Neff Zone Column -- August 9, 2008

Print Edition: August 9, 2008

DRILL NOW? EASIER SAID THAN DONE

As the presidential race grinds along the energy crisis is a prime bone of contention. To begin with both candidates were against offshore drilling. In June, John McCain flip-flopped and became a drilling proponent. This week, Barack Obama essentially did the same. (Translation: Big Oil money is now flowing to both candidates.)

The mantra of those who want to increase domestic drilling is: "Drill here, drill now, pay less." It’s a nice phrase, it has a good beat, and it’s easy to dance to. Unfortunately, like most political sound bites, nothing is that simplistic.

Let’s just say, for discussion purposes, that the "drill here" part of the phrase is a given. Assume that we’re going to drill in Alaska, the Arctic, off all our coasts and even in downtown Cadillac if need be. Also, for discussion purposes, let’s assume that no one really knows if the "pay less" part of the phrase is actually an eventual possibility or just a dream, so we’ll put that aside until that future oil begins to hit the world market.

That leaves us with the "drill now" part of the phrase and it’s here where the entire mantra comes to a screeching halt. We can’t drill now – no way, no how. Big Oil concerns in our county have seen to that. By their own admission, even if they had permission to drill on every inch of American soil, they can’t drill now, or any time in the near future.

I’m sure you’ve heard that this week Exxon posted a record $11.68 billion profit in the second quarter. That’s $1, 485.55 per second, for those of you keeping score at home. Despite industry claims that the profits are needed for "exploration," critics say that big oil companies are "plowing much of their profits back into stock buybacks and other programs to benefit shareholders as opposed to exploring for more oil." (CNN Money)

Here’s why Big Oil is doing this; it doesn’t matter how much oil they find, they can’t drill for it anyway. About drilling, according to CNN Money: "The industry says it’s…having a hard time given the shortage of workers and equipment in the sector."

This is a reality that Big Oil does not want you know about. According to an article in Strategy & Business, throughout the 1980s and 1990s "the industry laid off thousands of skilled workers…recruitment of new employees plummeted…and fewer university students entered petroleum engineering programs. Now the average industry employee is 50 years old; in the next decade more than half of the industry’s employee base will retire, leaving a massive void of skilled workers." The article called this a "crisis in the oil and gas industry," and also noted that the only option is to poach workers from other countries (which just sets up a bidding war for talent but does nothing to increase the talent pool).

So, one reason we can’t drill now is because the industry downsized itself and got rid of its own geologists, engineers, construction workers and project managers. Big Oil’s own experts figure it will take 8 to 10 years to get the specialized labor pool back up to sufficient numbers.

Even if you put the specialized labor problem to one side, there’s another huge roadblock stalling the drill now initiative – a worldwide lack of equipment. You see, we no longer make anything in the United States and Big Oil doesn’t make its own equipment. In order to drill you need (surprise!) drills, platforms, drill rigs and drill ships. We don’t make any of those and, in fact, no longer have the manufacturing facilities that could be fired up to do so.

According to ODS-Petrodata, which tracks the rig market, "Every semisubmersible rig and drill ship currently available in North America is in use. Others are under construction, but they’re already under contract." (Associated Press)

To make matters worse, demand is so high (for drill ships) that the price has now skyrocketed to a half billion dollars per rig. The good news is that 75 rigs are now under construction and will be ready by 2011. The bad news is that almost all of those are already under contract (somewhere in the world) and they only make sense if oil prices continue to hold in the triple digits per barrel. (New York Times)

More bad news is that virtually all the orders for drill ships have gone to Asian shipyards in China, Singapore and South Korea. Once again, the United States will have to get in line and beg on bended knee in the hope that some foreign power will allow us to overpay for something we ought to be manufacturing ourselves. In short, we can’t drill for the domestic oil we need in order to become energy independent because we’re dependent on foreign governments to provide us with the equipment we need to do so.

So there you have it. Even if we want to drill here, and even if there’s a possibility that we might pay less, the shortsightedness of America’s oil industry has made it impossible to drill now. We don’t have the work force or equipment.

Jim Neff is a local columnist. Comments to neffzone@gmail.com. Read Neff Zone columns online at www.neffzone.com/cadillacnews.