Why Is Our Oil Up Hurricane Alley?

By INVESTOR'S BUSINESS DAILY | Posted Friday, September 12, 2008 4:20 PM PT

Even as global forces drive oil prices lower, all it takes is one nasty storm to reverse that. With a continent full of energy resources, why is U.S. oil production still concentrated in one Hurricane Alley?

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As another hurricane blasts through the 717 platforms and 121 offshore drilling rigs in the Gulf of Mexico, oil prices are rising. It's not only an annual event now. Hurricane Ike drove prices $2 higher to $102 in a way a threatened supply cutoff from Venezuela and an OPEC production cut didn't.

It wasn't always like this. Before 1990, hurricanes used to cause temporary local output shutdowns that could quickly be replaced by resources from other areas. Prices barely moved.

Today, there's a Gulf hurricane price spike almost every September. Oil futures early on Friday spiked nearly $2 to $102.67 a barrel before falling back in later trading as Ike blew in with its 100 mph winds, 30-foot waves and 200-mile storm swath, shutting down 96% of U.S. Gulf-based oil production.

Don't dismiss it as just an unlucky coincidence of geography. It's in fact a man-made crisis. U.S. energy infrastructure — production, imports, refining and pipelines — are all artificially concentrated in the one area of the U.S. most prone to devastating hurricanes.

"There is a reason for this geographic concentration in a high-risk storm area. Government policies have largely limited offshore exploration and production to the central and western Gulf of Mexico — and our onshore facilities, including refineries, have been welcomed in communities in (this) region," said American Petroleum Institute President Red Caveney, in a 2006 speech.

Two decades ago, Congress halted all offshore drilling except in the western Gulf of Mexico, also known as Hurricane Alley.

The congressional law not only concentrated drilling, it also concentrated all the other energy infrastructure that had no choice but to grow up around it, too. Most of our refineries are in the Gulf, and 64% of our imported oil enters through Gulf ports.

So when Hurricane Ike forces evacuation of 63% of rigs, it's just the tip of the iceberg. Eight refineries have closed for the storm, idling 73% of natural gas and 96% of oil output in the Gulf region.

With the U.S. the world's biggest energy consumer at 21 million barrels of oil a day, it's small wonder that the U.S. economy is so vulnerable to what's now our fifth big storm of the year.

It doesn't have to be this way. America has far more domestic oil than what's found in the Gulf of Mexico. Less than 20% of the area on the federal Outer Continental Shelf is open to exploration and development, according to the Petroleum Institute. Nor can we even consider drilling there until the Minerals Management Service holds a new round of bidding in 2012, per current congressional rules.

Yet in Alaska, offshore waters in the Chukchi Sea and the Beaufort Sea are believed to hold oil reserves as high as 27 billion barrels and significant natural gas. California's offshore waters could hold as much as 11 billion barrels. The Atlantic coast also has sizable drillable reserves — 4 billion barrels — still off limits.

All told, there are 115 billion barrels of oil available in the U.S., which could make us less susceptible to hurricanes in the Gulf and replace threatened imports that now come into the Gulf in tankers.

But instead, we accept higher energy prices, even as we conserve.

Do you like this punishment? Well, Congress seems to. House Leader Nancy Pelosi vows to halt all offshore drilling "to save the planet," and proposed a new bill to keep a ban on drilling within 125 miles of the Florida Panhandle, at least until 2022.

It permits states to allow new drilling in exchange for shutting off vast tracts in the very areas that would diversify the U.S. energy base and make it less vulnerable to hurricanes. They sour the pot even more by raising taxes and shutting states out from revenues.

"The Democrats' 'no-energy' bill effectively locks away vital American energy on the Outer Continental Shelf," House Minority Leader John Boehner said in a statement Friday.

But rest assured, the hurricanes will be back. So will higher prices. With a force dictators can't match, hurricanes are our worst enemy, and Congress has put all our energy production right in their path.
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