Friday, August 01, 2008

My but he is limber

Good. This whole argument about offshore drilling is ridiculous, so don't even let McCain use it as an issue.

Obama's basically saying to the American electorate: "Look, I've seen the polling. I realize you've been sold on this stupid idea. So fine, if it makes you happy, I promise I'll give it a serious look."

This is small potatoes. The oil companies already have plenty of relatively promising prospects that could be developed profitably at these oil prices. What's preventing them from drilling everywhere one might reasonably expect to find oil isn't regulation as much as the scarcity of rigs. More are being built, but for the forseeable future they are extremely costly. The basic ones run about $80,000/day and the more sophisticated (deep water) ones run about $400,000/day.

Here's a chart of rig dayrates going back to '05 (by which time they had already gone up a lot). You can still see the dramatic increase in the last 3 years:

That's utilization on the right axis of the graph, and you can see the red line steady around 100%. If the areas off Florida were especially promising, you could make the argument that the highest use of the rigs was being prevented by federal regulation. But the most active markets right now aren't near the US Gulf. The're in places like the Indian Ocean, offshore Brazil, the North Sea, West Africa... and of course the Middle East. That's where the really big projects are. It's not like producers are going to suddenly swarm en masse to the U.S. when the restrictions are lifted, just because it will make Bob in Toledo feel more "energy secure."

So go forth and pander, BO. Do what you gotta do. It's a completely phony issue.

Chart via Energy Current

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