Deepwater Drilling May Surge, Just Not In US

This year it takes 86.4 million barrels a day of oil to quench the planet’s growing energy needs, an increase of 60,000, according to a forecast by the International Energy Agency.   The projection, which is a rounding error, may be too low.

China announced its exports rose 49% in May. The country’s oil imports hit record levels in the first quarter. Demand from India and the rest of the developing world for crude is likely to increase, and there are signs of improvement in the US economy. Fed Chief Ben Bernanke recently said that GDP expansion in the US could be 3% or better this year and next.The IEA admitted that deepwater drilling off the US could slow or stop, particularly if the BP disaster causes new legislation or prolonged litigation.

But, the future of US deepwater drilling is only a small part of the equation. Oil drilling techniques for wells like those BP has set up in the Gulf have improved over the last several years. Huge deposits have been found off Brazil, parts of Africa, Greenland, and in the Arctic. There is very little chance that drilling in these areas will be restricted or stopped. Nations such as Brazil need to exploit their resources for continued growth. China is more than willing to help operations such as Brazil’s state-controlled oil company Pertobras by funding exploration and production in exchange for supply. China’s financial aid for crude production also extends to Africa and the Middle East.

The US may well shut deepwater drilling for a year or more. Shuttered rigs will take months to restart. America’s modest chance to rely less on imported oil will shrivel. Nations including Brazil will begin to dominate the market for crude taken from deepwater fields.

American politics and environmental concerns may be easy to defend now, but the repercussions in the future will mean the US will have to import oil to offset demand.

Douglas A. McIntyre