Think Again

Think Again: Offshore Drilling

President Obama told residents of the gulf states this weekend that he feels their pain. But the best way to help the gulf would be to let his ill-advised drilling moratorium expire early.

"Stopping Offshore Drilling Is Good for the Environment."

Not in the United States, it isn't. When BP's Deepwater Horizon oil rig exploded in the Gulf of Mexico on April 20, it began what is certainly the biggest environmental disaster in U.S. history. Four months later, the spill has finally been contained, but the political fallout has not, and many Americans would like President Barack Obama's six-month moratorium on offshore drilling in the gulf made permanent.

Yet bad as the spill certainly was, such a move would actually do more harm than good. If U.S. fields closed down, oil companies would simply take their business elsewhere, mostly to countries with much weaker environmental standards. Of course, the harm wouldn't be as visible to Americans. But protecting the U.S. coastline at the expense of other countries is hardly environmentally friendly.

With the exception of Canada, the major oil suppliers to the United States -- Saudi Arabia, Nigeria, Venezuela, Mexico, and Russia -- all have autocratic governments that can get away with damaging their environment without any political repercussions. And they know that protecting the environment costs money and reduces profits. So, by and large, they don't do it.

Some of the resulting disasters remain local. Take Nigeria, which has about 2,000 active oil spills and spills an amount of crude equal to the Exxon Valdez each year. Oil fouls fields, rivers, and Nigeria's coast. It destroys ecosystems and sickens people, but it doesn't affect Americans.

Other environmental injuries have worldwide effects. Methane, a common byproduct of oil production, is a powerful greenhouse gas. In the United States, methane is typically captured and pumped into the natural gas system or reinjected into oil wells. Relatively little escapes. In many other countries, however, methane is simply vented into the air, where it contributes to global warming. Mexico produces less than half the oil the United States does every year, but it vents six times more methane into the atmosphere.

Finally, shipping oil has environmental costs. Oil tankers consume the equivalent of 1 to 3 percent of their oil on their voyages, which contributes to air pollution and global warming. Even worse, some tankers don't make it. The Amoco Cadiz broke up off the coast of France. The Atlantic Empress and the Aegean Captain collided off Trinidad and Tobago, and many others went down as well (the Castillo de Bellver off South Africa, the Irenes Serenade off Greece, the Torrey Canyon off Britain, the Urquiola off Spain, etc.).

From 1971 through 2009, tankers spilled more than 40 million barrels of oil worldwide (not counting oil that was spilled because of wars, sabotage, and terrorist attacks). Exactly how much was headed for the United States is not clear, but because Americans consume one-quarter of the world's oil, they are probably responsible for about a quarter of those spills. That amount dwarfs the 200,000 barrels spilled by the U.S. offshore oil industry during those years. The Exxon Valdez alone lost more oil than the offshore oil industry did in 30 years. Oil tankers are far safer than they used to be, but importing oil remains a risky business.

"Offshore Drilling Reduces U.S. Dependence on Foreign Oil."

True. But it's only half the story. The other half is that Americans' dependence on imported oil is likely to continue until the world's oil production peaks -- and it will, eventually -- when we all will be forced to use other sources of energy.

About one-third of U.S. oil production comes from offshore wells, mostly in the Gulf of Mexico. Losing that oil would significantly increase U.S. reliance on foreign oil. The United States currently imports about 12 million barrels of oil per day. Without Gulf of Mexico oil drilling, the country will need to add another 1.7 million barrels a day just to meet demand. Moreover, the largest increases in U.S. oil production are coming from deep-water wells in the Gulf of Mexico. Without them, the country's reliance on imported oil would grow even faster.

The U.S. Energy Department predicts that U.S. oil imports will decline somewhat in the coming years because of higher oil prices. It tells us that the price of oil will probably rise to $95 a barrel by 2015, boosting U.S. domestic production as new fields become economically viable. Even so, all the major projections say the United States will continue to rely on foreign oil for decades.

The other part of the story is that worldwide peak oil is coming. "Peak oil" is the term used to identify the time at which world oil production hits its high point and begins to decline. The downturn is inevitable because the world's oil supply is finite, and we're using it up at the rate of 73 million barrels a day.

