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Bush calls on Congress to lift offshore drilling ban
US President George W. Bush on Wednesday urged Congress to lift a decades-old ban on offshore oil drilling to reduce dependence on foreign imports and offset sky-high energy prices.
Calling the federal ban "outdated and counterproductive," Bush asked the Democratic-controlled Congress to take action to expand access to the nation's Outer Continental Shelf.
"Congress must face a hard reality. Unless members are willing to accept gas prices at today's painful levels or even higher, our nation must produce more oil, and we must start now," Bush said in a news conference in the White House Rose Garden.
A report by the U.S. House Committee on Natural Resources...states that oil and gas companies hold leases to 68 million acres of federal land and waters, spread out all across the country, that are not producing anything. An additional 4.8 million barrels of oil could be produced daily if the land was utilized, the report says.
Utilizing the 68 million acres would nearly double domestic oil production, the report concludes. It could also produce 44.7 billion cubic feet of natural gas each day, increasing production by 75 percent.
Oil production on these lands has the potential of cutting U.S. oil imports by more than one-third, according to the report.
...the Bureau of Land Management has issued 28,776 permits for public drilling in the past four years, though only 18,954 wells were actually drilled. That means oil and gas companies have stockpiled nearly 10,000 drilling permits.
Refinery utilization was lower than typical in first quarter 2008. Actual first-quarter 2008 utilization averaged 84.7 percent, compared to the average of 89.1 percent during first quarter 2001 through 2005 (years where first quarter volumes were not significantly impacted by hurricanes). In April and May, utilization remained low, averaging 86.1 compared to an average of 94.1 for the two months during 2001-2005.
While petroleum product prices are continuing to break new records, why is refining capacity utilization low?
Market conditions are the driver behind the discretionary cutbacks in crude inputs. Gasoline prices have risen in 2008 mainly from increases in crude oil prices. Refiners purchase that crude oil and sell product at wholesale prices. The wholesale gasoline price spread (the difference between spot gasoline and crude oil price), where refiners operate, has narrowed, indicating plenty of gasoline supply has been available to meet demand. Supply was outpacing demand in January and February, and inventories built substantially (Figure 1), resulting in very high stock levels and very low wholesale (e.g., spot) gasoline price spreads. Indeed, at some points in March 2008, the gasoline wholesale price was actually cheaper than crude oil. In addition, refiners have been blending more ethanol into gasoline, further reducing the need for gasoline from crude oil. As summer demand has been picking up, inventories have been drawn down from their very high levels at the beginning of March, but gasoline spreads have not increased much. If U.S. refinery utilization increased, gasoline prices might decrease some, but probably not by much, since wholesale gasoline spreads are already low, and crude prices remain high.
As President George W. Bush considers repealing a ban on drilling off most of the coast of the United States, a shortage of ships used for such drilling promises to impede any rapid turnaround in oil exploration.
"The crunch on rigs is everywhere," said Alberto Guimarães, a senior executive in charge of developments in the Gulf of Mexico at Petrobras, the Brazilian oil company that has discovered some of the most promising offshore oil but been unable to get at it.
"Almost 100 percent of the oil companies are constrained in their investment program because there is no rig available"...
... the tightness in the rig market could last several more years.
What I am certain of is that this has nothing to do with helping consumers in the short or long term.