better accelerate the approval of the Keystone pipeline or Canada will accelerate the pursuit of alternative routes to restore US$20/bbl in revenues.
Posted by: westslope at August 24, 2011 09:06 AM
We seem to be getting a remarkably shitty deal on the royalties here - $11 billion in royalties when the field contains a billion barrels? That may have sounded like a lot ($11/bbl) when oil was at $30/bbl, but it seems downright ridiculous when it's at $100 and likely to be FAR higher by the time those wells come online...
Posted by: Matt at August 24, 2011 10:03 AM
Wait, was this post supposed to be ironic, or genuine? If this was from Menzie, I'd assume ironic, because he doesn't think production of useful goods and services have anything to do with economics, rather it's all about income distribution and aggregate "demand".
I haven't read enough Hamilton posts to know whether he's open to the concept that an economy depends upon people being able to produce useful goods and services economically.
Posted by: A.West at August 24, 2011 10:13 AM
The idea that you actually have to do the paperwork (Exxon didn't file a production plan) and the BP spill (with BP's contingency plan describing how they were going to save the seals and polar bears) seem directly related. Right now Exxon is sitting on $7.8b. I think they can hire someone (probably someone with an advanced degree) to do the work that goes along with their vaulted position. Given the velocity of their market, it won't even nudge pricing, let alone the rounding on their reporting. I'm outraged that you're outraged.
Posted by: Frank in midtown at August 24, 2011 10:50 AM
My understanding is that the Julia field dispute is really over royalty payments. If Exxon gets to extend its leases, it pays nothing until its estimated $1Billion development costs are recovered. If new leases are penned, the government immediately gets bonus fees because the fields have been shown to be productive and the royalty rate goes to 18.75% immediately after the wells start producing... See http://www.redstate.com/vladimir/2011/08/24/exxons-offshore-lawsuit-the-rest-of-the-story/
The Gulf oil royalty issue has been a hot potato for years, ever since Department of Interior lawyers "inexplicably" left out a clause in two years of deep water drilling leases in 1995 that would immediately institute 12.5% royalties in the event that oil prices exceeded $35/bbl... This spring Democrats in the house proposed an amendment to close the no-royalty until development costs are recovered clause in new deep water leases. The rule change was predicted to recover $1.5B in 2011 and $53B over the next 25 years. Predictably, the amendment was defeated by the Republican.
Posted by: MarkS at August 24, 2011 11:14 AM
Last time I checked, Obama had recently approved drilling in areas off Alaska where it had not been approved.
Posted by: Barkley Rosser at August 24, 2011 11:46 AM
We are not struggling with "peak oil," we are struggling with "peaking government."
Posted by: Bruce Hall at August 24, 2011 12:09 PM
... if shall natural gas is not satisfactory, how about this: http://alfin2100.blogspot.com/2011/08/how-to-liberate-3x-saudi-arabias-oil.html
"Reserves of oil shale kerogens in the western US states is massive -- far larger than the huge proven oil reserves of Saudi Arabia. Now a technology exists which can liberate these vast trapped energy reserves without using water or contaminating groundwater. Using this waterless in situ approach, the scenic appearance of these majestic western drylands will be unaffected, and the environmental quality of the region will be preserved."
Posted by: Bruce Hall at August 24, 2011 12:18 PM
It's not even just the offshore drilling. New York State is standing in the way of their own shale gas play, instead of embracing the opportunity that it is to bring jobs and tax revenue to the (sorry) state.
America was built on cheap energy. Our lifestyle depends on it. We have abundant energy available here if we just allow our own people to go our and get it.
Posted by: Buzzcut at August 24, 2011 12:59 PM
Facts are stubborn things. Oil is renewable, not a shelf commodity that is used and then gone. What we do not know is how the earth produces it, but it is possible that we will need to match a use rate to a production rate of oil, so as to not destroy the process that creates the oil. Similar to wiping out the Buffalo herds until the production of Buffalos by the earth collapsed. The expansion of other sources at the same time that we reduce oil use until the lines meet is good policy. It is currently bad for the U.S. economy which had become way to dependent on a source it was not producing ebough of. I am a Libertarian at heart and it kills me when Government intervenes in markets. That said, sometimes Government can do good things. While the current policy of expensive energy is hurting many people, myself included,freedom does have its price. The ending of economic slavery to the oil industry/gas car industry is a good thing!
