Course:ECON371/UBCO2011WT1/GROUP5/Article1
Off Shore Oil Drilling Debated at Arctic Meetings
Summary
Many companies are interested in Arctic offshore oil and gas drilling, but no one has the right to drill the seabed before the National Energy Board (NEB) had formulated a set of safety and environmental rules for the operations. The NEB discussed how offshore drilling could impact the Arctic with diverse specialists and representatives, because of their sound knowledge of environment and resources. Meanwhile, several companies had already purchased exploration rights or committed for paying cost of drilling, as they all hope to extract gas and oil from the sea. Exploratory drilling was permitted as well. Nonetheless, no actual exploration work will be taken into action before the NEB’s review is finalized.
However, two opposed reports were released by environmental groups as the roundtable begins. Oceans North Canada (ONC) claims that oil companies can not clean up 90% of the spill as they asserted, because it is extremely difficult, and only 20% was recovered in last year’s spill. Moreover, the ONC believes the Arctic Ocean will face disastrous consequences due to the spill. World Wildlife Fund claims that Canada is not ready to manage the cleanup of an offshore disaster.
Analysis
Offshore oil drilling is a hot topic currently being discussed around the world. Oil drilling has always been the topic of much scrutiny because of the large impact of spills on the ecosystem and people that surround the plant. However, most people also likely would not give up their current standard of convenient living in order to completely prevent these potential spills.
The benefits of offshore oil drilling are very convincing. The increase of oil production would create an increase in producer surplus, a decrease in oil prices for consumers, and less variation in the price of oil because of its increased supply. A steady oil price would positively impact our world markets and create a sense of stability.
These benefits, however, will also increase the social cost related to offshore oil drilling. The decrease in the price of oil that will occur will result in higher world wide consumption of oil, which in turn will increase greenhouse gas emissions. This increase in pollution can be viewed as a social cost as well as an externality as it would not solely affect the consumers of the oil, but also those who do not, either by choice or lack of availability.
Many people view the main problem with offshore oil drilling as being oil spills. This, of course, is one of the largest risks. However, it is also the least likely. What also needs to be considered are things such as routine pipe leakages, the increase in greenhouse gases and the threat they pose on the environment. In our articles case: the ocean. As mentioned in the article, the harsh conditions and remote location of the Arctic could be the largest hindrance in the case of a spill or any access to the rig. Hurricane winds and storms would also disperse the oil much faster than usual, and how do you recover oil from underneath ice? A damage estimation must be done as part of the cost-benefit analysis of offshore drilling in the arctic to ensure no major detrimental impacts occur. either to the surrounding environment or the populations settled there.
When it comes down to it, offshore oil drilling is all about the tradeoff: The economic impact offered by increased drilling versus the risk of a disastrous oil spill. The National Energy Board is going to have to take a close look to ensure the benefits really do equal the costs.
Conclusions
As long as the world economy demands oil companies are always going to have to go further and further into areas such as the arctic to get the oil. What the government needs to do and is doing is looking at all possible ways the oil will be produced and drilled and how it can possibly leak out or contaminate during moving, drilling, and refining the oil form the arctic. the government is right to be having a look at these ventures for the possible increase in revenue, but they need to make sure that the risk of spills can be minimized .
Prof's Comments
I agree it is about trade offs. An issue we have not talked about yet in class is the choice of precaution. How much incentive does the firm have to invest in safety measures? Are the firms likely liable for the full cost of cleaning up any mess from a spill?
8/10