This is not a wild-eyed environmentalist fantasy. Production has already peaked in 60 countries. U.S. oil production, for example, peaked in 1970 at 9.6 million barrels a day; the United States now only produces about half of what it once did. Even if the Energy Department's predictions about new growth in U.S. oil production come true, the country will never again produce anything close to the 1970 level.

At the risk of belaboring the obvious, the problem with peak oil is that despite the fact that the oil supply will begin to shrink, demand for oil will continue to increase because of the world's growing population and the surging economies of China, India, and other developing countries. The growing gap between supply and demand will drive the price of oil up and cause economic pain around the world.

The pain is likely to be severe. Ninety-five percent of U.S. transportation -- from automobiles and airplanes to ships and trains -- is fueled by oil, according to the U.S Energy Information Administration. The United States is beginning, ever so slightly, to develop alternatives such as biofuels and electric cars, but there's still a long way to go. If current trends hold, Americans won't move away from oil -- or imported oil -- until world production peaks, and they have no choice.

"We Shouldn't Drill Until the Government Gets Its Act Together."

No. A retooling of the U.S. Minerals Management Service (MMS), which oversees offshore drilling, is certainly in order, but waiting for a perfect world makes no sense. The regulatory problems are well on their way to being solved. The blitz of publicity given to oil-industry regulation after the spill and the first round of bureaucratic reforms announced by Interior Secretary Ken Salazar in May are already having a huge impact. The people in charge of safety and environmental protection are now in a separate agency, which no longer reports to the administrators who are under pressure to increase oil revenues. They are also getting more money for inspections and more time to conduct them. Their work is also being monitored by reporters looking for a sensational story. Together, these changes will make offshore oil a lot safer.

Before the blowout, MMS actually seemed to be doing a pretty good job. There had been no major oil spill from an offshore platform in U.S. waters since 1969. Both the number of spills and the amount of oil spilled into the ocean had been declining decade by decade since the 1970s. Offshore drilling was getting safer even as more oil was being produced. The result was that both government regulators and oil companies let complacency and overconfidence set in. MMS became a captured agency.

When outsiders do not carefully watch government agencies, bureaucrats often fall into the trap of wanting to help the only people who do pay attention to them -- the people the bureaucrats are supposed to regulate. MMS lost sight of the public interest and began caring too much about the oil industry. Inspections were skipped; environmental-impact reviews were waived; and MMS regulators accepted the assurances of oil companies that equipment such as blowout preventers worked, rather than testing it themselves. After all, the oil industry was focusing its money and attention on the regulators, and everyone else was ignoring them because there were no disasters to generate newspaper headlines. The fact that MMS did BP favors by not conducting enough safety inspections and not following up on problems it found is hardly surprising.

But all that ended when the Deepwater Horizon rig exploded and collapsed into the Gulf of Mexico. The world started watching MMS, Congress held hearings, and Obama reorganized the agency. The attention did the trick. There will be no more skipped inspections, waived reviews, or delayed repairs. In the aftermath of the disaster, both the oil companies and the newly reorganized and renamed Bureau of Ocean Energy Management, Regulation, and Enforcement will do anything they can to avoid another major spill. Just as with airline security after the 9/11 terrorist attacks, the Gulf waters became a lot safer the day after catastrophe struck.

There will no doubt be more reform of the rules and agencies regulating offshore oil drilling, including in the energy bill coming out of Congress. Given the first response from the White House and the close attention from the news media, however, there is little safety gain to be had from maintaining the moratorium on offshore drilling.

"The United States Should Save Its Oil for Later."

Nonsense. The idea of conserving resources for the coming world of peak oil seems appealing at first, but it does not survive close scrutiny. The first problem is that it would require the United States to abandon its free trade policies and return to the two-tier system of oil pricing that was in effect decades ago.

Keeping the oil for later use would have no effect if, once it was finally pumped out of the ground, it sold at free market rates. There is no point in hoarding if you are going to share your hoard freely with the world when it is needed. So the United States would have to return to the system of price controls that President Reagan abolished in 1981: U.S. oil would be sold to American customers at a reduced price, while world oil prices would continue to surge upward.

