Today, Explained - Drill, baby, drill

Episode Date: October 6, 2021

An energy expert explains why offshore oil spills keep happening and whether they’ll ever stop. Today’s show was produced by Victoria Chamberlin, edited by Matt Collette, engineered by Cristian Ayala and Efim Shapiro, fact-checked by Laura Bullard and hosted by Sean Rameswaram. Transcript at vox.com/todayexplained Support Today, Explained by making a financial contribution to Vox! bit.ly/givepodcasts Learn more about your ad choices. Visit podcastchoices.com/adchoices

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Gambling problem? Call 1-866-531-2600 or visit connectsontario.ca. Over the weekend, an oil leak was reported a few miles off the coast of Huntington Beach in the O.C. Don't call it. Well over 100,000 gallons spilled into the sea, killing birds and fish. There's a class action lawsuit being put together, and the governor is renewing calls to move away from any of the dirty stuff in California. It's time once and for all to disabuse ourselves that this has to be part of our future. This is part of our future.

This is part of our past. We want to know why this kind of thing just keeps happening in America. So we reached out to Sam Ori. I'm the executive director of the Energy Policy Institute at the University of Chicago. Sam, why does this kind of thing keep happening in America? Because over time, we've accepted a certain level of risk in terms of the energy infrastructure, the fuel production and distribution infrastructure that supports our way of life. And the current energy system is a heavily fossil fuel dominated energy system. Oil is at this point in the U.S. especially is kind of the big dog.

90% of the fuel that's delivered to our transportation system today is oilbased fuel, gasoline, diesel, jet fuel. Yes, we have more electric cars than we used to. Yes, we have some amount of ethanol that's blended into gasoline. But at the end of the day, they're rounding errors compared to the oil-based fuels that power the economy. And so producing and getting that oil into markets entails lots of infrastructure. And we've kind of accepted a certain level of risk. Over time, the amount of risk that we accept and the ways that we balance costs and benefits of that system have changed. But at the end of the day, oil is king in our economy, and we've accepted the risks of living the way that we do. Well, all right. Good, uncomplicated answer. I want to talk about why we've chosen to live with this amount of risk, but tell me how we got into offshore drilling to begin with. Ladies and gentlemen, if I say I'm an oil man, you will agree.

Now, you have a great chance here, but bear in mind you can lose it all if you're not careful." The first thing people should understand is that many of the fields where production occurred in the early stages of the United States oil industry, which was all on shore, started in Pennsylvania. East of Woodluston here, south of Tioga, in the southwest of Six, there's a fair chance of striking oil in a number of reservoir rocks. Moved to Indiana, parts of Illinois, eventually Texas and other places, California.

Most of our operation is underground. The fields are still yours. You can go right on farming. And if you should hit oil? You get the standard royalty, one-eighth of every barrel. But as you got closer to the coast, a lot of those fields that were developed, they're way underground, so it's not like there's some border where you hit the water and the field stops.

Actually, we start out in offshore drilling in exactly the same way as if we were drilling onshore. And then once we've got a likely spot, we can do either of two things. We can either drill from the land or we can actually go out in the water and drill. The fields that they were developing onshore, people who were drilling for oil realized these things extend out into the water.

Actually, like in the late 1800s, 1896, the very first offshore wells in the U.S. were drilled by oil derricks on wooden piers that extended out from the shore into a couple hundred feet of water in Summerland, California. In one sense, that was the first offshore well that was drilled in the United States. The first freestanding facility that was producing oil came much later, 1938, the first production of offshore by a freestanding facility in 14 feet of water, about a mile and a half off the coast of Louisiana and the Gulf of Mexico.

At that point, is anyone regulating this new and very dangerous industry? At that point, the states that are adjacent to those waters offshore are regulating the production off their coast. And especially, obviously, in cases where people are just building a pier out into very shallow water, even in the case of a mile and a half off the coast of Louisiana, at that point, the 1930s, it's still regulated by the states. And does that at some point change? Yeah, it changes in the Truman administration. At that point, there comes an awareness that the United States is sitting on a gold mine. Gasoline, the biggest seller of the industry, though far improved over what it was a quarter century ago, is still one of the biggest bargains on your shopping list.

