The Offshore Oil Drilling Scam

We are being led to believe that by expanding offshore drilling we will get enough oil to eliminate our dependency on foreign oil.  They tell us that it will also lower the cost we pay at the pump.  Nothing could be further from the truth.

GOP logoIn the last week, Bush instructed the McCain gang to change their longstanding positions to support offshore drilling.  In a flash, Republican presumptive nominee John McCain, Senator Lindsey Graham (R-SC), Governor Charlie Crist (R-FL), Senator Mel Martinez (R-FL) and the rest of the party loyalists flip-flopped and lined up behind Bush.  Martinez, as you recall, only days before had called out VP Dick Cheney for his lie that China with Cuba’s help was already drilling 60 miles off of the coast of Florida.

The Spin

The Republicans are spinning this issue to a very simplistic, but inaccurate supply – demand point of view.  Well, what you do is you have a supply-demand problem.  The more domestic supply, the better we are off as a nation,” said Senator Graham on Sunday’s Meet the Press.  “I think it gets you some immediate relief,” he continued.

More spin from Senator Graham:  Cuba is doing a deal with China, potentially, to drill off our shores. So yes, now is the time at $4 a gallon, $135 a barrel oil, to find more oil and gas here at home.”  Notice how Graham has softened the ‘Cuba is drilling 60 miles off our shores’ comments from the VP to ‘potentially’.  Graham also throws the high prices at us because that is what will get the people’s support.  He never addresses the root cause of the higher prices. 

One of the buzzwords surrounding this is ‘drilling’.  They want the Saudi’s to drill more.  They want us to drill offshore.  The fact is, we want the Saudi’s to “pump more of what they’re drilling.  They’re not pumping what they could,” said Senator Joe Biden (D-DE) also on Meet the Press.  Yes, it’s a game of semantics but as we’ve learned, politicians are extremely careful of their word choice.  In this case, drilling and pumping mean two different things.

Offshore drilling facts

Oil Rig in Gulf of MexicoFirst of all, we must address that there isn’t a ‘federal ban’ on offshore oil drilling.  There are roughly 68 million acres leased (40 million offshore).  Anyone remember the videos of the oil rigs in the Gulf of Mexico as Hurricanes Katrina and Rita made their way towards Texas and Louisiana?  No, there is a moratorium on leasing the reaming 600 million or so acres to the oil companies. 

Currently, only 10.2 million acres of the 40 million available are actually in operation, pumping oil out of the ground.  That begs the question:  Why aren’t they pumping from the other 75%? 

Oil companies have 39 million acres under lease for drilling in the Gulf of Mexico, but they’re drilling on less than 8 million acres of that,” said Rep. Debbie Wasserman Schultz (D-FL).

 Why are they not pursuing what’s estimated to be a total of 70–54 billion barrels of oil at their disposal right now if they pump?”  Biden is asking a key question.  Why are the oil companies not pumping anywhere near capacity? 

Biden continues, “It’s because they want to get [the remaining 600 million offshore acres] in before George Bush leaves the presidency.  It’s because they’re not pumping the oil to keep the price up.  They are not even drilling.  So here you have 30 million leased acres they have right now that possesses 79 percent of all the offshore, and they’re not drilling.”

“And it would take 10 years for it to come online,” concluded Biden.  According to the Department of Energy, lifting the moratorium  would not have a significant impact on domestic crude oil and natural gas prices before 2030.”

Hedge funds facts

Many expert economists have already reported that the current price of crude oil that we see today has no direct relation to supply and demand, as has the US Senate.  In fact, as F. William Engdahl stated in an editorial (sourced below) “It’s controlled by an elaborate financial market system as well as by the four major Anglo-American oil companies. As much as 60% of today’s crude oil price is pure speculation driven by large trader banks and hedge funds. It has nothing to do with the convenient myths of Peak Oil. It has to do with control of oil and its price.”

EnronA key component here is the Commodity Futures Modernization Act of 2000 which was written by Senator Phil Gramm (R-TX) and Enron lobbyists.  Included in this legislation was a huge loophole that deregulated over-the-counter energy trades. This was what permitted Enron to make huge profits, as prices skyrocketed.  Remember the rolling blackouts in the west?  Then the bubble burst.  This same loophole is being used to drive up the price of crude oil.

