By Joe Petrowski,
President Trump deserves the industry’s support by allowing off shore drilling in US waters.
The reasons for this are numerous including, believe it or not, environmental. While crude oil is making new three-year highs mainly because of world-wide economic recovery, everyone recognizes low energy prices are essential for economic prosperity.
Presently we consume 20 million barrels/day, produce 11 million barrels and import nine million barrels. While we are producing more than we are importing for the first time in modern history—and that is a remarkable accomplishment—we are not “self sufficient which would producing more than we consume and therefore become a net exporter. Of the 11 million bbl/d we are producing, eight million barrels are coming from on shore traditional fields and “tight oil” liberated by shale fracking. Only three million barrels are coming from off shore, but given proven reserves and new technology that has driven the costs of finding and extracting this oil to under $60/barrel. We can easily double off shore production in next five years to 16 million bbl/d. While shale oil has been a game changer it’s downside is a steep decline curve once production starts, so access to off shore will keep the US crude production curve ascending for the foreseeable future.
- The US consumes 190 billion gallons/year of transportation fuel, so a 10 cent rise in prices takes $19 billion out of our $19 trillion economy, and with a particularly negative impact on the largest component of GDP (consumer spending). The multiplier affect takes 1% of off GDP (witness the Great Recession was ignited by $100/barrel oil (though leverage was the kindling).
- US oil (lighter and lower in sulfur) keeps our refineries running, and helps us export refined products reducing our balance of payment problems.
- With the US producing more than it consumes we—not OPEC or the USSR—become the marginal price setter globally. This makes us more powerful and influential on world stage
- US firms can and will take every precaution to drill responsibly given what happened to BP (a loss of 55% of market value or $88 billion) after Deepwater Horizon. Also, most oil spills have occurred in transporting oil especially by rail and water. Drilling and extracting has had minimal discharge. Moving crude by pipe from wells to onshore refineries is much cheaper and safer than moving oil by rail or vessel.
- No foreign firm especially China, USSR, and Saudi Arabia—all of whom have indicated they would like to drill in our waters—will be as responsible and subject to tort proceedings.
- With more competitive taxes, the rule of law, low energy prices, the best technology and largest domestic market we will see a manufacturing boom underpinning 4% or better growth. Most of production exceeds 50% in energy input costs and some like steel and glass approach 80%.
While lower energy prices help the home team and hurt the despots and oligarchs we will always have volatility and price spikes in oil. The Sunni-Shia conflict, China, Japan and Korea becoming aggressive in the South China Sea, socialist Venezuela imploding and Africa are hotspots, but when and if there is a spike the US will benefit (though unevenly by region). All energy price spikes in the past fueled inflation, and an economic downturn
In conclusion, keeping the US production curve ascending, the price curve descending and shaving the peaks off of price spikes is the right public policy for US energy, and as long as we have the rule of law and an ample supply of trial lawyers (the one commodity never in short supply) we can and will drill offshore responsibly.
Joe Petrowski has had a long career in international commodity trading, energy and retail management and public policy development. In 2005, he was named President and CEO of Gulf Oil LP and elected to the Gulf Oil LP Board of Directors. In October 2008, he was named CEO of the now combined Gulf Oil and Cumberland Farms, whose annual revenues exceed $11 billion and who now operates in 27 states. In September 2013, Petrowski stepped down as CEO of The Cumberland Gulf Group. He is now the Managing Director of Mercantor Partners, a private equity firm investing in convenience and energy distribution. Joe is also a member of the Gulf, Yesway and Green Print, LLC boards.