Posted by: steve at August 24, 2011 01:08 PM
I find it so amusing that Obama's hit team is criticizing Rick Perry because he was lucky that Texas had so much oil that it could generate jobs without Perry doing anything.
I guess it is just unlucky that Obama has no drilling in the gulf no exploitation of finds in PA and the Dakotas or in Alaska and so he is not producing any jobs.
Yep, it is obvious it is just all luck.
And just where or where could those 10 little oil rigs have gone.
The ten rigs named in the document [from Sen. David Vitter’s (R-La.)] are: Marinas, Discover Americas, Ocean Endeavor, Ocean Confidence, Stena Forth, Clyde Bourdeaux, Ensco 8503, Deep Ocean Clarion, Discover Spirit, and Amirante. The rigs have left the Gulf for locations in Egypt, Congo, French Guiana, Liberia, Nigeria and Brazil.
Posted by: Ricardo at August 24, 2011 02:48 PM
I am curious if anyone has seen an academic study comparing the net number of jobs created for oil and natural gas projects versus alternative fuel projects, especially wind, over their life cycles?
After traveling to Sweeden this summer and seeing their giant wind mill farms, it stuck me that most of the wind mill's day to day operations require very minimal human intervention. It is my understanding that the wind farms have sensors and are networked back to a "command center" that is minimally staffed since the monitoring is automated and a live human is only needed for escalation.
My hypothesis is that wind mill farms illustrate Obama's point about ATMs (automation) negatively impacting employment. However, this is far worse, as we are using tax payer dollars to subsidize increased unemployment. I understand that net new jobs are created on the front end to build these alternative technologies, but what are the net jobs created over the project's life cycle? Oil and Natural Gas projects (active rigs and wells) are always in need of some type of "care and feeding" which creates on going jobs. I would be interested to see any studies that provides a net-net employment comparison.
Posted by: Will Rogers at August 24, 2011 07:17 PM
I read these comments and I realize how important democracy is. There really is no compromise possible in our polarized society. Even though about half the people will be dissatisfied after the next election, we do seem overall to accept their outcome as a legitimate exercise of the will of the people. So there is about a 50% chance that the election will see a change in oil E&P policy.
Posted by: colonelmoore at August 24, 2011 07:23 PM
Thanks Jeffrey Brown for that decisive information.
Information always trumps concepts.
Typically in reality, there is on the one hand what we think is happening, and on the other hand what is.
Posted by: Hal Horvath at August 24, 2011 09:49 PM
What about a U.S. telecommuter permanent payroll tax break. It would accomplish many things: 1) subsidize US labor; 2) reduce air pollution; 3) reduce energy prices; 4) reduce the need for the stupid continued expansion of roadways; 5) reduce automobile maintenance costs (this is huge); 6) reduce lunch costs; 7) a boon to the telecommunications industry. The savings would mostly reduce the trade deficit: eg oil and auto. How can this go wrong?
Posted by: Craig Jackson at August 25, 2011 05:09 AM
Channeling Matt Simmons? Despite some major wrongness about the Macondo blow-out near the end of his life (I wonder if it was the canary in the coal mine...), Simmons had a pretty good track record over the years, and he had been screaming from the roof tops that the US needed a massive *Government* sponsored energy infrastructure rebuild. I think he was right. A couple of trilllion spent on energy infrastructure would be money well spent. Not sure that oil under a mile of water and 6 miles of rock is the answer, but right now we don't have much choice, do we? So let's make some choices. It's stimulus that even the GOP could get behind.
