To drill or not to drill, that is the question, baby

President Obama announced a new energy policy proposal yesterday, which appears to have surprised both environmentalists and fossil fuel interests in that the proposal seeks to open vast new areas of US coastline for offshore oil drilling.  The new drilling is combined with new regulations and policies to invest significantly in green energy resources, including new auto regulations mandating higher fuel economy standards of 35.5 miles per gallon across a company's entire fleet of cars and trucks by 2016.

But ultimately, nobody's really paying attention to the higher fuel economy standards, despite the very positive climate benefits those standards will have, when the topic du jour is offshore drilling.  Did the President really just give in to the "drill baby drill" crowd?

Well, I would argue that the answer is yes and no.  The President has just deftly given the Republican party, and its oil and gas interest supporters, enough rope with which to hang themselves, policy-wise.  Take a look at the chart below, helpfully supplied by the NY Times:

Copyright 2009 New York Times

All of the state coastlines that are now opened to new offshore drilling have Republican governors, except for Maryland, Delaware, and North Carolina.  Meanwhile, the areas north of Delaware on the Atlantic side, and all of the Pacific coast will remain off-limits to drilling, with the environmentally sensitive Bristol Bay in Alaska that was opened for exploration by President Bush now closed off for at least seven years.

The way I read it is, if Republicans want to drill so badly then let them, for as others have noted, allowing them to do what they have claimed offshore drilling would do - completely solve America's oil needs indefinitely - will be shown to be false.  Offshore drilling, because it has been anathema to environmentalists, has been built up to mythical status among Republicans, when any responsible politician would admit that there likely won't be enough oil to supply the US for long, and even then, the new oil will not affect gas prices at the pump.  The government lease and exploration process will take years, and then the companies that purchase the leases will need to actually extract and refine the oil, so don't expect any new "homegrown" oil for at least 10 years.

But that scenario only plays out if everything goes smoothly on the political end of things, and when does that ever happen?

Access to oil and gas in South Atlantic waters also would probably meet stiff resistance from the coastal states unless Congress first enacts a plan to share the billions of dollars in potential revenue from lease sales and oil and gas development. And that's not easy.

Lawmakers from coastal states that would benefit have been pushing for that, but some other senators argue that proceeds from oil and gas resources in federal waters should go to the U.S. Treasury.

Here's the thing, the governors will likely take a lot of flak from environmental and concerned citizens' groups from within their states if they agree to allow the offshore drilling, no matter where on the political spectrum they are.  What would help the governors neutralize that criticism is the prospect of increased state revenues from oil and gas development to help their states, but Congress would have to approve those deals.  Politicians never like to give up "free" money coming to their states at the expense of other states, so it would be quite a battle between the interior-state politicians and the coastal-state ones over who receives the proceeds from oil and gas development.  Hmm, divide and conquer, Mr. President?

Then there's the idea that Americans appear to have that any oil that is drilled from US territory by a multinational corporation like Exxon Mobil will automatically be sold in the US.  This is just wrong.  Oil drilled in the US will be shipped to wherever the demand is greatest in the world, just as oil is now.  While the US is currently a major consumer of oil in the world, who is to say that the oil drilled here won't be shipped to China instead?  In a few years the Chinese economy will only have grown further, so it isn't beyond the realm of possibility.

So all in all, what should we take away from these developments?  I believe this report from Kate Sheppard at Mother Jones provides a clue:

Environmentalists are not just angry that Obama is giving away the store on oil and gas drilling, they also feel that he's basing his decision on a dubious premise—that more drilling will enhance the nation's energy security. The US currently imports 57 percent of its oil, according to the Energy Information Administration. The nation accounts for 23 percent of total world oil consumption, but has only 3 percent the world’s oil reserves within its borders. Drilling off every coast in the US won’t resolve that issue. Even the most productive portion of the area opened to drilling, the eastern Gulf, is expected to yield only 3.5 billion barrels of oil. The US consumes 19.5 million barrels of oil per day, which means that these wells would only produce about 180 days worth of oil. And at current global oil prices, recoverable American-produced petroleum isn't likely to be cost-competive. (emphasis added)

Did you catch that?  For any offshore drilling to occur in this country, the oil companies have to actually believe that there is enough oil for them to recover before they make any capital investments.  It's dubious whether a sufficient amount of oil exists in these newly-opened areas to make it worth the oil companies' while to drill.  And therein lies the rub - President Obama just gave the Republicans and oil companies the access to offshore oil wells that they've been clamoring for for years, and now they're going to have to work to roll back Americans' expectations of just how much oil there is within our borders.  Republicans will have to explain to Americans that just because oil companies now can drill offshore, gas prices will not drop back to $1.50/gallon, indeed:

"Where are the Republicans out there talking about how crude is going to go down" when drilling is allowed, "because oil certainly isn't reacting to it today," said Michael Masters, a hedge fund manager who's testified repeatedly before Congress that big inflows of investment dollars are driving up oil prices, not supply shortages. "It's not a supply and demand issue. ... Crude is detached from the fundamentals."

Masters is referring to oil futures markets, where speculators have notoriously been driving up the price of oil for years now, apart from any increase or decrease in production.

So Obama has managed (it appears thus far, anyways) to divide Republicans on oil drilling, while simultaneously putting them on the defensive regarding their previous claims of the amount of oil the US truly has within its borders.  With the Trojan Horse of offshore drilling, Obama managed to slip by the first increase in vehicle mileage standards in nearly 30 years, a move that on any other day would have provoked howls of protest from the Republican side of the aisle.  On balance, it appears that the positive environmental effects of the new vehicle mileage standards regulations may well outweigh the negatives of offshore oil drilling, but Obama was able to distract the other side (and much of the media) from noticing with the shiny, glossy offshore drilling announcement.

And as for the environmentalists, well I noticed a curious coincidence regarding two of the largest environmental organizations, the Sierra Club and Greenpeace, see if you notice a certain similarity:

"Is this President Obama's clean energy plan or Palin's drill baby drill campaign?" quipped Greenpeace Executive Director Phil Radford in a statement on Wednesday.

“Drilling our coasts will do nothing to lower gas prices or create energy independence,” Michael Brune, executive director of the Sierra Club, said in a statement. It will only jeopardize beaches, marine life, and coastal tourist economies, all so the oil industry can make a short-term profit.” (emphases added)

So both Greenpeace and the Sierra Club released statements, indicating that they were notified ahead of time about the drilling plans, and taking a look at their websites (Greenpeace, Sierra Club) there was either no mention of Obama's announcement on the Sierra Club website, or just a rather rote statement from Greenpeace's Executive Director.  If this plan were so terrible, wouldn't the greens be shouting into any TV camera they could find about how terrible it is?  Could it be that they're in cahoots with the President on a strategy to mollify the "drill baby drillers" while the actually environmentally progressive legislation gets passed in the background?  I think that the President and the enviros are betting that in the time it takes for any sort of viable oil drilling operations to get set up offshore, the US would have already begun the transition towards alternative fuels, obviating the need for major drilling operations at massive costs.  Also, the Bristol Bay area that has now reverted back to protected status in the Obama plan was a key sticking point with environmentalists, so it's not as though they lost out entirely.  But then again, I could be totally wrong.  I just find the curiosities of this particular announcement and the context surrounding it too intriguing not to try to suss it out.  Time will tell.