Lackluster western gulf lease sale draws $102 million in bids

The US Bureau of Ocean Energy Management’s western Gulf of Mexico Lease Sale 233 offshore Texas netted $102,351,712 in apparent high bids—less than the first two sales in the Obama administration’s Outer Continental Shelf oil and gas leasing program for 2012–17.

Twelve offshore companies submitted 61 bids for 53 tracts covering 301,006 acres. Nearly 21 million acres were available for oil and natural gas exploration and development.

It was even worse than that. Two adjoining blocks accounted for fully 50% of the total high bids. Almost all of the action was in deepwater, and few blocks drew bids that substantially exceeded the minimum bid level. Only four, count ’em four, shelf blocks drew any bidding attention at all.

In fairness, the shelf in the Western Gulf is gas-prone, and gas prices are historically low compared to oil. But industry’s tepid response to the sale also reflects concern about Interior’s increasingly stifling and costly approach to regulation.

Also this week we were graced with a blog post from White House economic advisors Jason Furman and Gene Sperling (AFAIK no relation to the Hair Club for Men guy). The thrust of it is taking credit for the positive impact that the energy sector has had on GDP growth, the balance of trade and on job creation. I’ll only comment about a couple of their more noteworthy claims, which have become talking points for the Administration:

The President established a national goal in 2011 to reduce oil imports by one third by 2020 and elevated the goal in 2012 to reduce them by one half by 2020. We are currently on track to meet this ambitious goal if we continue to follow through on the policies that are critical to achieving it.

That’s accompanied by this graph:

 

… which is an example of what we know as Vladimir’s First Law of Graphs:

Whenever someone shows you a graph with a y-axis that starts at a value other than zero-point-zero, they’re trying to sell you a bill of goods.

Here comes the part where they try to glom credit for the unprecedented growth in oil production since 2009:

Government funded research supplemented private industry’s work to develop the technology that sparked the boom in oil and gas production. Crude oil production has grown each year the President has been in office to its highest level in 17 years in 2012 (see chart above). In fact, over the past four years, domestic oil supply growth has accounted for over one-third of global oil production growth.

None of the statements in that paragraph are demonstrably false, but they are stated in a way to suggest that somehow the boom would not have happened without government support, and that Obama is its biggest cheerleader. This is a classic example of the Post Hoc fallacy. Saying the government deserves credit for the shale boom is like saying that Noah deserves credit for discovering the New World* in 1492 due to his pioneering research in marine architecture.

We are often reminded that petroleum development often take years. In other words, “You didn’t build that”, Mr. President.

A recent excellent blog post at Econbrowser makes the rather surprising observation that

Interestingly, two states– Texas and North Dakota– account for more than 100% of the increase in U.S. production since 2009.

This rather counter-intuitive statement is true because the production gains in all the other states cannot offset the 348,000 barrel per day loss in production from the Federal Offshore since 2009. I’ll steal Econbrowser’s table to make that point:

 

I credit the oil boom to three things:

• Favorable geology in the Bakken (ND) and Eagle Ford (TX) formations;
• Greedy entrepreneurs cleverly exploiting high sustained crude oil prices (that’s known as capitalism);
• State governments who understand the economic benefit of energy development, and actually facilitate it with responsible and effective regulatory policies, rather than choking it with unnecessary regulation.

Cross-posted.

* Too Euro-centric?

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