Free Markets, Free People

moritorium

If ignorance is bliss, this is one happy White House

The cluelessness continues in the White House about the impact of the 6 month moratorium on drilling in the Gulf in waters over 500 feet. Taking the BP disaster as 100% certain without out such a moratorium, the administration has effectively stopped work on 33 deepwater exploration rigs in the Gulf . Energy Tomorrow gives a good round up of what the experts are saying about this policy:

•Adam Sieminski of Deutsche Bank predicted that U.S. oil production could fall by 160,000 barrels of oil per day by next year. (Financial Times)

•Bernstein Research said delays from the moratorium and rising costs stemming from new safety regulations are likely to raise the marginal cost of deepwater production by about 10 percent. (Financial Times)

•Paul Cheng of Barclays Capital warned that the higher costs could eliminate small independent companies who compete for drilling projects against the majors. (Financial Times) He also predicted an 11 percent drop in deepwater oil production. (Houston Chronicle)

•The Houston Chronicle reports that two large oil-services companies are relocating workers from the Gulf of Mexico to onshore North America drill sites and Brazil.

•The National Ocean Industries Association (NOIA) predicts that relocation is just part of the pain to be suffered by energy workers. Burt Adams, NOIA’s chairman, said in a statement, “the [president's] order will be felt by the families of tens of thousands of offshore workers who will be unemployed.”

The American Petroleum Institute (API) estimates that the moratorium will cost us 130,000 barrels of oil a day by 2011 and up to 500,000 a day by 2013. And it could put up to 46,200 jobs at risk short-term and as many as 120,000 over the long term.

So the blanket moratorium has some real down-side to it. And it is important that our leaders understand that and are sensitive to it, especially when we’re in the economic doldrums right how, the oil spill has all but devastated fishing in the area and the resort towns who normally thrive in the summer are feeling the impact of the spill. Risking that many jobs with a blanket moratorium is just not good policy.

So how sensitive to all of this is the White House? Louisiana governor Bobby Jindal found out recently:

Jindal said he had a conference call with President Barack Obama’s senior adviser, Valerie Jarrett, and appealed to her to shorten the six-month moratorium, arguing that a half-year pause would force oil companies to move drilling operations overseas for years and that the federal government could easily impose new safety standards and monitoring in a shorter time frame.

“She asked again why the rigs simply wouldn’t come back after six months,” Jindal said. “What worries me is I fear they think these rigs can just flip a switch on and off.”

Gross ignorance is all that can be called. These rigs cost about $500,000 a day for oil companies. You do the math. Those owning the rigs probably wouldn’t mind sitting around, doing nothing and getting paid 90 million for each rig. But the oil companies are going to move them, while they have them under contract, to foreign leases they own in order to seek oil.

Exploration rigs have always been at a premium (which is why their daily rate is so high), and they’re constantly working somewhere – as long as the price of oil supports such exploration. But since half a year is the apparent non-negotiable moratorium, those rigs are going to pull up stakes and move to foreign leases – leaving the oil untapped, and providing jobs elsewhere. We end up with higher unemployment and more dependent on foreign oil than ever.

And our leaders haven’t a clue.

~McQ

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