The Foundry

The left’s favorite talking point in the offshore drilling debate is dragging out the same Energy Information study predicting that lifting the Outer Continental Shelf exploration ban “would not have a significant impact” on oil prices. We have already documented how poor the EIA’s record is at predicting future oil prices, but now the Institute for Energy Research has identified specifically what makes that 2007 study’s conclusion suspect:

Historically, technological improvements and on-site exploration and development have increased technically recoverable resource estimates. For example, world proved oil reserves were estimated to be 521 billion barrels in 1971 when oil was $1.25 per barrel ($6.61 in 2007 dollars) and are estimated under present technology to be 1,317 billion barrels at an average price per barrel in 2007 of $67.

• EIA’s analysis is based on crude oil prices averaging around $50 per barrel in 2005 dollars 6 (or around $80 per barrel in 2030 assuming a 2 percent per year inflation rate), well below the current price of around $120 per barrel.
• EIA’s analysis assumes that exploration, development, and production of economical fields (drilling schedules, costs, platform selection, reserves-to-production ratios, etc.) in the OCS are based on data from fields in the western Gulf of Mexico that are of similar water depth and size. Since the majority of the resources under moratoria (55 percent) are off the coast of California, the analysis should have used data from the Santa Barbara Channel, which would have provided more realistic assumptions and higher production levels.
• EIA’s analysis assumes that leasing would begin no sooner than 2012, and production would not be expected to start before 2017. Yet, off the coast of California, some of these resources have already been leased. A report from Wall Street research house Sanford C. Bernstein says that California actually could start producing new oil within one year if the moratoria were lifted. The California oil is under shallow water and already has been explored. Drilling platforms have been in place since before the moratorium. 7 Further, Department of Interior Secretary Kempthorne announced in July a new 5 year plan that will allow leasing to start 2 years earlier, in 2010, implying production from currently unleased areas could begin as early as 2015. This new 5 year plan includes the areas under Federal moratoria.