“Wallops, We Have a Problem”


G

ov. Bob McDonnell may be dancing for joy, if not perhaps for feeling a little upstaged, by President Barack Obama’s reversal of a stand against drilling for oil offshore of Virginia.

Exploration could begin in 2012 for a Delaware-sized area of 2.9 million acres about 50 miles off of Cape Charles. The plan is for seismographic studies of possible reserves of oil and natural gas that so far have eluded the oil patch and who, surprisingly, did not dance the McDonnell jig when they heard Obama’s news.
Of course, Obama is playing politics. By feigning to the GOP, he is trying to get their support for some new version of global warming legislation that very well could see the controversial cap and trade market system dumped. McDonnell gets to crow about Virginia as the “Energy Capital of the East Coast” — whatever that is supposed to mean.
But there are very real concerns about drilling off of Virginia and they all don’t have to with some limp-wristed tree or whale-hugger. They very well could force Virginia (and maybe McDonnell) into some hard choices about what kind of economic development the state really wants.
One of the key industry that would be negatively impacted is Virginia’s fledgling space sector. NASA, the Navy and Air Force use the Wallops Flight Facility on the Eastern shore industry for basic science and military research. Plans are to develop Wallops into a commercial space port that could serve as an alternate to Cape Kennedy or Edwards Air Force Base.
McDonnell out to know this because his party is pushing the space industry hard. Fellow Republican Terry Kilgore pushed legislation in this General Assembly to change insurance requirements at Wallops Island to make it easier for commercial launches.
NASA Is not happy with the idea of oil rigs popping up off the coast. “That area is right in the middle of our launch range,” a Wallops spokesman was quoted as say in a Newport News Daily Press article.
The Navy is another issue. The Norfolk-based Atlantic Fleet uses a part of the offshore area for live-fire exercises since it is close to home. Joe Bouchard, former commanding office of the Norfolk Naval Station, has testified that drilling “would have a serious negative impact on U.S.national security” and that the economic benefits appear exaggerated.
Reaction a little further up the coast (the Obama drill zone stops off Delaware) is likewise sour. New Jersey politicians are skittish because an oil spill could hurt the state’s fishing industry famous for scallops not to mention beach resorts.
Let’s just say there is significant oil off the coast and the Old Dominion becomes an “Energy Capital” as McDonnell says. Well, that’s no piece of cake because you are talking about putting in piers, pipelines, transfer units, oil liter transshipment barges and perhaps new refineries around the Chesapeake Bay which is already largely dead thanks to pollution. The state still has a sizable watermen’s industry for crabs and fish which would be highly sensitive to the new industrial activity. Oysters are only beginning to make a comeback after decades of abuse. How would they fare in a new oily world?
But the big unanswered question is “Where is the oil industry?” Part of my work involves tracking it and believe me, if there’s oil, they are not exactly shy. I recently dealt with Chevron which has been busy developing on of the world’s Top 10 fields in Kazakhstan and is expanding both its work and its pipelines there at a cost of billions.
They and other firms are very active in ultra-deep water in the Gulf of Mexico and Alaska remains a huge interest. So why are they willing to pump in billions after billions in water more than a mile deep when the Continental Shelf off Virginia is relatively shallow and would present much less cost.
Could it be that there’s isn’t all that much oil there? If there were, wouldn’t Big Oil have nabbed it already. Meanwhile, Virginia had better think about what it might be giving up to follow one ambitious governor’s dream.
Peter Galuszka

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29 responses to ““Wallops, We Have a Problem””

  1. Mimi Stratton Avatar
    Mimi Stratton

    Great post. I appreciate your expertise on the topic.
    Just wondering, if there's all that much oil anywhere near the US–why isn't the oil industry busy building new refineries here?

  2. Larry G Avatar

    saayyyy… why couldn't you plaster those rigs with wind turbines and call them GREEN ?

    McDonnell could tout all the new jobs building wind turbines to festoon those platforms.

    And if you want a thrill up your leg – let's sprinkle a few along the Chesapeake Bay Bridge-Tunnel complex.

    We could use the oil being pumped to spin the turbines when the wind dies.

  3. Anonymous Avatar
    Anonymous

    Peter – don't worry about the Navy/NASA; Larry G. said that the opposition to drilling 'ANYWHERE in the area on that basis alone is clearly a ruse'.