Posted by: Patrick at August 25, 2011 05:19 AM
I used to visit this blog for intelligent coverage of economic issues, particularly around the time of the Jackson Hole symposium. I am surprised by many of the anti-intellectual posts and the politically strident tone. RIP another favorite of mine.
Posted by: James Gurung at August 25, 2011 06:38 AM
Is it really possible to run a modern economy without petroleum as an energy source? Can wind or solar really take-up the slack? There must be some measure of energy density that helps to explain why wind or solar cannot replace petroleum. A barrel of oil with some fertilizer is able to release enough energy to bring down a building. How many windmills or solar panels would it take to do the same? If we don't use petroleum, coal or nuclear, how can we keep from significantly reducing our standard of living?
Posted by: AS at August 25, 2011 08:27 AM
There are recurring reports of tanker truck drivers being offered six figure starting salaries, plus a $10,000 signing bonus in the Oil Patch.
With the exception of some parts of the Gulf of Mexico, the US oil industry is pretty much at 100% of capacity, in terms of personnel and equipment devoted to drilling.
Incidentally, many of the deepwater fields in the Gulf have shown very rapid decline rates. A prime case history is BP's poster child for deepwater, the Thunder Horse complex. Production from the main field has collapsed, and it looks like Thunder Horse, North is also now in decline. I suspect that ExxonMobil may have been dragging their feet because they were concerned about the economics.
Incidentally, there are press reports of fresh oil at the surface of the ocean about one mile from the Macondo well:
Posted by: Jeffrey J. Brown at August 25, 2011 10:22 AM
The oil and gas business does not need subsidies. It has plenty of money and the skill and expertise to get large projects done, even if it takes time.
The industry does, however, need appropriate regulation. In some cases this requires greater freedom and flexibility. In others, it requires clear processes that have defined venues for review and objection and a predictable timeline. And in yet others, it would benefit from a different approach (why can't we monitor all the drilling activity in the Gulf on the internet real time?).
But the industry on a whole should be viewed as one of those supporting the US economy, not one of those seeking money from the taxpayer.
Posted by: Steven Kopits at August 25, 2011 11:31 AM
Oh, to have Australia's problems!
Posted by: Steven Kopits at August 25, 2011 11:37 AM
AS: I don't think we can. At least not without a major and unforeseen technological advance. IMO, we are in big trouble.
Posted by: Patrick at August 25, 2011 11:47 AM
A similar political effort to halt new nuclear construction is taking place behind the scenes within the Obama Administration.
In spite of public statements endorsing new nuclear build, the reality is that bureaucratic road blocks are put up at every opportunity.
Personally, the new reactors I've been working on for the last 5 years are now zombies. We'll carry on to obtain a license but beyond that, further investment has been halted.
Many arguments for wind and solar resolve to the "broken windows" fallacy. An energy source should be judged by how FEW jobs it creates per salable output. Wind and solar fail on that criterion compared to oil and nuclear. The fact that a wind mill needs little human attention once installed hides the fact that the output is so low and the construction costs are so high.
Posted by: Joseph Somsel at August 25, 2011 12:34 PM
Absolute failure of analysis and reasoning in this one.
Ask the google how many places certain oil companies have been busted for egg hatching on their leases?
Ask the google, is the Macarena/Macanudo/bongobongo play still leaking into the gulf of Mexico?
Ask the google, is the oilfield workforce not an international and highly mobile workforce that follows the jobs to other places frequently?
[edited by JDH for civility]
Posted by: Buzz Filterpaper at August 25, 2011 03:03 PM
Sounds to me like plenty of lawyers are being kept employed fighting over permits. Don't their jobs count?
Excuse me if I'm underwhelmed by the job numbers associated with Gulf oil rigs. Even the article supporting the Exxon/Mobil permits has to strain credulity to get to 1,000 jobs. And just because the rig moves, that does not mean all of the jobs are lost. Those are rather specialized skills and the jobs will likely move along with the rig.
