United States offshore drilling debate

Energy independence

Imported crude oil as a percent of U.S. consumption.

A common argument in favor of offshore drilling is it reduces United States dependency on imported oil. Geopolitically, the U.S. would be less vulnerable to sanctions by oil-producing countries hostile to the United States. It would also make the United States less vulnerable to a stop in a country's oil exports, due to, for example, a civil war or an invasion of that country. The debate often makes references to the 1973 oil crisis and 1979 energy crisis.

Fuel price

One motivation of increased offshore drilling is to reduce the current fuel prices. In 2007, the Energy Information Administration at the U.S. Dep. of Energy analyzed the effect of lifting the ban on oil and gas leasing on the Atlantic and Pacific coasts and the eastern Gulf of Mexico.^[12] With leasing beginning in 2012, the agency projected that production of oil would not be expected to start before 2017, and that as a result US oil production by 2030 would be 7% higher than it would be otherwise. The effect on fuel prices, however, would be "insignificant."^[13]

The Natural Resources Defense Council estimated that with increased offshore leasing and drilling, the price of oil would only drop about 3–4 cents in 15 to 20 years.^[14]

Trade deficit

Oil produced from offshore drilling reduces oil imports, and thus lessens the U.S. trade deficit. From mid-2017 to early 2018, crude oil imports increased from $45 per barrel to $62 per barrel.^[15] Given that the trade deficit was already massive before its increase due to increasing oil prices, it is important to consider all options to lower the deficit including expanded national oil production.

Military training

In 2005, U.S. Defense Secretary Donald Rumsfeld stated that offshore drilling would disrupt military training and weapons testing, if done in an area of the Gulf of Mexico along the coast of Florida.^[16]

International Relations

Although offshore drilling has long been banned in federal waters off the state of Florida, Cuba has been drilling its own offshore area near Florida.^[17] The subject became an issue in the 2008 presidential race, with assertions and denials of the reality of Cuban offshore drilling. On 31 October 2008, Brazilian and Cuban presidents Luiz Inácio Lula da Silva and Raul Castro attended a ceremony at which the Brazilian oil company Petrobras agreed to drill for oil in Cuban offshore waters near Florida.^[18] By May 2011 Petrobas had withdrawn from the agreement due to poor prospects.^[19]

More recently, Russia has begun drilling in the black sea with a Chinese-made oil rig, Scarabeo 9. Since the rig wasn't built in the U.S. and was agreed to before the imposition of additional sanctions by the E.U. in 2014, Russia has been able to avoid sanctions and operate the rig.^[20]

Oil spills

Offshore facilities pose an environmental risk of oil spills. On April 20, 2010, an underwater blowout and subsequent explosion and fire destroyed the Deepwater Horizon rig owned by Transocean Ltd. and operating in the Gulf of Mexico under lease to energy giant BP, resulting in the largest oil spill in United States history. 5 million barrels of oil were spilled into the Gulf of Mexico, leading to $21.5 billion (or $4300 per barrel) of clean-up costs paid by BP.

BP Oil spill costs broken down by category

To the right are the costs of the BP oil spill broken down by category. The image doesn't include the $15+ million in tax breaks that BP was able to save. Also, BP has continued to pay out settlements since the graphic was created in 2011 so the orange section in the graph should be larger than it is.

Negative Externalities of Oil Spills

Oil spills create numerous negative externalities that hurt the local and national economy of the place where the oil spill occurred.

1. Economy loses money due to decreased production of fisherman: when oil spills occur they lead to the death of many fish in the affected areas. Not only does this affect endangered species and impact the local ecosystem, it also decreases profits of fisherman and thus suppresses the economy. Additionally, the reputation of the fisherman to be able to provide a certain amount and quality of fish is damaged. This further hurts them economically since people won't trust them as much to deliver on their promises and so won't be willing to pay as much for their services. This type of loss is a reputational risk, which is hard to measure but still certainly a negative externality.
2. Local businesses lose income from decreased tourism: When an oil spill happens, the waters become dirty and people are less likely to want to vacation in the location where the spill happened. This causes a decrease in profits gained by local businesses due to tourists. Additionally, the place suffers from a decrease in its brand valuation: for example, in the BP oil spill, Florida's reputation for high-quality, natural marine-based resources was tarnished, and so they lost interest from tourists and hotels and local business made less profits than they would have without the oil spill.^[21]
3. Health costs of cleanup workers in the front line: When an oil spill happens, the company that operates the rig must hire clean up staff to fix the spill. The hazardous conditions that stem from leaking oil are damaging to the workers' health, often causing them to develop respiratory disease and other health complications that can permanently impact their health.
4. Costs of wildlife and breeding grounds lost: These also impact tourism, as one of the main reasons people vacation to places with natural resources is to see wildlife. Additionally, throwing off the balance of the ecosystem by disrupting breeding grounds and killing endangered species can have wide-reaching effects economically on the supply of natural resources.^[22]

Picture of how to correct for negative producer externality

This picture shows how the market can correct for a negative production externality. Once the externality is taken into account, it shifts the producer curve up in the graph, making it more expensive to produce the same amount of the good. The socially optimal quantity is lower than the market quantity, and socially optimal price is higher. By shifting the demand curve up and reaching this new equilibrium, the deadweight loss (the shaded triangle in the graph) can be avoided.

Positive Externalities of Oil Spills

There are some positive externalities that oil spills create, but these are outweighed by the negative externalities.

1. Thousands of workers are hired for the cleanup: Though this can damage the workers' health as was previously stated, hiring thousands of workers involves paying them salaries which increases the flow of money into the economy. The workers derive economic benefit from salary that they wouldn't have otherwise had and the economy benefits from their additional spending and consumption.
2. Millions of dollars are spent by the party responsible on other necessities, such as products to clean the water, portable toilets, hotel rooms for the clean-up workers, etc. This influx of money into the public economy from a private company is a positive externality of oil spills.^[23]

Endangered species

The federal Minerals Management Service gave permission to BP and dozens of other oil companies to drill in the Gulf of Mexico without first getting required permits that assesses threats to endangered species.^[24]

In the aftermath of the BP Oil spill, BP was sued by the Defenders of Wildlife and the Southern Environmental Law Center for imperiling 32 threatened or endangered species. These included the sperm whale, gulf sturgeon, manatee and five kinds of sea turtles, in addition to the surrounding water and habitats that were damaged.^[25] With every oil spill, endangered species in the area get closer to extinction.