Another example of how oil serves you. Continental Shelf Lands Act that are passed in 1953 that define all of this and create the system of producing, leasing, regulating oil and gas in federal waters, which this is a sort of an arcane detail, but for the most part, federal waters start about three nautical miles off the coast of a given state. The only exception that was agreed in the original legislation was for Texas and one part of Florida in the Panhandle, which get a state boundary of nine nautical miles out into the ocean. But everywhere else in the U.S., it's three miles. And then the federal government controls everything outside of that. Once the federal government gets involved in offshore drilling

in earnest, does that dramatically increase how much offshore drilling is happening? I mean, sure, regulatory certainty maybe played some role, but it's really the advancements in technology that occur over the coming decades. End of the 1960s, you have really a huge leasing bonanza in the United States in the offshore. And I mean, the way the federal regulation works and the way that leasing works in federal lands

at a very high level is that companies are required to, you know, they bid for the tracks. They pay, you know, and the tracks go to the highest bidder. So that's called a bonus bid. If you win that track, you then pay what you bid. So you pay that, you pay a rental fee once you take control of the tract, and then you pay production royalties on any oil and gas that are produced there. Stewardship of the environment

was a lot of times was couched in this word conservation. And at the time, conservation meant something very specific, which was really conserving the oil. I mean, making sure that the oil is produced in a responsible manner from the perspective of not wasting any of the oil. I mean, making sure that the oil is produced in a responsible manner from the perspective of not wasting any of the oil for the benefit of the country. How does that change? It changes in 1969, which is really a first seminal catastrophe for the U.S. offshore oil and gas industry, the Union oil spill in Santa Barbara. We woke up that morning and it smelled like tar and went outside.

I thought someone perhaps was tarring the road. They're doing some work, pulling up some pipe out of their well off the coast of Santa Barbara. There's a pressure incident that's not properly kind of managed. And the next thing you know, you have a blowout. Oil is still bubbling up from the floor of the Santa Barbara Channel at the rate of nearly 4,000 gallons a day. The blowout was enough that it created kind of fissures

around the well on the seafloor. Over the course of the coming days, the well spills about 4 million gallons into the waters off the coast of Santa Barbara. It's an 800-square-mile oil slick that fouls like 30 miles of California beaches. It's an 800 square mile oil slick that fouls like 30 miles of California beaches. It was black tar. It was thick black tar covering everything. What's the reaction? This is happening right at the time, the 1960s, where the environmental movement is just getting

kind of started. And this is one of the very catalyzing, I would say, events for the environmental movement. By the following year, the first Earth Day was observed by hundreds of thousands of Americans, and politicians took note of the movement's growing power. And so over the course of the coming, you know, the coming year or two years, there's just a huge amount of environmental regulation that passes. And I'm not sure, I guess I wouldn't say that, you know, you can tie all of it back just to the oil spill, but the oil spill was a huge catalyzer of activity. The National Environmental Policy Act was signed by Nixon on January 1, 1970. Safe Drinking Water Act, 1974. Coastal Zone Management Act, 1972.

The Clean Air Act 1970. I mean, there's really just a flurry of environmental protections that are put into place in the early 1970s. Okay, but despite this regulatory push, this isn't the last time this country sees an offshore oil spill of this magnitude, right? 20 years later, Exxon Valdez runs aground in Prince William Sound, Alaska, and dumps 11 million gallons of oil onto the coast and into the water in Prince William Sound, Alaska. The tanker, the Exxon Valdez, had just loaded more than a million barrels of Alaskan crude. It was about 25 miles from the Valdez terminal and was apparently trying to dodge ice flows from the nearby Columbia Glacier when it ran aground. Huge catastrophe. I think that's probably my first recollection of a major national news event that I watched on TV. The crews have not arrived yet to begin cleaning the slime off the islands beaches and rocks. That probably

won't happen until next week. Exxon says it cannot do the job in a hasty haphazard manner. You know 11 million gallons and that's a pretty major spill again the Santa Barbara spill that you know we talked about a minute ago for 4 million gallons. So Valdez is a huge spill. Day 10 of the oil spill crisis and the cleanup efforts still just beginning. A few crews are on a few beaches removing a little bit of oil, but there are hundreds of miles of affected coastline. That I think really ushered in some changes that had even greater impact than the Santa

Barbara oil spill. Immediately after Exxon Valdez, Congress signs and the president signs into law the Oil Pollution Act of 1990. And it has a huge amount of reform and new rules around liability. It's really the first time for a lot of the different parts of the U.S. offshore oil and gas system, platforms that drill, pipelines that carry oil, tankers that carry oil, for a lot of the different parts of the U.S. offshore oil and gas system.