We're starting to see a fair number of "once in a century" hurricanes in the Gulf. We could be looking at yet another one this weekend. Is it really wise to be betting on extremely deep water wells in the Gulf? And given BP's lame performance with their spill can you really blame the Administration for being skeptical about oil company claims about their ability to respond to accidents?
Posted by: 2slugbaits at August 25, 2011 03:42 PM
Forget oil or nuclear power. Prisons are the new boom.
The prison-industrial complex will soon provide all the jobs America could ever want. And we're well on our way to creating the sadistic police state that will supply those endless fount of prison guard jobs and parole officer jobs and police offer jobs and SWAT team jobs, courtesy of schools that now call SWAT teams to deal with unruly students.
Posted by: mclaren at August 25, 2011 04:08 PM
The US government denied Exxon's request before Macondo.
We really are struggling with Peak Oil. When the economy starts to recover oil prices spike and kill off economic growth.
The only thing I can see in favor of Obama's position on Gulf of Mexico oil development is it will leave more oil for extraction during the 2020s. We'll likely need more oil even more badly then.
Posted by: Randall Parker at August 25, 2011 04:20 PM
Regards the link to drilling rigs active in America: That picture misleads without some background context. The vast majority of those holes drilled are to reach really small pockets of oil, right? The rigs are mostly onshore and for smaller oil fields and remains of old oil fields, no?
Our shortage is specifically in liquid hydrocarbons, which have far greater utility than energy in other forms. Electricity is far less usable because we can't store it densely. One can't, for example, fly an airplane far on batteries.
I'm expecting economic stagnation followed by economic contraction (basically a depression) as a result of Peak Oil.
Nuclear power's biggest problem is cheaper competitors for generating electricity.
Posted by: Randall Parker at August 25, 2011 04:26 PM
Are you suggesting that we have so far only been able to maintain total US crude + condensate production at between 5.4 and 5.6 mbpd since the fourth quarter of 2009, even with increased drilling (versus 1970 production of 9.6 mbpd)?
You might want to do a Google Search for: Peak Oil Versus Peak Exports and for: Jeffrey Brown + Net Oil Exports.
Posted by: Jeffrey J. Brown at August 25, 2011 06:55 PM
Steven Koppits - I never said oil needs subsidies. I said the gov't needs to build new energy infrastructure. Not the same. And yes, I think there is a market failure that only the gov't can fix. You may disagree. Fair enough. But I never said oil.
Posted by: Patrick at August 25, 2011 09:42 PM
Steven: If we allow that the economy is energy-constrained ... then the best single way to stimulate the economy is to provide more energy.
I don't know any economist that allows your premise at all. If you haven't noticed, oil prices are dropping. How can the economy be constrained by dropping oil prices? I guess if the only tool you have is a hammer, every problem looks like a nail to you.
Posted by: Joseph at August 25, 2011 10:37 PM
Re: "Oil prices are dropping"
The price of every major grade of crude oil in the world is over $100, except for WTI, which has no bearing on global supply & demand factors.
Brent, a far better indication of global markets, is currently at about $110, versus an average price for 2011 (through July) of $112. The previous annual high for Brent was $97 in 2008.
Oil prices are up because importers are bidding against each other for declining global net oil exports.
Posted by: Jeffrey J. Brown at August 26, 2011 06:42 AM
"Where can America find more income and jobs?"
The answer to the question is import substitution.
I have no pity to spare for lost opportunity in oil production. We need much bigger taxes on oil consumption - anything that retards oil production is a less satisfactory solution, but a positive contribution nontheless.
Posted by: don at August 26, 2011 12:26 PM
Dear Professor Hamilton,
Thank you for this insightful post. From reading the comments, I see folks who are suspicious of your political motives. Personally, I take your post at face value. I do wonder if Exxon "sat" on this lease too long, and therefore perhaps they should shoulder some of the blame. But regardless, it does seem somewhat ironic that we have this fabulous natural resource in the Gulf, yet the folks in Washington seem to be, on balance, mucking up the process. I would assume that the statistic on rig utilization is unbiased and relatively objective.