“… [T]here is substantial evidence that the large amount of speculation in the current market has significantly increased prices. Several analysts have estimated that speculative purchases of oil futures have added as much as $20-$25 per barrel to the current price of crude oil, thereby pushing up the price of oil from $50 to approximately $70 per barrel,” at reported in ‘The role of Market Speculation’ from a June, 2006 U.S. Senate Permanent Subcommittee on Investigations report.

No longer is the price of oil being controlled by OPEC.  As a result of the oil futures trading, that control has shifted to Wall Street. 

Thanks to the Enron loophole, it is now possible to trade these energy commodities without oversight since reporting of the large trades of energy commodities is not required thus making it impossible to ‘detect and deter price manipulation.’

“A glance at the price for Brent and WTI futures prices since January 2006 indicates the remarkable correlation between skyrocketing oil prices and the unregulated trade in ICE oil futures in US markets,” Engdahl concluded.

Another factor in the increase is the devaluization of the US dollar compared to the Euro and other world currency.  As the dollar weakens, the price per barrel must adjust to world market prices thereby driving the price of gas higher. 

So politicians and the media have been playing ‘Three-card Monte’ with us as they take our attention from the real root of the high gas prices and have us focus on the irrelevant offshore drilling.  The only way out of this mess, is to close the so-called Enron loophole and seek out alternative fuel and energy sources.  

And don’t look now, but Exxon Mobil, Shell, Total, BP and Chevron are completing a deal that will return these oil giants to Iraq.



Biden and Graham quotes from

  Transcript for Meet the Press (22-June-2008)


Perhaps 60% of Today’s Oil price is pure speculation

  by F. William Engdahl (2-MAY-2008)


The Role of Market Speculation

  United States Senate Permanent Subcommittee on Investigations (27-JUN-2006)


Department of Energy’s Annual Energy Outlook 2007,  (Jun-2007)


Deals With Iraq Are Set To Bring Oil Giants Back

  by Andrew E. Kramer (19-JUN-2008)











6 responses to “The Offshore Oil Drilling Scam

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  4. Steve Cartwright

    I realize that talking of drilling and the cost of a gallon of gas is a touchy subject with most individuals, but I am considered an expert on fossil and alternate motor fuels and with global oil production. I am not aligned with any political party on this matter (both parties are sorely misinformed on this subject, as well as is the vast majority of the American public).

    I do not work with or for any oil company nor do I admit to any political party affiliation, when it comes to oil, I deal only in realities.

    First I want to correct you on one item (trust me, it is easy to do) in that the 68 million acres of off-shore leases in the Gulf, only has an estimated 54 to 70 “million” (not billion) barrels of recoverable wet crude. It is often quoted that as long as the Big Oil companies haven’t drilled in the 68 million off-shore acres, the government is not going to release any additional leases or lift the ban on new off-shore drilling licenses until they do. The lease for this oil is actually held by one company and that is RDS (Royal Dutch Shell of the Netherlands) and the reason they haven’t drilled in the area you mentioned, is because there isn’t sufficient reserves there to justify or off-set the high investment cost to drill. The area you mentioned simply has too little amount of recoverable oil to make a project like that pay off. Shell intends on allowing the lease to run out in 2010.

    The recent jump in the price of a barrel of oil was accurately predicted over 50 years ago by the late Dr. M. King Hubbert, when he (Dr Hubbert) correctly calculated that the world’s “Peak Product” limit would be reached in the first decade of 21st century, which it did between November of 2006 and March of 2007. More recently, we have seen a drop in the price of oil (from a late spring high of $146.50 down to the current $106.15), but that can be associated to several reasons. Initially, when President Bush rescinded the executive order banning off-shore drilling (an act that in reality means absolutely nothing at all, it just looked good politically during an election year, smoke and mirrors again), but just from the threat of the US allowing new off-shore drilling, the price of oil on the commodities market dropped $15 in 6 hours!

    The primary reason oil has dropped so much over the last few weeks is because the demand for oil, in the US, dropped significantly in June and July. The API and EIA have now released the US daily average petroleum use numbers for June and July and the numbers are quite interesting. In 2007, the US average daily demand on oil stayed steady at 22.1 million barrels per day, but in 2008 that demand dropped to a daily average of 19.8 million barrels.