    He must be one of those 'sure' people who have had extensive experience commanding a naval vessel and has studied closely the nautical charts in the area.

    Maybe he is another person willing to sacrifice national defense concerns for short-term political gain. From someone who protected him from evil, I find the Navy's operational needs to be 'substantive.'

    Also, see how many people are squealing about the threat of moving just one carrier from HR, what happens if more goes? Bosun

  4. Anonymous Avatar
    Anonymous

    Mimi – Building refineries. My understanding is that environmental regulations make it very difficult to build refineries But I also suspect there's also some interest in under-investing in the hope that prices will rise from a supply shortage.

    TMT

  5. Groveton Avatar
    Groveton

    You guys crack me up.

    First, it was Obama who authorized the drilling, not McDonnell. I guess when your hero (Dear Leader) does something you don't like you somehow try to blame the nearest Republican. Your pals Webb and Warner support the idea too. Yet you guys ramble on about McDonnell. Fascinating.

    Second, they are going to explore for oil. Explore. If there is no sign of oil or if there seems to be just a little – it won't go any further. However, if it looks like there is lots of oil we'll have some thinking to do. Brazil recently stumbled onto a huge offshore oil field. They didn't think there was much oil there either. http://industry.bnet.com/energy/10002056/spillover-effect-another-pre-salt-discovery-in-brazil/

    Third, you guys all drive cars. Where does the gasoline your burn come from? I guess it's OK to have oil wells in Oklahoma or in the Gulf of Mexico but not near your home state. You take NIMBY to a new level.

    Fourth, the Chesapeake Bay enigma. In one sentence, "the Chesapeake Bay which is already largely dead thanks to pollution..". In the next sentence, "The state still has a sizable watermen's industry for crabs and fish which would be highly sensitive to the new industrial activity.". Lots of watermen are catching crabs and fish in a largely dead bay? It's almost Easter but even Jesus had to start with five loaves and two fish before he could feed 5,000 people. Apparently the Virginia watermen are even more amazing. They create a sizable fishing industry from a dead bay.

    Fifth, the Wallops Island enigma. If one of their rockets is low enough to hit an oil rig 50 miles offshore I'd get on the horn and say, "Wallops, we have a problem". The Orbital Sciences guy tried not to call the Wallops spokesman an idiot in the response.

    Sixth, the Navy enigma. Since Bosun is concerned about finding people with Navy experience I called my Dad. 20 years in the US Navy. When I asked him if the Navy would have substantial problems with oil rigs in the Atlantic all he said was, "I should hope not.". He began his naval career on a destroyer supporting the American invasion at Inchon so I'll take his opinion as well informed regarding operating ships under adverse conditions.

    Seventh, missing the big story. Virginia doesn't own the drilling rights. http://oxroadsouth.com/2010/02/24/the-myth-of-oil-drilling-royalties.aspx. The feds will keep all the money. None of the inland Congressmen will vote to give the money to Virginia when they can dip their snouts into the trough too.

  6. Darrell -- Chesapeake Avatar
    Darrell — Chesapeake

    What you guys are failing to grasp is this big sale announced by Obama is only a tiny section of the Mid-Atlantic block.

    http://www.mms.gov/offshore/220.htm

    It's only when you look at the big picture that you begin to understand the total impact.

    http://www.mms.gov/revaldiv/Maps/National.pdf

    Hopefully now you will see why I say HR will become a cess pool of refineries and chemical plants.

    On a related note, NOAA has interesting data concerning wave heights. In the gulf the average annual wave height is about 1m with individual waves twice that. The Atlantic averages 1m at 50 miles and 4m at 150. During storms, things change dramatically.

    In 2005, Katrina generated avg. heights of 15m with peaks as high as 30m on a buoy fifty miles from shore. Compare that to the data generated from some of the storm cells we have come through Virginia a couple times per month. Just pick a buoy for real time data during a storm.

    http://www.wunderground.com/MAR/sem.html

  7. Anonymous Avatar
    Anonymous

    "the Chesapeake Bay which is already largely dead thanks to pollution..". Many would say most of the Bay's problems stem from over-development and a lack of proper storm water management. But now I'm talking about the state religion.

    I think Obama made a clever political move, but exploration for oil and gas is necessary for our economy to keep moving.

