In January 2008, ExxonMobil and Norway’s Statoil announced a promising discovery in the Julia Field in the Gulf of Mexico that may contain a billion barrels of oil. In October of that year, Exxon applied for a 5-year extension of the lease for time to develop a suitable development plan. To the company’s surprise, the U.S. Department of Interior denied the request in February 2009, and has continued to turn down subsequent appeals. The company has filed a lawsuit to have the decision overturned.
The Wall Street Journal reports:
Exxon’s lawsuit said the government has granted "thousands" of extensions over time. It said the government’s denial of its extension relied on legal interpretations that it "had never before applied and had never before articulated." Statoil asserted in its lawsuit that no request for an extension for a deep-water development "had ever previously been denied."
Jim Brown reports that the Julia well was drilled in 6,500 feet of water to a depth 31,160 feet, numbers that continue to dazzle me with the scope of the engineering challenge involved. Brown also offers this commentary:
Exxon is known for moving slowly in developing plans for offshore production but given the complexity of developing oil fields six miles below the surface that is to be expected.
The government said Exxon did not present a firm plan for producing the oil. Duh! You have to drill it first and one exploratory well does not give you enough information to develop a "firm plan" for producing the oil in an entire lease. Nobody had ever been required to provide a firm plan in the past. This was a new and previously unneeded requirement….
Ignore the fact that thousands of workers and tens of billions of dollars would pour into this development. Ignore the fact that the federal government would receive roughly $11 billion in royalties off this development. Ignore the fact that by arbitrarily refusing the extension the production of this oil has been set back by a minimum of 5-7 years. If the lease has to go through the auction process again and someone else wins and has to develop the seismic data, drill exploratory wells, etc it could be 10-15 years before the oil is produced. This is mass stupidity at the government level.
It already took Exxon years to do all the preparation just to drill the initial exploratory well. It will take any new bidder those same years to repeat the process.
And in a separate story August 15, Brown had this:
Noble announced last week another deepwater rig was leaving the Gulf of Mexico for work elsewhere. The Noble Paul Romano had been idle since June 2010 and it now going to work for $325,000 per day for Gujarat State Petroleum in Egypt….
Since the moratorium was canceled Chevron has received three deepwater permits, BHP Billiton had four wells approved and Shell won five permits. There have been some singles awarded to other companies. The major drillers are not expecting a return to faster permit approvals until the end of 2012 or early 2013….
The rig utilization rate in the Gulf is now 54% compared to 78% worldwide.
An idle rig impacts over 1,000 workers. Some estimates are higher depending on how deep you go into the onshore support structure. Rigs have two complete shifts so a rig with 150-200 workers has twice that many with one half onshore at any given time. For an active rig there are dozens of support vessels moving men, equipment, supplies, food, etc back and forth from shore. There are the support companies like Schlumberger, National Oilwell, Weatherford, Cameron, etc, that operate as contractors to the rigs.
On shore there are supply houses, fabricators, helicopter services, regulators, inspectors, engineers, etc that work constantly to keep the rig operating.
Having these rigs on standby means they have a skeleton crew keeping the engines running and keeping the lights on. Everyone else is drawing unemployment.
That’s about 10 rigs that have left the Gulf so far, and half those that remain are idle.
In other news, President Obama is planning to deliver an important speech early next month detailing the Administration’s new plans for promoting jobs growth.
Where can America find more income and jobs?
Tue, 23 Aug 2011 23:06:17 GMT
Can’t get a date, fellow geeks? Perhaps it’s your face. No, we not putting you down: it’s just that people are known to make snap judgments on whether other people are nice or mean, trustworthy or a crook, competent or inept in the first fraction of a second upon seeing their faces.
Now, computer scientists have created a software that can do this, too: [Source]
- Awesome Bacteria Soap Will Keep You Nice and Clean
- AIR + AOL = One nice little desktop music widget
- Computers still struggling with sporting schedules
Computers Can Now Tell If You’re Nice or Mean [Video]
Thu, 25 Aug 2011 01:00:20 GMT
There appears to be growing consensus that climate change adaptation is an important topic to study. Since economists have opinions (and expertise) about everything, I have created a short reading list to encourage more young people to enter this lively field. If I have omitted your favorite study, please send me an email and I will update the file.
I was nudged to provide this public good because I will be lecturing next Friday at UC Berkeley on the economics of climate change adaptation. There are over 40 graduate students who are enrolled at one of the UC branches who will be attending these lectures. I am quite happy to hear that there is such interest in environmental and energy economics. I know that 4 of the students are from UCLA. I had hoped that UCLA would have greater representation but I have learned that I’m not an influential man.
A Reading List for the Economics of Climate Change Adaptation
Matthew E. Kahn
Fri, 12 Aug 2011 17:14:00 GMT
I’m less than fully convinced we should pour massive spending or additional regulation because of concern about this issue. Yet, I do think its getting warmer. Furthermore the attitudes on this issue held by Rick Perry is very disturbing.
Seeing believing. The best evidence for the reality of warming is what has happened to glaciers, that are in retreat in many areas. Note how buildings in high latitudes are collapsing due to melting permafrost.
Even if climate change is happening the response is not so clear. Not all effects of climate change will be bad. Furthermore, a lot of responses such as by local governments, or even individuals will likely be the most appropriate response. We may even be able to act to mitigate the warming by policies such increasing SO2 in the upper atmosphere.
All this said, what seems to be the main reason cited of late for rejecting policies like Kyote seems nuts. The reason Republicans cite, including Rick Perry? That scientist have conflict of interest in by and large supporting global warming. This isn’t a rejection of global warming. It’s a rejection of science across the board.
A lot liberals could be accused of group think on this issue. They support because other liberals do. But a rejection of science is more disturbing.