Platforms that drill, pipelines that carry oil, tankers that carry oil. The whole system is governed by a regime after 1990 that puts liability on these guys for accidents. And when you look at the spill data from the Coast Guard, from other federal sources, you see a big change following 1990. There's a big drop in the volume of oil that's going into the water post-1990. And, you know, in particular from tankers and from other boat traffic, but not just from those, from all sources. The Oil Pollution Act of 1990 strengthened requirements for oil spill

preparation and planning, increased U.S. Coast Guard response capability, and required double hulls on new oil tankers. Okay, so Santa Barbara 1969 gets the country a bunch of new regulations. 20 years later, Exxon Valdez creates even more regulations. But just about 20 years after that, none of that is enough to stop what I believe is the biggest oil spill in the history of the petroleum industry from taking place off the shore of the United States. Certainly the biggest spill in U.S. history. 150 million gallons from the Deepwater Horizon accident that happened in 2010. 50 miles south of Louisiana, a massive explosion lit up the sky. 126 workers were doing routine drilling on the oil platform

before it was engulfed by smoke and flames. Semi-submersible drilling rig called the Deepwater Horizon has a catastrophic blowout, leads to the death of 11 rig workers. The rig sinks in about 5,000 feet of water, severs the connection to the seafloor. And, you know, over the coming 80 days or so, about 4 million barrels of crude oil, so about 150 million gallons, are released into the Gulf of Mexico. Workers on another rig 30 miles away could also see the explosion, saying it looked like a volcano erupting.

And like Exxon Valdez and Santa Barbara before it, does this too lead to a bunch of new regulations? It does lead to new regulations, definitely. It also leads to a fundamental rethink of how the regulation of the industry is structured. A more fundamental issue was the conflict of interest that arose from having one agency in charge of not only maximizing production. When Secretary Salazar took office, he found a minerals and management service that had been plagued by corruption for years. This was the agency charged with not only providing permits, but also enforcing laws governing oil drilling. Their mission is to lease as much of these tracks as possible and get as much oil flowing

as possible. That's like a direct conflict with saying, let's do it as safely as possible. It's much more like, let's do it as fast as possible. And no one noticed that until 2010? People just didn't pay attention to it until Deepwater Horizon. And this happens right at the beginning of the Obama administration. And I will say, I think the Obama administration was really stung by what happened. We will cancel the pending lease sale in the Gulf of Mexico and the proposed lease sale off the coast of Virginia. Because if you remember in that

campaign and when they first came into office, the Obama administration was talking about opening up new areas for drilling. And then Deepwater Horizon happens, and I think they were like, whoa, wait a minute. This needs a complete rethink, the way that we're doing this. This is not being done well. And so they break up the Minerals Management Service into three separate agencies, each one of which is in charge of a particular area of the offshore regulatory system. So the Bureau of Ocean Energy Management comes into existence, is in charge of managing

the leasing process and lease sales. The Bureau of Safety and Environmental Enforcement is created, and they're in charge of regulating safety and environmental performance. And then the Office of Natural Resource Revenue is created, and they're in charge of managing the money. So the dollars are not getting mixed up with leasing. The environmental safety is not getting mixed up with leasing.

There's three separate agencies that are in charge of each one of those areas. That's a huge reform that happens after Deepwater Horizon. And then there's, of course, other very technology-specific regulations that happen that require oil companies to have certain kinds of blowout preventers, to have certain specific types of technology to adhere to additional inspections and things like that.

But the biggest reform is the complete rethink of the way that the whole offshore industry in the U.S. is regulated. You drill, you learn. You spill, you learn. New laws, you learn. But we still have spills. How come? In a minute on Today Explained. Thank you. $150 when you join Ramp. You can go to ramp.com slash explained. Ramp.com slash explained. R-A-M-P dot com

slash explained. Cards issued by Sutton Bank. Member FDIC. Terms and conditions apply. I drink your milkshake. I drink it up. All right, Sam, we've had a handful of disastrous spills, countless smaller ones. We learn lots of lessons, create lots of rules, but we still have spills.

How much oil is spilling into U.S. waters these days? The amount of oil that's going in, just to put it in perspective, you know, 500,000 gallons, what does that look like? What does that mean? It's about the size of an Olympic swimming pool. So just one Olympic swimming pool a year? Just one. How bad is this one in California right now? Is that only an Olympic-sized swimming pool? Not that that's not bad, but not as bad as I maybe thought it was? It's a major spill, without question. And so I think estimates up till right now

are somewhere in the neighborhood of, let's say, 140,000 gallons of oil spilled off the coast of California. Still a major spill when you think about its spread, you know, in a paper-thin sheen over the top of the ocean. Give me a sense of how much offshore oil drilling is still being done in this country at this point. So in 2019, total U.S. production of crude oil was about 12.3 million barrels per day. That's just across onshore, offshore, all U.S. production of crude

oil. Offshore oil production, which is heavily concentrated in the Gulf of Mexico, was about 1.9 million barrels per day. So you're talking 15% or so of total U.S. crude production coming from the Gulf of Mexico. I know you said there's a certain level of accepted risk, but have there been problems that haven't yet been fixed? There is, I think, an interesting question or important question to ask about the fundamental approach to safety regulation for the offshore oil industry in the United States.

