Wednesday, November 05, 2008

Oil Drilling? Yes or No?

After finally allowing the ban on offshore drilling to expire, will democrats dare to reimpose it. The Obama promise has been to support drilling provided royalties are collected and applied to support for alternative energy projects. Was the $7 increase in the price of oil yesterday based on the realization that the states will not support such plans? If the states cut of the revenues are used to support a remote federal goodies pool, why should the states want drilling rigs off their coasts.

With 70 billion barrels discovered off the coast of Brazil and with less solid reports of 20 billion barrels discovered off the coast of Cuba and with Mexico changing the rules to encourage drilling in the Mexican Gulf of Mexico, the pressure to allow US drilling will mount. Why should our neighbors reap all the benefits?

The massive programs underway in India and China to increase production of electricity through nuclear power, should cause US leaders to see that much more manufacturing will move to China and India unless we can match their low cost electricity. Obama has pledged to create 5 million new jobs in the alternative energy area, but there are no alternatives that can match the economics of nuclear. A non political study of alternative energy will discover that nuclear power is the best alternative available.

The first priority for Obama will be to revive the US economy. The force exerted by billions of dollars of high powered reserve additions from the FOMC could easily cause a stock market boom before Obama is inaugurated. While I have trouble seeing the current congress passing another stimulus package, I believe the rational for doing another stimulus will be gone before the next congress can act. The flow of money from the 700 billion bailout fund will be largely done before the Obama congress can interfere.

I assume the second priority of Obama will be to pass health care reform. Major reform will require significant compromise in the Senate. If progress cannot be made in health care, the energy area may be the easy place to find common ground. The royalties being earned by Texas and Louisiana are significant. I will be surprised if democrats from Virginia or elsewhere are not ready to get in on the oil gravy train. Sooner or later, drilling will get the green light. Should a dramatic slowdown in China cause the price of oil to fall to $40 or lower, the question may be moot but the rational to spend money on alternative energy will not exist.