The problem with price controls is that they send consumers the wrong message. If there is a shortage of oil, the last thing the government should do is to encourage oil consumption by creating artificially low prices. A two-tier pricing system would make consumers happy in the short run, but it would cause a lot of harm over the long term.

The second problem is that peak oil is probably coming a lot sooner than most people think. A growing number of academic studies suggest that though peak oil is not about to strike the world's unprepared economies immediately, it is a problem that we will have to face within a decade or two.

Using different methods and assumptions, scientists have offered a range of predictions. Pessimists, such as retired Princeton University geology professor Kenneth Deffeyes, think we have already hit peak oil and that world production will start declining soon. Optimists, such as the U.S. Geological Survey's researchers, argue that peak oil might not arrive until 2037. Probably the most realistic prediction comes from the UK Energy Research Centre, which says that it is most likely to arrive between 2020 and 2030 -- probably late in the decade.

If that's the case, now is a good time to start preparing. It takes years to tap an undeveloped oil field -- and longer if it is offshore. So even if the United States insists on saving its black gold for later, it will have to start drilling now to be ready for the coming oil crunch.

"Ending Offshore Drilling Is Realistic."

Sorry. Here we have another environmentalist fantasy. There are two reasons why the drilling won't end until the oil runs out. In the short term, the economic needs of Gulf Coast states will keep the oil flowing. In the long term, skyrocketing gasoline prices will drive out every other concern.

Obama's moratorium was immediately attacked not only by the oil companies, but by a wide range of Gulf Coast residents and their elected politicians. Sen. Mary Landrieu (D-La.) pointed out the core of the problem when she wrote, "The oil and gas sector directly employs some 15 percent of Louisiana's workforce." She might have added that the money those people spend employs a lot of other people. The White House says that 23,000 jobs could be lost. Another recent study estimated that the moratorium would cost $2.1 billion in lost output and $487 million in lost wages. The states along the gulf are too dependent on the oil industry to let it die. That is why, despite the Deepwater Horizon oil spill, a majority of Gulf Coast residents still want to expand offshore oil drilling, according to recent polls. Together with pro-drilling Republicans in Congress, they form an alliance that environmentalists cannot defeat.

Peak oil will only increase support for drilling. When peak oil comes, gasoline prices will move up -- fast. And it won't be only Sarah Palin calling to "drill, baby, drill." In the summer of 2008, when gasoline prices peaked, so did public support for offshore oil. National polls showed that 70 percent or more of the public wanted increased drilling. And Congress responded by letting the moratorium on new offshore drilling lapse.

Polls now show that a majority of the American public no longer favors increased offshore oil drilling, though a majority of people living along the Gulf Coast do not share that view. Yet history tells us that a few years from now, as memories of the Deepwater spill fade and if gasoline prices begin to rise as the Energy Department predicts, the number of offshore-drilling supporters will rise with it. Even Californians, thought to be bitter opponents of offshore oil drilling, respond to gasoline prices. During the 1979-1980 oil crisis, sparked by the Iranian Revolution and the Iran-Iraq War, polls showed that a majority of Californians wanted more drilling off their own coast. Only 10 years after the 1969 Santa Barbara oil spill, Californians had decided that the high price of gasoline was more important to them than the risk of another disaster.

The implication is clear. Sooner or later, we will hit peak oil; gasoline prices will surge upward; the public will demand that Congress open the Gulf of Mexico and U.S. coastal waters to oil drilling; and Congress will bow to the will of America's outraged drivers. The oil industry -- at the request of the American public -- will get every drop. Bet on it.

Gerald Herbert-pool/Getty Images

Think Again

Think Again: The Arctic

Everyone wants a piece of the thawing far north. But that doesn't mean anarchy will reign at the top of the world.

View a slide show about the Arctic

"The Arctic Is Experiencing a 21st-Century Gold Rush."