Posted by: Various at August 26, 2011 05:59 PM
Climate change without CO2 emission mitigation will lead to far greater job disruption over the longer term. Any new hydrocarbon production initiative should keep this in mind.
Posted by: Justin Bowles at August 27, 2011 03:42 AM
Various it does seem somewhat ironic that we have this fabulous natural resource in the Gulf, yet the folks in Washington seem to be, on balance, mucking up the process.
Oil isn't the only "fabulous resource" in the Gulf. When people connect the words "Gulf" and "mucking up" I suspect they have the BP oil spill in mind rather than government regulations. And since everyone involved in the BP spill continues to insist that it wasn't their fault but the other guy's fault, that tells us that either they're all liars or they honestly don't understand what went wrong. If the former, then why believe them now? If the latter, then how can they assure us it won't happen again?
Posted by: 2slugbaits at August 27, 2011 06:41 AM
People seem to be blaming lack of regulations for the BP spill. That is not the problem. The existing regulations would have prevented the Macondo disaster if they had been followed. BP did a lot of "shortcuts" maybe because the well was behind schedule and over budget.
Haliburton complained that there were not enough spacers used to hold the pipe at the center of the anulus (hole or the open area around the pipe, made by the drill bit which is larger than the drill pipe). This would allow the pipe to deflect and contact the sides of the bore and likely prevent the cement from forming a good seal.
Haliburton wanted Schlumberge to do an ultrasound test of the cement job to assure it had no voids. The BP rep on board turned back the Schlumberge crew and saved about $100,000 and 20-24 hours.
Next BP removed the heavier than rock drill mud from the pipe and replaced it with water which was not heavy enough to hold the oil down in the event of a blowout.
After the blowout happened and caught fire, the Coast Guard came to put out the fire. Their rules (regulations) specified foam to put out such a fire. They used seawater. Since the drillship was not secured and had open hatches to allow pipe to be transfered between decks, the millions of tons of seawater used got into the drillship and it sank.
When the drillship sank it took with it the attached pipe which then broke near the sea bottom causing the underwater spill. Had the drillship not sank it is very likely that Boots n Kooks or another oil well fire fighting crew could have extinguished the fire and the spilling oil at the surface could have been caught and tankered to refineries.
So, no, new regulations not needed. Just follow and/or enforce the existing and adequate ones.
Posted by: MN oil at August 27, 2011 10:50 PM
MN oil I don't know about others, but I was not particularly arguing that we need more regulations. Maybe we do, maybe we don't. My argument is that it's a fact of life that people and organizations will always take short cuts if there's a personal profit in doing so. People and organizations will always make mistakes. Regulations will always be ignored or misinterpreted. And how organizations respond to those inevitable facts of life can tell us a lot about how those people and organizations are likely to respond to future crises. Big Oil has a track record, particularly in Africa, of taking short cuts and abusing the environment. Big Oil has a track record of lying. Big Oil is not immune from acts of God. Accidents happen. Stuff goes wrong. As long as liability is limited, so too will be the commitment to responsible corporate governance. And do you think Big Oil is likely to be more honest & responsible under a President Sarah Palin or President Rick Perry? I'm guessing not.
Posted by: 2slugbaits at August 28, 2011 08:44 AM
If the BP spill did anything, it proved the effectiveness of dispersants and natural bacteria, and the ability of the government to slow clean up and containment, put on good theater, and drive the liability risk far beyond reality.
Posted by: aaron at August 28, 2011 03:06 PM
most of the energy we need is sunshine in AZ and wind in ND
true there are distribution and storage problems, but I'm gonna guess you would employ more people, with less environmental risk, then drilling in 6,000 feet of hurricane infested water.
I mean, we could make more jobs stripmining WV (oh wait...)
Given the spectacular failure of macroeconmics and its simple models over the last 30 years, I feel that I don't have to pay attention to economists macro gdp arguments untill you can show me 20 years of real world data showing that gdp and happyness and health and well being correlate
Posted by: ezra abrams at August 31, 2011 11:25 AM