Course:ECON371/UBCO2011WT1/GROUP5/Article8

• Econ 371 Winter 2011 Main Page

Summary

The Obama administration are confusing the public with shallow water drilling suspension and creating more regulations for shallow water drilling. Shallow water drilling is the safer and more manageable technology for extracting oil. With less than 500 feet of water, divers can easily reach the drill if any problem arises with the operation. The records have shown that out of 11,070 Shallow water drilling operations resulting in only 15 barrels of spilled oil the past 15 years. The only biggest case of shallow water drilling oil spill was in 1979.

Mexico is where most the shallow drilling takes place, but recently, companies have been venturing to find bigger oil fields. The moratorium on shallow water drilling has caused slower approval of permits. Companies average 20 permits a month and in 2009, companies averaged 9 permits a month and 2010 with 11 permits a month respectively. Critics believe that the deep water horizon accident created the suspension on offshore drilling where currently only 1.8 permits a month are authorized. With this lag time for drilling, the US becomes more dependent on oil supply resulting in higher oil prices and government has less income to spend. Even federal royalty revenues decreased.

Analysis

The US government definitely took a strange move to suddenly suspend shallow water drilling. Because the US administration decided to suspend shallow water drilling for a while due to the deep water horizon accident, the lag time and new regulations made have been a pain to all shallow water companies. I think the Obama administration took the spill as an instant pre-cautionary measure, but took some heavy regulations on shallow water drillers.

With low flow of revenue, small companies into shallow water drilling could face a threat of shutting down operations being over shadowed by the larger companies with enough revenue flow. This could cause unemployment and oil prices to rise even higher. The government should take this issue into hand and maintain the same oil price level to ensure the satisfaction of the economy and ensure unemployment level doesn't rise.

Instead of supervising the shallow water operations, the government should take a closer look at recent projects by companies with deep water drilling because that poses more of a threat than shallow water drilling by statistics. Shallow water drillers seem to be responsible in their drilling and shouldn’t be taken as serious regulatory measures as deep water drilling should.

The shallow water drilling regulations should be taken off in order for oil supply to rise resulting in greater government budget in their spending and higher federal royal revenue. The economy doesn’t like high oil prices and people would encourage shallow water drilling to continue with less interference. Once again, government should just issue regulations for shallow waters to pay for pollution damage rather than regulate their operation since shallow water drilling pose little threat to the economy.

Conclusion

The US government should increase the number of permits on shallow off shore drilling because the risk of an oil spill from these rigs are less likely to do any major environmental damage. The reason for this is that these rigs can be accessed at all points of the rig, even under water, diving is not a major hassle at 500 feet because the pressure is still manageable. Where with the deep water off shore rigs only bots and machines can access the pipeline if there is a leek. The government should allow these rigs to drill so the US can get less foreign oil. These rigs will also create more jobs in the US economy instead of fueling a foreign economy.

Prof's Comments

I think that a good way to analyze this story is as different firms or sectors that have different (expected) marginal damage and different marginal abatement (precaution) curves. The technology involved in the two sectors is different, so applying the same standard to both is unlikely to be efficient.

7.5/10