Steve Horwitz shares an interesting article about Central Park as an "Ostrom-type" privately managed public space. These sorts of public spaces are quite common. Two that are close to my heart are Mount Vernon and Monticello. Horwitz points out that the condition of Central Park improved tremendously since they started being managed privately. Mount Vernon presents an opposite example – it was very managed poorly under previous private owners until new private owners – the Mount Vernon Ladies Association – took it over (the federal and state legislature declined an offer to sell it in the 1850s).
I don’t think it’s easy to extract a simple narrative from these things. We know there are collective action problems associated with maintaining public goods in private hands. Mount Vernon seems to demonstrate this. We know there are public choice and collective action problems associated with a commons and with state administration. Central Park seems to demonstrate this. My concern with private management of these things is that not enough of it will be done. What is managed will be managed splendidly (visit Mount Vernon or Monticello if you have doubts), but a lot will be lost and left unmanaged, and you’ll never hear people talk about those losses (the seen and the unseen, anyone?). My concern with public management is precisely what Steve points out – that it will be done poorly and risks not being responsive to what people actually want.
Some people seem to think there’s a big bright line on these things – that the government is bad for these public spaces or that the market is bad. Taking either of these views seems to require that we ignore basic economics. I’m with Ostrom, personally – I think humans have a variety of ways to manage these sorts of resources. We have governments that sometimes work and sometimes don’t. We have markets that sometimes work and sometimes don’t. We have non-government, non-market institutions that sometimes work and sometimes don’t. I’m personally interested in celebrating and supporting what works, not staking out one solution for pillorying.
Privately maintained public spaces
Sun, 21 Aug 2011 12:32:00 GMT
I gave a lecture on climate change adaptation today to a group of 40 Ph.D. econ students from all of the UC campuses. As you know, I place individuals and individual firms as our first line of defense in protecting us from the challenge of climate change. In contrast, several students in the room were insistent that government will play the central in protecting future generations from climate change. I respect their idealism but this merits a little bit of analysis.
In Climatopolis, I argue that in an open system of cities in which people can migrate across cities at relatively low cost (and 3% of people in the U.S move across states every year), those cities that fail to adapt to climate change will suffer a brain drain as the skilled who seek safe, high quality of life cities will leave. This threat of "exit" by the footloose skilled provides strong incentives for self interested mayors who want their tax base to remain to be pro-active in protecting their city. I certainly agree that government can use its unique powers of taxation, public goods provision and zoning to "climate proof" a city but it will be much more likely to take these steps if the population sends credible signals of punishing those mayors who are no pro-active.
UPDATE: Migration in response to climate change isn’t just a human activity. Have you read this about the mobile critters?
In contrast, the students appears to embrace a "benevolent planner" model of government as it steps up to protect us from our misfortune. I wish we lived in such a world but I have seen our politicians in action.
I do believe that politicians react to competitive forces and if the median voter wants adaptation investment then Mayors will think through actions that can help to protect the urban population. Again, the key idea here is the threat of competition and no mayor thinking that he/she has a monopoly on the skilled. The threat of exit by the golden goose (the skilled) yields better governance.
I would also stress that the domain of what Mayors, Senators and even the President controls is small relative to the freedom and opportunities that the free market can create. The President and Congress can enact activist policies such as paying for new highways or new health insurance but they cannot mandate technological advance. Neither Facebook nor Google was not created by government. As I argue in my book, government has often created bad incentives for encouraging innovation that will help us to adapt to climate change. We need to face the scarcity signals for electricity and water. In many cases, regulation sets ceilings on how high prices for such resources can rise. If we allowed free markets to signal their scarcity (then as climate change makes them more scarce), innovation would take place that economizes on those resources.
I also worry about a certain lulling effect. If the UC students truly believe that government will rescue them, then this diminishes their willingness to be pro-active to protect themselves. In English, if you believe your neighborhood street is safe and low crime because of police patrols, you may not lock your doors. The perception that you have a guardian angel can displace private self protection and I view this as a mistake. There are certainly cases where private investment in self protection and public investment are complements (i.e like peanut butter and jelly) but this needs to be thought through on a case by case basis because I think they are substitutes in many cases. Consider New Orleans. If government invests in nice strong Sea Walls (and taxes North Dakota to pay for them), more people will live there. This is a simple example of government investment in protection displacing private investment in self protection. This is the substitutes case.
I am not a member of the Tea Party and I recognize that the government has provide some high quality public goods such as national defense and the welfare safety net. That said, climate change does raise a fundamental issue of which strategies we use to cope with a new challenge.
I think what the students didn’t explicitly say today is that they are worried that the poor do not have enough $ to protect themselves and so they really seek "big government" because this tax and spend regime will give the poor more resources to cope with climate change. This conflates two different ideas; redistributing cash to the poor and optimal strategies for protecting ourselves from an emerging threat. Economists often forget that many people care more about equity than the economy’s efficiency and it was interesting today to meet young economists who also feel this way. But, the U.S deficit problems would vanish if the economy were growing faster and a more efficient economic system does grow faster!
A free market economist would say if the poor need more resources in order to successfully adapt to climate change then we need to figure out how to reduce poverty in the United States. The solution can be found here.
Government to the Rescue?
Matthew E. Kahn
Sat, 20 Aug 2011 03:44:00 GMT
When inflation was tamed in the 1980s and early 90s it represented an enormous wealth transfer from debtors to creditors, put strong downward pressure on wages and created Wall Street fortunes, some of which have lasted to this day.
This was not particularly fair, but it was the inevitable side effect of a policy to bring growth and stability to the US economy. The opposite policy is now needed. It too will not be “fair” but we are not in the fairness business, we are in the macroeconomic growth and stability business.
via Rogoff, the Great Recession and Economic Fairness.
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