US oil chief sees price fall if offshore ban ends

20 June 2008 19:47  [Source: ICIS news]

US oil leader says offshore access would drop oil priceWASHINGTON (ICIS news)--Lifting the congressional ban on US offshore drilling would have an immediate impact on the global price of oil and reduce the speculative premium in energy pricing, a top US oil industry official said on Friday.

 

Red Cavaney, president of the American Petroleum Institute (API), said he could not predict how much the per barrel price of oil would fall if Congress were to simply end its ban on offshore drilling, “but you can be sure that the market would react”.

 

The US Congress soon will debate whether to lift or substantially alter its 27-year-old moratorium on energy exploration and development in 85% of US outer continental shelf (OCS) regions. Those areas, chiefly along the US East and West coasts and along Alaska’s lengthy shore line, have been closed to drilling since 1982.

 

Earlier this week President George Bush called on Congress to lift the offshore energy ban, saying that with gasoline at $4/gal and oil crowding $140/bbl the moratorium cannot be justified. Republican presidential candidate John McCain also this week called for an end to the offshore ban.

 

Environmentalists were critical of both Bush and McCain, noting that even if the offshore ban were lifted, it would take years to bring those OCS oil and gas supplies to the market, so there would be little or no near-term impact on oil and fuel prices.

 

However, speaking at an energy forum on Friday, Cavaney said lifting the offshore ban would have immediate impact on oil prices. 

 

He noted that when the Chinese government announced on Thursday that it would increase its subsidized domestic fuel prices by 17-18%, the global oil price quickly fell by nearly $5/bbl.

 

“That price decline came simply because of the market perception that China might reduce oil demand,” Cavaney said. “There was not one bit of extra oil put into the market by the Beijing government’s announcement, but the market reacted to China’s policy decision.”

 

“The same thing would happen if there was the opportunity for us to develop more energy production in the OCS,” Cavaney said.  “If the OCS were opened by Congress for development, there would be a market reaction.”

 

Some members of Congress, chief among them Representative John Peterson (Republican-Pennsylvania), also argue that simply lifting the offshore ban would have perhaps substantial near-term impact on oil prices because it would signal US intentions to develop its still vast domestic supplies.

 

The US Department of Interior estimates - based on surveys done in the early 1970s - that the offshore moratoria areas hold 86bn barrels of oil and some 420,000bn cubic feet (bcf) of natural gas.  The US consumes about 8bn barrels of oil and some 22,000 bcf of gas annually.

 

Cavaney was joined by Representative Roscoe Bartlett (Republican-Maryland) in calling for an end to a separate congressional ban on seismic surveys in the moratoria OCS regions, arguing that US policymakers and the public need to know how much energy resources are in offshore areas.

 

($1 = €0.65)

 

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By: Joe Kamalick
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