Wrong. In August 2007, a minisubmarine carrying Artur Chilingarov, a Russian parliamentarian and veteran explorer, descended into the ice-covered sea at the North Pole, extended its robotic arm, and planted a Russian flag on the seafloor. The world's reaction was swift, and in some cases furious. "This isn't the 15th century," fumed Peter MacKay, then Canada's minister of foreign affairs. "You can't go around the world and just plant flags and say, 'We're claiming this territory.'"

Maybe not, but many countries are looking at the Arctic today with fresh eyes. Because of climate change, the Arctic Ocean's summer ice cover is now half of what it was 50 years ago. In recent years, Russian and Canadian armed forces have staged Cold War-style exercises in the far north, and in the summer of 2009 a pair of German merchant ships conducted voyages across the relatively ice-free waters of the Northeast Passage, the long-dreamed-of trade route from Europe to Asia. And maybe the only thing heating up faster than the Arctic Ocean is the hyperbole over what's under it. "Without U.S. leadership to help develop diplomatic solutions to competing claims and potential conflicts," scholar Scott G. Borgerson wrote in Foreign Affairs in 2008, "the region could erupt in an armed mad dash for its resources."

It could -- but it won't. Anarchy does not reign at the top of the world; in fact, it's governed in a manner not unlike the rest of the planet. The region's land borders -- shared by Canada, Denmark (which controls Greenland), Finland, Iceland, Norway, Russia, Sweden, and the United States -- are all set and uncontested. Several maritime boundaries do remain under dispute, most notably those between Canada and the United States in the Beaufort Sea and between Canada and Denmark in Baffin Bay. But progress has been made recently in resolving even the thorniest disagreements: In April, after 40 years of negotiating, Norway and Russia were able to forge an equitable deal for a new boundary in the Barents Sea, a continental-shelf area rich in fisheries and oil and gas reserves.

What about the part of the Arctic where sovereignty remains unresolved: the seafloor that Chilingarov tried to claim? Despite being covered with ice for much of the year, the Arctic Ocean is governed much like the rest of the world's oceans -- by a maritime treaty that has been ratified by all the Arctic countries except the United States, which generally abides by its terms anyway.

Chilingarov's flag gambit was a clever bid for attention, but not much more than that. Although the resources of the Arctic seabed are likely to be partitioned among the five countries that could plausibly claim them, it won't be on a first-come-first-served basis. The world has learned a lot since the resource and land grabs of earlier centuries; for the most part, the only scuffles over borders and oil fields today are in regions that are badly destabilized already.

Tiffini M. Jones/U.S. Navy /via Getty Images

"Climate Change Is Driving the Transformation of the Arctic."

Not entirely. In recent decades the Arctic's average temperature has risen almost twice as fast as the rest of the world's. Sea ice is retreating, Greenland's glaciers are melting, snow cover is decreasing, and permafrost is thawing. Some Arctic communities are literally washing away into the ocean. These are unprecedented changes, and they have had profound impacts on the culture and way of life of the far north's 4 million people, and especially its 400,000 indigenous residents.

But the transformation in how humans use the Arctic hinterlands is being driven as much by global economics and natural resource availability as it is by climate change. It is mostly the work of a few industries: natural resource development (think oil and gas, minerals, and timber), marine tourism (think cruise ships), and fishing.

Regional warming has had little effect, positive or negative, on Norway's and Russia's extraction plans, which have been driven by global prices of oil and gas. The cruise ship industry's newfound interest in the Arctic, particularly the voyages now running along Greenland's west coast, is in keeping with the expansion of tourism to once-remote destinations everywhere. Arctic voyages are lucrative, in demand, and relatively safe (pirates are few and far between in Baffin Bay). As for fishing, fleets and some fish populations are moving north as Arctic and subarctic seas become warmer and more navigable. But the fleets are also there because fish stocks in more temperate waters have been badly overfished -- and not necessarily just because of climate change.

"The Arctic Is a Vast Storehouse of Natural Resources."

True. The Arctic's resources may not be subject to an anarchic scramble, but that doesn't mean they aren't hugely valuable. The largest zinc mine on the planet, called Red Dog, is located in northwest Alaska. Across the Arctic in western Siberia is the massive Norilsk Nickel mining complex, the world's leading source of nickel and palladium and one of its largest copper producers. Canada's Baffin Island is home to one of the best undeveloped iron-ore deposits on Earth; European steel companies are already experimenting with ways to get the ore into their blast furnaces and envisioning a fleet of polar ore carriers that could deliver the mineral year-round. There are renewable resources, too: world-class fisheries in the Barents and Bering seas, and abundant fresh water elsewhere.