    I suspect large wind turbines would cause just as much of an environmental problem. But we need to try that too.

    TMT

  8. Larry G Avatar

    Where is this issue on the Richter scale for the rest of the country?

    I dare say it's fast disappearing in the rear view mirror.

    For Virginia – I would ask – what do you think this issue means to the middle/independent voter who either voted for Obama and then perhaps later regretted it or is truly undecided about this Prez but solidly in the middle on energy policy?

    or let me ask this – do you think Obama's political advisors …consciously … made choices about WHERE to propose these changes and where not to propose them?

    Do ya'll remember the Dubai Ports deal? Do ya'll remember how "someone" totally tone deaf, completely botched how the issue would be perceived by the public?

    How about this Prez? Do you think he and his advisors are tuned in to America, to Va?

    One more question – do you think this Prez advisors consulted with Warner and Tim Kaine before making this move?

    Bonus Question: Do you think Obama totally "misunderestimated" the public on the HC issue or do you think he has his finger on the pulse?

    Oh.. and has anyone heard the President say he is the "decider" yet?

    He could still turn out to be Jimmy Carter II, right?

  9. Mimi Stratton Avatar
    Mimi Stratton

    I'm retweeting this from Stephen Colbert–
    From: @StephenAtHome
    Sent: Apr 1, 2010 10:23p

    president obama authorized offshore oil drilling. evidently, our coasts have vast reserves of republican congressional votes.

  10. Anonymous Avatar
    Anonymous

    Groveton, I respect your Dad's experience, but again, I can only ask these questions:

    Why no drilling rigs off of Eglin AFB/Pensacola NAS if it is safe/no problem?

    Why are large expanses of the coast off of Va. designated for Navy operations?

    If you make things more difficult for the Navy to operate their vessels, why would the Navy want to stay in Hampton Roads? See: big $$$ to buy land in VaBch.

    I have said one way to solve the traffic problem in Hampton Roads is to chase the Navy out of there. Bosun

  11. Anonymous Avatar
    Anonymous

    NASA Is not happy with the idea of oil rigs popping up off the coast. "That area is right in the middle of our launch range,"

    ==========================

    When was the last time you saw a rocket fall in the water on launch?

    Challenger, almost 25 years ago. The failure rate for large rocket engins is less than 0.5% and much lower than that for protection engines.

    Multiply that by the odds it would actually hit something on impact and you have very small numbers, indeed. I make it to be something like 1.6 to the minus ten power.

    Of course there is an issue with spent lower stages and assorted junk, but NASA doesn't own the ocean. There are just like any other existing resident: they want to impose conditions on the new guy.

    Could bad things happen? Yes, but we can never live totally without risk.

    I saw the idea expressed this week as

    "Life sucks, Get on With It."

    RH

  12. Anonymous Avatar
    Anonymous

    why isn't the oil industry busy building new refineries here?

    ===============================

    Hasn't been a new refinery built in 30 years. This is part of the reason for recent gas shortages.

    Talk to your green friends and find out what they think of the permitting process.

    It is going to be a lot of fun landing a helicopter on one of those rigs, right next to the wind turbine blades.

    The ultimate irony, though, will be when some one builds a wind powered oil rig.

    RH

  13. Larry G Avatar

    more refineries?

    my understanding is that we are not increasing our consumption of gasoline – in fact the opposite given the deteriorating state of the gas tax.

    the "new" oil does not actually provide a net increase in oil but rather replacement of other sources that have dried up.

    You can expect even more "hits" to oil and gasoline if hybrids become more numerous and/or we start to see plug-ins "fueled" by electricity.

    What Mimi did not mention was that at the height of the controversy over ANWR – the truth came out – that that oil would not be supplied to the US but instead sold to the world market for the going rate.

    I strongly suspect that will be the same deal with our offshore oil.

    It's going to go not to new refineries (which we do not need) but instead to whatever refinery that has a buyer for the refined fuel and these days India and China are among the more voracious consumers of crude oil.

    So.. the one thing I would have done if Obama would be to say that approval of drilling would be ONLY for transshipment to the US – which would, more than likely cause a decrease in gasoline prices here.

    Then. I would have put a tax on the difference .. and direct it to a loan fund for businesses who can't get loans from the banks.

  14. Anonymous Avatar
    Anonymous

    If hybrids become more numerous, they will burn more gas, not less.

