Imagine that you are a seller of ice cream cones during a time of high demand (summer), but price them at levels that one might encounter in the dead of winter. Imagine further that the winter in question is, say, 5 years earlier. That would likely be a formula for minimizing profits. That is not unlike what is currently happening to Arctic drilling lease sales.
With prices at the pump showing no signs of relenting (Averaging $3.54 per gallon in my immediate area in New York State), the U.S. Interior Department’s Minerals Management Service prefers a quaint trip down memory lane when planning for leasing for offshore Arctic drilling.
Washington, DC — With prices surging past $112 for a barrel of oil, the federal government is basing its Arctic offshore drilling plans on the assumption that oil will cost only $30 a barrel and not rise beyond $46 a barrel by 2012, according to agency records posted today by Public Employees for Environmental Responsibility (PEER). These vast underestimates were based on old forecasts which the Bush administration refused to update for fear of slowing leases sales in the Arctic Outer Continental Shelf.
Retro pricing, another gift to the Bush administration’s corporate masters.
Planning documents from the Minerals Management Service (MMS) of the U.S. Interior Department for current and planned leases assume that –
The long term price of oil will range from $18 to $30 a barrel during the life of Beaufort Sea leases offered for sale in 2007; and
In its forecast for the years 2007-2012, MMS states that $46 per barrel represents “a reasonable estimate of the long-term process the oil and gas industry will be using for making its development decisions.”
I suppose that it would be reasonable estimate, if President Clinton still occupied the oval office. But MMS attempts to justify retro pricing on the costs of drilling, totally ignoring the current price per barrel.
By deliberately understating the price of oil, MMS claims that it would not be economically feasible to require oil companies to conduct extensive mitigation of adverse impacts from exploration. Moreover, the false assumption of low oil prices is used to argue that offshore lease sales will have minimal adverse environmental effects because –
The chances of oil spills would be diminished because the price would be too low to justify extensive investment or production; and
Oil firms would not have an economic incentive to penetrate pristine areas vital to wildlife;
PEER:
“These phony forecasts are meant to short-circuit honest analyses of what the effects will be,” Ruch added. “Staff scientists are under orders to go along with these and other unrealistic assumptions because Headquarters wants these Arctic lease sales issued now, come hell or high water.”
Another Bushco gift to industry.