But the most valuable Arctic commodities, today and in the future, are likely to be oil and gas. In 2008 the U.S. Geological Survey released a report indicating that natural gas resources above the Arctic Circle could amount to 30 percent of the world's undiscovered reserves; oil in the region was estimated at 13 percent of the world's undiscovered supply. (Saudi Arabia, by comparison, has 21 percent of the world's proven oil.)

Two Arctic states are already banking on the oil and gas reserves on their northern frontiers: Norway has developed the Snohvit gas field in the Barents Sea near the fishing-community-turned-industrial-port of Hammerfest and is shipping its output of liquefied natural gas to North America and Europe. Russia has been similarly busy working the oil and gas fields of western Siberia and has recently started shipping oil from an offshore terminal in the Pechora Sea to Murmansk. But for the current global oversupply of natural gas, the giant Russian firm Gazprom would be making good on its longstanding plans to develop the Shtokman field in the eastern Barents Sea, one of the world's largest natural gas deposits. Greenland has also linked its economic and perhaps political future to offshore drilling, recently beginning work near Disko Island off its west coast.

Taken together, this means that the distant and once-economically unviable resources of the far north will be linked to global markets more closely than ever before, playing an increasingly important role in the world economy. They constitute a new frontier of investment and industrialization and will add considerably to the fortunes of the countries that possess them. But these riches amount to an economic shot in the arm -- not a fundamental game-changer -- for the eight Arctic states, most of which are already major producers of oil, gas, and minerals. Arguably, the countries that stand to be most transformed by the Arctic resource boom aren't in the Arctic at all; they're emerging, resource-hungry economies such as China and India whose future development is likely to be fueled by the exports of the far north.

"The Arctic Will Become a Shipping Superhighway."

Not so fast. As early as the 15th century, European monarchs and capitalists salivated over the idea of a navigable northern waterway that would allow them to reach the Pacific Ocean without a grueling sail around Africa or land crossing of Central Asia. Some in today's shipping industry are no less enamored of the prospect: By one (perhaps optimistic) estimate, bringing a container ship from Northern Europe to the West Coast of the United States via Canada's fabled Northwest Passage -- whose deep-water route was ice-free for a few days during the summer of 2007 -- could cut shipping costs 20 percent. And the security challenges and threats (again, think pirates) would be minimal.

But just because ships will soon be able to traverse the Arctic doesn't mean many actually will. The Northwest Passage and the Northern Sea Route across the top of Russia have indeed been made navigable by climate change, but only for a few days or weeks a year. Although several climate models predict an ice-free Arctic Ocean for a brief period each summer as early as 2030, they also project a mostly ice-clogged ocean in winter, spring, and fall through at least the end of the 21st century. No one predicts an ice-free Arctic Ocean throughout the year.

This means that an Arctic Ocean crossing, while theoretically possible, might be too difficult and costly to be worth the effort. The more ice along an Arctic navigation route, the slower the ship's speed, a factor that could easily negate the shorter distance gained by sailing across the top of the world. Expensive polar-class ships -- ice-breaking cargo carriers -- would still be required for most operations. And many other economic details have yet to be filled in. Last year's definitive Arctic Marine Shipping Assessment found significant challenges and unanswered questions regarding the endeavor: Can it be economically viable as a global trade route if not conducted year-round? What are the risks assumed in Arctic navigation, and how will the marine insurance industry respond to them?

So, while modest volumes of cargo might be carried during the summers ahead, a majority of the Arctic voyages in the coming decades will be destinational: A ship sails north, performs an activity in the Arctic, and goes home. In other words, don't expect a new Panama or Suez Canal. And even this more limited activity will require adaptation. The real challenge will be the development of rules to protect Arctic people and the environment from the new marine traffic, wherever it's going.

"We Need a New Treaty to Govern the Arctic."