    I love my hybrid. It is quiet and comfortable and despite the news, reliable and safe. This week it averaged 59.1 mpg, in normal driving, not hypermiling.

    I like Metro, too. In spite of the fact is has none of the things my hybrid has.

    But neither one of them will tow my boat on a trailer. If Obamas fuel efficieny command sticks, I expect to see JC Whitney come up with an Economy Harness.

    With it you can hitch up two or four economy cars to your boat trailer. Or put the kids in one and ride in one. If you are of russian descent you can get a special troika model.

    We have had a shortage in refining capacity for decades. Excess {reserve) capacity is so low that we have had temporary price hikes because of refinery outages and even weather. Part of the shortage is the result of government regulations which specify dozens of formualtions in different states at different times of the year. Also, refineries make a lot moer stuff than just gasoline.

    If we don't do it here, it will go overseas like other manufacturing has.

    Manufacturing opportunity: make a human size cell phone with fat keys and a big battery. Program it to text automatically so we can cut out the banality: "Honey, I'm on my way home, need anything?"

    "Get bread and milk and pampers"

    Pampers? Is there something I don't know?

    RH

  15. Anonymous Avatar
    Anonymous

    Gas consumption is down, like everything else because of the recession. Up until then we have been consuming gas at a steady rate and the gas tax revenues have been stable or increasing.

    The only thing deteriorating about the gas tax is its size in relation to the price of gas, and everything else it is supposed to pay for.

    RH

  16. Anonymous Avatar
    Anonymous

    …that oil would not be supplied to the US but instead sold to the world market for the going rate.

    ==================================

    What?

    Why would an oil company sell their oil to the US for less than the going rate?

    If they get the going rate, why would they care where it is shipped, other than shipping efficiencies?

    Isn't this like someone parking their car to get (standing space) on Metro, and then having someone else say "Hey, lookee, an empty car slot I can use?

    RH

  17. Anonymous Avatar
    Anonymous

    Say, amigos, if we all own the environment equally, we all own the oil.

    Why should we pay anything for it?

    Hugo Chavez

  18. Anonymous Avatar
    Anonymous

    … which would, more than likely cause a decrease in gasoline prices here.

    Hold on there, Gasoline is $7.50 per gallonin Germany for a reason.

    AZA

  19. Anonymous Avatar
    Anonymous

    Refineries reminds me of something. One reason European countries appear to use less energy is because most of their refining (which uses a lot of energy) is done someplace else.

    Part of the reason they pay high pricesis that they import finished products.

    RH

  20. Larry G Avatar

    " If hybrids become more numerous, they will burn more gas, not less"

    if they become more numerous by replacing conventional gas powered cars then they'd burn less.

    which is what is going on – as the gas tax generates less and less money and why the DOTs have predicted dramatic reductions in highway money as overall gasoline usage continues to drop.

    got that Ray – it's going DOWN – not UP.

    down guy… less gas tax money = less gasoline purchased.

    right

  21. Larry G Avatar

    " Why would an oil company sell their oil to the US for less than the going rate?"

    because the govt would not give them drilling rights otherwise.

  22. Larry G Avatar

    " Hold on there, Gasoline is $7.50 per gallonin Germany for a reason."

    yup.

    here's your per capita gasoline usage per country list:

    http://www.nationmaster.com/graph/ene_oil_con_percap-energy-oil-consumption-per-capita

  23. Anonymous Avatar
    Anonymous

    The government does not give them drilling rights, they are sold at auction.

    If they are sold with preconditions the buyers will offer less.

    However, assume you are correct, the govenment sets a condition that the goods must be sold in the US. How does the government endure that the price will be less than the global rate?

    What would prevent me as a secondary speculator from buying oil at the US price and shipping elsewhere to get a higher price?

    ==============================

    I don't understand the point of yur last post. I suggest the price of gasone in Germany is the same as anyplace else, shipping aside.

    What is different is the price of gasoline plus tax.

    The reason gas is high in germany is the money goes into the general fund, to be spent on the public welfare. The way you get to be a free rider in Germany is to buy as little gas as possible and suck down all the other benefits.

    The more people do this, the higher the gas rax needs to be to support this behavior.

    RH

  24. Larry G Avatar

    are you saying that the govt cannot effectively regulate commodities?

