Tuesday, September 23, 2008

Another reason for a "deep breath before...

the plunge" on the bailout. If this AP report is true:

Democrats have decided to allow a quarter-century ban on drilling for oil off the Atlantic and Pacific coasts to expire next week, conceding defeat in a months-long battle with the White House and Republicans set off by $4 a gallon gasoline prices this summer.

We should see another big drop in oil prices and eventually local energy costs. It will be the equivalent of a big tax break.


Stephanie said...

But isn't there a ton of leased but undrilled land already, i.e. an abundant supply? This says that there are 70 million acres of land that have been leased but not drilled (out of a total of 90 million leased), as of June 2008. See here: http://money.cnn.com/2008/06/23/news/economy/oil_drilling/index.htm?cnn=yes

If that's accurate, then the opportunity to drill in still more places may not have any effect on oil prices, right?

Scooter said...

I don't think that leased but undrilled land, er, sea (what does one say here?) necessarly equates to abundant supply. The existing leases, as far as I can tell, aren't all that likely to yield any results. The lift of the ban in the eastern gulf seems especially likely to yield results. One thing I trust is that those who can make more money will endeavor to do so. Not necessarily pretty but true I think.

With all the new drilling going on here in Texas and neighboring states (Dallas is awash in new wells) with clients and friends, I know first-hand, even if only anecdotally, that it is much more profitable to drill now than is has been in ages. Whether that will translate off-shore remains to be seen. I hope it does for the "tax effect" stated earlier.

If one accepts the premise that the executive lift on the off-shore ban had a positive effect on the recent decline in gasoline prices, then the expiration of the congressional ban can only help more.

(I freely acknowledge that part of the recent decline in prices was due to the end of summer formulas, both of which we seem every single year.)