From the Publisher: No Oil

There was a big and very interesting conference at Malibu City Hall this past weekend to confront President Trump’s plan to open all the American coastal areas to drilling for oil, which means if he gets his way, all the near continental shelf area could be filled with oil drilling platforms—much as we now have in Santa Barbara. The full details of the conference are reported in this week’s Malibu Times but since drilling for offshore oil is wildly unpopular in all of California, the back story and the strategy being pursued by almost all the players is worth a look. 

The Trump plan for drilling includes offshore drilling in every single state, except for one (which they exempted): Florida. The rationale for excluding Florida is that all of the local officials were against it and secondly, their tourism industry would be adversely effected by the drilling platforms. Obviously, all of our local officials are against the drilling and we are also a big tourism state. In fact, our tourism industry is significantly larger than Florida’s. What wasn’t said is that Florida is also a swing state and California is not, so I would guess California does not have much of a chance of being exempted out of the list. 

The irony in all this, according to the panelists, is that the big oil companies don’t appear to be particularly enthusiastic about new drilling in coastal waters because currently and in the predicable future, there is no surging demand for more oil. In fact, the demand in the future appears to be for less oil. According to earlier industry estimates, it was originally thought that the demand for oil would drop in the 2040s and now they’re lowering that predicted demand drop to the 2030s, which is only 12 years from now. The advent of electric cars and the continuing drop in the cost of alternative energy like solar and wind is happening now, and can only get bigger in the future. Besides, what’s ironic is that fracking, which has its own set of dangers, has been very successful in producing more oil, particularly in the U.S.A; we are now the world’s third largest oil producer and apparently quickly moving up. Besides, oil platforms and wells are very expensive, and only a company with huge resources can do it. Recently, the very expensive and controversial Keystone oil pipeline to bring oil down from the Canadian oil sands, initially pushed as essential to our national defense, seems to have quietly gone away.

The strategy Trump is pursuing to stop the drilling is a combination of stalling, waiting for a new administration, putting political pressure on the politicians in all the coastal states, and then, most interestingly, running up the cost of offshore drilling. The oil platforms would all be in federal waters, which is beyond the three-mile limit. The cheapest and most cost-effective way for oil companies is to pump the oil up, run it through pipelines to the shore and process the oil in some industrial facility on the shore. In order to do that, the pipelines have to pass through state coastal waters, which is the three miles from the shore and that requires state approval. The alternative is to pump the oil and load it onto tankers, which is apparently considerably more expensive then piping it to shore. It’s totally unclear to me why Trump would want to step into this very iffy proposition, but then I have the same feeling about a lot of things he does.

Of course, everything I’ve speculated about depends on the cost of a barrel of oil. Currently, it is $70 per barrel for Brent Crude, which is the benchmark. If oil went to $100 a barrel, all bets are off and they would be drilling in everybody’s backyard. But for that to happen, there would either have to be some natural catastrophe that upends the supply or some gigantic change in our world, like a major war. 

Strangely, in a CNN poll out Tuesday, Trump is actually rising in the numbers with 42 percent approving of his presidency—his highest approval number in 11 months. Not exactly great numbers, but not terribly different than where Obama and Reagan were at this stage of their presidencies. But what Trump has done is to put a lot of things into play simultaneously. He has all but replaced his original White House team with new players like Mike Pompeo as Secretary of State and John Bolton as the National Security Advisor. He’s putting in people who are out-and-out war hawks and when the going gets tough (as I suspect it will when the Mueller investigation starts closing in on the Trump extended family or even the president himself, or the economy or the stock market begins to turn south), scary things could happen.

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I think we’re all in for a bit of a rough ride.

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