    You'd just set up royalties that make it more expensive to sell overseas – whether it's primary or secondary markets.

    Isn't the gas tax in Europe used to help pay for health care?

    you'd support that kind of tax right?

  25. Larry G Avatar

    Here's another interesting set of data:

    Comparison of Energy Use &
    CO2 Emissions From Different
    Transportation Modes

    http://www.buses.org/files/ComparativeEnergy.pdf

  26. Anonymous Avatar
    Anonymous

    "if they become more numerous by replacing conventional gas powered cars then they'd burn less."

    Agreed, but as I pointed out, that isn't going to happen because they do not have the same capacity or capability as conventional cars.

    The other reason that isn't going to happen is that being less expensive to drive, more people will be able to drive them.

    Another reason is that it takes twenty years to turn over the fleet. By then there will be a lot more drivers and a lot more cars.

    Even if you had the right argument, you can't sell it with faulty logic.

    RH

  27. Anonymous Avatar
    Anonymous

    Overall, gas consumption is not going down. Gas tax revenue is not going down.

    But the gas tax has been fixed for 25 years, while the price of gas itself has gone up. Gas tax revenue is a smaller proportion of the price of gas. It is also a smaller proportion of the cost of highways and nearly everything else.

    It is a smaller piece of a bigger pie.

    Also, we have more biofuels mixed with gas. Government mandates requiring refiners to blend ethanol into gasoline aren't expected to change. Ethanol has less energy than gas and invreases fuel consumption, which works against the governments goal of increasing fleet milage 35 mpg.

    Here is a question. The gas tax is collected at teh wholesale level. Is it collected before or after the ethanoll is blended in? I
    d be willing to bet that some sharp cookie has figured out that they don't have to pay gas tax on ethanol.

    The point is that you cannotlook at gasoline production by refiners and equate that to what is happening on the highway. You can't confuse the fact that there isn't enough gas tax revenue or that it is a smaller portion of the revenue required and assume that there is less actual cash.

    That doesn't mean that there are not temporary drops due to the recession increased ethanol use and battery technology. Federal gas tax receipts did drop 3% last year.

    To the extent that these features become permanent we need to get away from the idea of a "gas" tax and adjust the system to collect "fuel" tax. However, ONLY a fuel tax collects for weight, speed, power, mileage and driving habits. Oregon is considering a mileage based tax, but sixteen other states are considering raising their gas tax, or already have.

    Fuel demand depends on a population that is likely to keep growing as Americans have children at roughly the same pace and the flow of immigrants increases.

    Furthermore, if battery and biofuels continue to make inroads on actual gas consumption, gas prices will fall with predictable results. This will be offset by incrasing demand overseas. To the extent that we subsidise and switch to biofuels, we will actually be subsidising chinese drivers.

    Consider the subsidy on biofuels. It is a tax paid to biofuels producers instead of paying the same money to those that produce and maintain our roads. We are robbing peter to pay paul, and like everything else, it is a question of priorites.

    A rough road uses more fuel than a smooth one, so at some point s policy of supporting biofuels at the expense of road maintenance will be a losing proposition.

    RH

  28. Anonymous Avatar
    Anonymous

    "Crude Oil and Liquid Fuels Overview. EIA's more optimistic updated expectation for global economic growth during 2010 drives the 2010 forecast for oil consumption growth upwards to 1.5 million barrels per day (bbl/d) from 1.2 million bbl/d in last month's Outlook."

    "Carbon dioxide (CO2) emissions from fossil fuels, which declined by 6.4 percent in 2009, increase by 1.5 percent and 1.2 percent in 2010 and 2011, respectively, in the forecast as economic growth fuels higher energy consumption."

    "U.S. Liquid Fuels Consumption. U.S. liquid fuels consumption declined by 810,000 bbl/d (4.2 percent) to 18.7 million bbl/d in 2009, the fourth consecutive annual decline (U.S. Liquid Fuels Consumption Growth Chart). Motor gasoline was the only major petroleum product whose annual consumption did not decline. "

    "EIA projects gasoline consumption will begin to show modest, but consistent, increases over the previous year, growing by 60,000 bbl/d in 2010 and 70,000 bbl/d in 2011."

    Source: EIA March 2010

    RH

  29. Larry G Avatar

    the data supports your view, I concur.

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