    In 2007, the average daily (world) production of oil was 85.1 million barrels, 22 million of which was consumed by the United States (that’s 28.7% of the world’s oil supply being used by 4.8% of its population, and with the US daily production having fallon since 1970, 10.7 million barrels, in 1970, to our current production rate of 8.3 million barrels, meaning 13.7 million barrels must be imported, each and every day) and considering the increasing demand from several countries (India and China to be specific) the world demand actually exceeded the world’s oil supplier’s ability to provide product, leading to sudden and dramatic increases in the price of oil and even shortages in some countries. It should also be noted that the daily demand for oil(2007daily averages) in the state of California was more per day than India and China combined.

    I should also mention the myth of the so-called “Big Oil” companies as there is no such thing, but it looks good to mention them as the villians on the news. The largest “independent” oil company in the world is Exxon/Mobil, putting them number 17 down the list of oil companies based on their precentage of controlled oil reserves. The biggest oil company in the world is the National Saudi Arabian Oil Company and they control 22.3% of the world’s wet crude reserves, Exxon/Mobil controls 0.68%.

    All combined, the independent oil companies (there are 105 of them currently) only control 5.9% of the world’s oil reserves, while the world’s Nationalized oil companies (state or government controlled and/or owned) control 94.1% of the world’s wet reserves.

    Who are the “Big Oil” companies (US domestic) anyway? Well, it is probably you and me, as the oil company corporate management/internal investment groups only hold 6.5% of the stock in our oil companys, the remaining 93.5% of the stock is held by individual investors (23%), external IRA accounts (14%), Mutual Funds (29.5%), and various private pension funds (27%).

    Lastly, another unfortunate myth is the so-called “windfall” profits being made by the Big Oil companies, specifically the reported $10.8 billion profit reported by Exxon/Mobil during the second quarter of 2008. This dollar amount actually fell short of Exxon’s expectations by 11% and required that they reevaluate their short and long term loan agreements with numerous US banks. Also accounting for why their stock value fell more than $3.00 following their 2nd quarter report. What is not mentioned in the same sentence by the news people is the high amount of re-investment dollars absorbed by these oil companies, investment cost required by Exxon’s agressive exploration (to find more oil sources). One example (involving Exxon) is their newly established “Yastreb”rig in the Arctic, constructed to access the off-shore (6.5 miles off-shore) Chayvo oil field from an on-shore drill rig. The cost for the first completed well-head was $11 billion, but they also have proven the new technology of extended-length drilling (a world record 38,400 foot drill depth by slight angle off-set drilling pattern). Or the Chevron/Devon off-shore free-floating drilling platform (called “Big Jack2” and located 220 miles south of New Orleans) where they spent $1.1 billion on the platform and each well-head has a drill cost of $100 to $110 million (They plan on establishing 50 wells from this single deep water rig, bringing the overall cost of this one rig to a total $6.1 billion investment. Gulf depth at the drill sight is 6,500 feet, with the oil field 5 miles below that).

    You also mentioned that there seems to be a lot of oil rigs in the Gulf already, and you are of course quite correct. Currently there are 1,122 well heads (operating) in the Gulf of Mexico by US or US based oil companies. In addition, there are currently 11 platforms, representing 144 well-heads, operating off the coast of California as well.

    Steve Cartwright

  5. Steve Cartwright

    Just a quick note to correct a couple of my own mistakes in my last posting:

    In the second to last paragraph I stated; in referring to Exxon, “…is their newly established “Yastreb” rig in the Arctic, constructed to acess the off-shore (6.5 miles off-shore) Chayvo oil field from an on-shore drill rig. The cost for the completed well-head was $11 billion, but they also…..”! The $11 billion is for the complete project, not just the first well-head, (there) are plans for 100 well-heads on this single project (project name: Sakhalin-1).

    This technology will open up a lot of doors for the US energy plans, including the idea of drilling for off-shore oil in California without actually going off shore to get it.

    Also in the last paragraph I stated that there were 1,122 well-heads (operating) in the Gulf of Mexico by the US or US based oil companies. The actual (total number) of platforms is 2,919 (not well-heads) as of 8/1/08, that is if you consider all companies (US and non-US) or national agencies operating in the Gulf. At the Gulf’s peak, there were over 3,100 operating platforms, but 163 were either destroyed or heavily damaged from Hurricane Katrina. Subsequent storms have damaged dozens of others. (the total loss or leakage of oil from these damaged and destroyed platforms, from these storms, has been less that 1,000 barrels, all of which have been successfully cleaned up).

    Steve Cartwright

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