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April 6th, 2010

Update1: Off-Shore Drilling Is Back In the Picture

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Update1: While the motive behind the president’s proposal to drill for oil off the East Coast and around Alaska may have been part of a larger strategy to pass a sweeping energy and climate bill down the road, rising oil prices may (once again) provide another reason to begin drilling in U.S. waters:

Crude prices inched 25 cents higher to $86.87 a barrel. Prices are up over 5% since last week and over 70% since April 2009. That’s their highest level since Oct. 8, 2008, when crude settled at $88.95.

Click here to continue reading a very-informative, yet easy to understand article from CNNMoney.com; it breaks down why and by how much prices are rising, what the analysts are saying and it gives some indications of what lies ahead.

Original Post (published on 03/31/10): It has been over a year since we last wrote a post on off-shore drilling. While we have been primarily housing and mortgage focused for many months now, I felt our long-time readers — as well as our newer readers — would appreciate an update and some insight into why President Obama has re-introduced this concept.

The president detailed his proposal today to begin drilling for oil and natural gas off the East Coast (from Delaware to central Florida), the eastern Gulf Coast as well as areas around Alaska.

Why?

Certainly, the president’s proposal may come as a shock and disappointment to many Democrats, east-coast governors and environmentalists, but the president says there are several reasons why he is taking up the idea:

The proposal is intended to reduce dependence on oil imports, generate revenue from the sale of offshore leases and help win political support for comprehensive energy and climate legislation.

Below is a timeline of the recent events and the discussions in Washington that have led up to and perhaps influenced this latest proposal:

June, 2008: President Bush proposed ending the nearly 30-year-old ban on off-shore drilling to help lower gas prices. After his proposal was rejected, Bush blamed Democrats for stalling efforts to increase oil production.

August 2008: House Speaker Nancy Pelosi proposed incorporating off-shore drilling into an energy bill. Both Pelosi and then Senator and presidential candidate Barack Obama showed a willingness to ease staunch Democratic resistance to expanded offshore drilling in order to compromise and pass a bill on the hot-button topic of energy.

February 2009: The recession is the reason behind the rekindled conversation this time around. Oil executives testified before the House Natural Resources Committee, claiming that off-shore drilling could create an estimated 76,000 jobs.

Click here for a visual representation of where the proposed drilling would take place.

I can certainly understand and sympathize with the arguments for each side of the off-shore-drilling debate. While I can comprehend the motives of those for and against the proposal, it’s essential that we understand just how fruitful this endeavor can be before we move forward.

John Broder of The New York Times writes that, “It is not known how much potential fuel lies in the areas opened to exploration, although according to Interior Department estimates there could be as much as a three-year supply of recoverable oil and more than two years’ worth of natural gas, at current rates of consumption. But those estimates are based on seismic data that is, in some cases, more than 30 years old.”

Readers: Let us know your opinion on off-shore drilling, leave us a comment below. Is a three-year supply of oil even worth it?

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6 Responses to “Update1: Off-Shore Drilling Is Back In the Picture”

  1. Chris Says: March 31st, 2010 at 1:07 pm

    He kissed up to the health insurers and big pharma. Now he’s doing it for big oil and oil services. This President sure knows how to pucker. (But don’t they all?)

    I almost feel sorry for all those true believers who thought he was the messiah. When will people ever learn?

  2. P L O Y Says: March 31st, 2010 at 1:09 pm

    This is a well timed political maneuver. Nothing more, nothing less.
    Ob has read the tea leaves and wants to cool the center-right even though it will bring wrath from a segment of the left. Just a matter of applying political leverage at the right time. Before the election it was all about clean energy. That message resonated with the entire left. Now, it’s about robbing power from the energy debate before the coming election. Timing is everything. Ask Ob’s squeak toy Gibbs. He’ll tell you so with a straight face as long as the cameras are rolling.

    We could have been accessing huge reserves of oil & NG long ago without the offshore debate. Don’t believe me? Google “USGS Bakken”

  3. Tim Manni Says: March 31st, 2010 at 2:53 pm

    Hey Chris,

    Good hearing from you again. Politics has a lot to do with back scratching. There’s no doubt this proposal is just, I don’t want to say ploy, but a tactic to get a larger energy bill passed.

    Thanks for commenting,
    Tim

  4. Tim Manni Says: March 31st, 2010 at 2:58 pm

    P L O Y,

    I agree that “This is a well timed political maneuver.” If there’s only three years worth of oil off the U.S. coast do you still consider that “huge reserves?”

    Thanks for commenting,
    Tim

  5. Gordon Says: April 1st, 2010 at 9:07 am

    This all sounds well and good, but I agree with PLOY regarding the fact that 3 years reserve is not really all that much in the grand scheme of things. Although it will create a lot of jobs over the next few years, so would putting this money towards more eco-friendly energy sources such as wind and solar (for homes) or research for alternative fuel sources for cars.

  6. Tim Manni Says: April 1st, 2010 at 10:01 am

    Hey Gordon,

    Thanks for the comment. I agree that three years may not be worth the effort, especially since the planning, the construction and the drilling would take years in itself just to set up. The NY Times articles did say that the three-year figure was partially based on dated research. Living on the east coast, I hope that these oil rigs would be far enough off shore that they couldn’t be spotted from the beach. The rigs off the coast of Virginia they say will be 50 miles off shore. However, the Times goes on to say, “Interior Department officials said no wells would be allowed within 125 miles of the Florida and Alabama coasts, making them invisible from shore.” Does that mean beach goers will be able to see the rigs that are only 50 miles off shore? I can only speak for myself, but I don’t want to vacation at a beach where I can see oil rigs off in the distance…that’s just not appealing.

    I can’t say for sure b/c it doesn’t exist yet, but you can bet that if Obama is endorsing off-shore drilling, the sanction to do so will be included in a much larger energy and/or climate bill, one that includes a lot more clean-energy technology (i.e. “eco-friendly energy sources such as wind and solar (for homes) or research for alternative fuel sources for cars.”).

    Great hearing from you again, thanks for commenting,
    Tim

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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