Not really. Do we need a new international system to make sure the Arctic's future is managed equitably and responsibly? That was what the seven countries with territorial claims on Earth's other polar region decided in 1959, when they set them aside to join five other countries in the Antarctic Treaty. Conceived at the height of the Cold War, the treaty reserved the uninhabited Antarctic for peaceful purposes, notably scientific research, banning military activity and prohibiting nuclear explosions and disposal of radioactive waste. A half-century later, it stands as a landmark of peaceful cooperation, demilitarization, and shared governance among the 47 countries that have signed.

It's highly unlikely, however, that the Arctic countries would ever agree to the same sort of comprehensive treaty for the north. All have huge economic stakes in the Arctic; some have centuries of sovereign claims to the region, and others still use its waterways for strategic purposes, even 20 years after the Cold War. And that's fine, because we already have a diplomatic framework to deal with most of the Arctic: the U.N. Convention on the Law of the Sea. The treaty allows coastal states everywhere -- not just those in the Arctic -- to extend their seabed claims beyond their sovereign waters, but only after extensive scientific surveys and submissions of geologic data to the New York-based U.N. Commission on the Limits of the Continental Shelf. It is a complex process, but an orderly one. And it isn't new: More than 50 claims have been submitted to the commission over the past decade. The International Maritime Organization, a U.N. agency, can also craft binding rules for shipping in the Arctic Ocean.

Then there's the Arctic Council, a 14-year-old intergovernmental forum that brings the eight Arctic states to the table along with six indigenous groups (and other observers) to discuss environmental protection and sustainable development. The council is essentially toothless, at least in a legal sense: It's not bound by any treaties, and members have chosen not to deal with military and security issues, or even fisheries management. But it has nonetheless been a force for good, getting everyone in the habit of discussing the future of the region in a diplomatic setting. It has also conducted several pioneering assessments on climate change, oil and gas, and Arctic shipping. Look for it to take a more forceful role as Arctic relations become ever more important. Already, it has a task force negotiating the first legally binding agreement among its members, on search and rescue in the region.

"Conflict Is Inevitable in the Arctic."

No, it isn't. The Arctic has been a geopolitical flashpoint before: During the Cold War, the United States and Soviet Union faced off directly in the region. But that was then. Today's Arctic is governed by eight developed states that arguably cooperate more than they have at any other period in history. International collaboration in scientific research, for instance, is at record levels in the Arctic today.

The looming Arctic resource boom doesn't threaten this stability -- it reinforces it. States such as Norway and Russia have much to lose economically from Arctic conflict, as do the many non-Arctic countries and multinational corporations that will be among the eventual investors in, and consumers of, future Arctic ventures. No one is contesting anyone else's sovereignty in the region; in fact, the Arctic might one day play host to the emergence of a new sovereign state, Greenland, with the support and encouragement of Denmark, its long-time colonial ruler.

This isn't to say that saber rattling hasn't happened and won't happen again in the future. Canada, Norway, and Russia have conducted military and naval operations in the region to showcase their capabilities and demonstrate their sovereignty. (The United States has been more modest in this regard, though the U.S. Navy last fall did release a "roadmap" for the Arctic, emphasizing the need for military readiness in the far north.) NATO's role in the Arctic is uncertain and unfocused -- five Arctic states are members, but three (Sweden, Finland, Russia) are not -- and the organization could go a long way toward reducing tension and building trust in the Arctic by promoting cooperation on matters of military security, law enforcement, and counterterrorism there.

But none of this friction is beyond the realm of diplomacy. Even Chilingarov, the flag-wielding champion of Russian northern expansionism, understands the virtues of negotiation. When he met Chuck Strahl, Canada's minister of northern affairs, in June, the first thing he reportedly did was invite his would-be adversary to a conference-called "The Arctic: Territory of Dialogue" -- scheduled for this September in Moscow. The two countries' representatives have since trumpeted their thawing relations in the Arctic, meeting regularly and even discussing plans to work together on mapping the seafloor where Chilingarov planted the Russian standard. The lesson is clear enough: The world has plenty of regions where serious conflict is a way of life already. Let's worry about them first.