After nearly a week of grumbling, measured praise, and ample head scratching by policy wonks, it looks as though the real outcomes of President Obama’s plan to expand offshore oil development could be more modest than they seemed at first blush.
Still, as is the case with all policymaking, it’s important to consider the possible unintended outcomes of expanding and increasing U.S. offshore oil and gas production, as RFF Vice President for Research and Senior Fellow Mark Cohen pointed out with his response to the most recent prompt at National Journal’s Energy and Environment Expert Blog:
While there might be important political reasons for expanding offshore oil exploration, the president's proposal to increase offshore drilling is unlikely to have a significant effect either on the supply of natural gas or on energy security in the U.S. In fact, the end result might simply be to increase greenhouse gas emissions.
Most of the offshore gas is relatively expensive to bring to market, and the recent technological innovations that significantly lowered the cost of recovering abundant shale gas resources are likely to make the offshore areas a less attractive source of natural gas supply. Thus, unless there is a substantial expansion of natural gas demand beyond what is currently forecast, we are unlikely to see major increases in offshore drilling for natural gas.
The situation with offshore oil, however, might be considerably different. If it is profitable to produce oil from these offshore areas, it might increase our oil security somewhat. However, as a recent RFF study, "“Reassessing the Oil Security Premium,” by Stephen Brown and Hillard Huntington shows, there are two effects to consider when we increase the supply of U.S. produced oil. Certainly producing more oil in the U.S. will reduce our dependence on foreign oil and increase the stability of our oil supply. However, partly offsetting this positive effect is the basic law of supply and demand. New oil supplies will lower the price of oil on the world market, which will increase oil consumption in the U.S. This partly offsets the energy security benefit of new oil production in the U.S. because increased oil consumption increases the economy's exposure to supply disruptions. In other words, each new barrel of oil production does not necessarily result in one less barrel of oil imports. This doesn't mean that there are zero energy security benefits, however. Netted out, the Brown and Huntington estimates suggest that the effect of increased U.S. oil production is about $1 per barrel (or 2.4 cents per gallon of gasoline); for each barrel of increased U.S. oil production, the risk to the U.S. economy of supply disruptions is reduced by an expected value of about $1.
The story for greenhouse gas emissions, however, is not so rosy. It is important to realize that policies that enhance energy security do not always result in lower greenhouse gas emissions. In some case, policies are complementary, but oftentimes a policy that enhances energy security results in higher greenhouse gas emissions. In fact, that is true with offshore oil drilling. Nearly all of the increase in U.S. oil production will result in increased oil consumption somewhere in the world, which will likely result in a net increase in CO2 emissions. The bottom line is that the president's policy might have a small positive effect on energy security, but might ultimately increase—not decrease—greenhouse gas emissions.