And this is something that in the aftermath of Deepwater Horizon, the Deepwater Horizon, the commission on the spill, which I know this sounds crazy, but for anybody who's interested in this, I highly recommend the Deepwater Horizon Commission's official report. It's one of the most

gripping public policy documents you will ever read. It will absolutely give you a deep history and appreciation for the industry, how it evolved, and what caused all these things to happen. One of the things they recommended was that the U.S. shift away from this very technology mandate-heavy approach to regulation and shift to something more like a performance-based set of standards.

And right now, a lot of the regulation for offshore oil and gas in the US amounts to the federal government telling industry, you should have this piece of equipment or that piece of equipment or this type of drill or this type of pipe. And that approach really puts a lot of onus on the regulator to know what is the right type of equipment?

What is the most safe type of equipment? What is the safest type of technology? When it's probably pretty hard for the regulators to know that. The industry knows it much better. The regulators don't know it as well. It's kind of, I think, a backwards system. Other countries, Norway, major offshore oil producer. The United Kingdom, major offshore oil producer. The United Kingdom, major offshore oil producer. Canada. These places have adopted a much different approach to regulation,

which is much more about performance-based standards, telling the industry that you have to achieve these particular performance standards to be able to maintain your social license to operate in these places. It's much more about having the industry prove to the regulator that they can operate safely. They have to produce a safety case for projects that prove to the regulator that they can operate safely in terms of environmental performance offshore.

And if they can't prove it, they can't work. They don't get the leases. They don't get to work. So why doesn't the United States do that? The dominant component, the dominant element of the culture in the industry and in the political system that has sort of been captured in many parts of the country by the industry is produce, produce, produce. I mean, remember, there's thousands of jobs.

You're talking about thousands of jobs. You're talking about thousands of jobs. You're talking about a huge, even today. So, I mean, like maybe people would argue like we're past like the huge boom days of $20 billion a year of revenue. And sure, we are. But even today, the industry still generates four or $5 billion a year of revenue

for the federal government. And some of that's flowing to the states. You're talking about revenue, you're talking about jobs, you know, the revolving door between the industry and state and local and federal politics in those states. They have not been willing to support this kind of like a fundamental change to safety. To put it in two words, repeating one of them, the reason is drill, baby, drill. A big part of the reason is drill, baby, drill. Drill, them, the reason is drill, baby, drill. A big part of the reason is drill, baby, drill. Drill, baby, drill.

Drill, baby, drill. You can't let sort of the American consumer off the hook either. I mean, at the end of the day, the argument from the industry has been tighter regulation will lead to higher costs. And on some level, it's true, right? You could imagine concocting some kind of regulatory system that would produce zero spills ever. But the cost of that system would be very high. And so the typical American consumer,

we can't even raise the gas tax to keep pace with inflation. The typical American consumer is, in some ways, has kind of accepted that this is the tradeoff. This is our national system of producing and distributing oil for the transportation economy. This is what we live with. And there hasn't been anything that's happened, really, that's caused people to sort of revolt and be willing to tolerate higher costs. So is it kind of like we're going to have oil spills as long as we have offshore

drilling and we're going to have offshore drilling as long as 90% of our transportation is based on fossil fuels? Is it that simple? I think it is that simple. But I do think that it's important to say the regulatory system as it exists today tolerates obviously way less oil spills than it did 30, 40 years ago. So it's important to understand what is the scale of the problem that we're talking about. I would say that the U.S. offshore oil and gas industry is still vulnerable to low probability, high impact catastrophic incidents. And there's no doubt, one thing we haven't really talked much about is the Trump administration definitely rolled back

multiple safety reforms that were passed in the wake of Deepwater Horizon. And so many people would argue that the U.S. is more susceptible now than it was in 2016 to a low probability,ability, high-impact catastrophic incident. That's 100% I would say true. But it's also true that in terms of routine incidents, it's way less than it was.

We're not dealing with a system today that is producing the frequency or size of oil spills that it was in the 1970s or 80s or 90s. It's a tiny fraction of that amount. So essentially what you're saying is things are arguably the best they've ever been since we started offshore drilling in this country, but we're just one cataclysmic error from having the next biggest oil spill we ever had. It's true. Yes. Well, on that note, Sam, thank you. Thank you for having me. Sam Ori, Executive Director of the Energy Policy Institute at the University of Chicago. Our show today was produced by Victoria Chamberlain.

I'm Sean Ramos. I'm here to remind you that the Deepwater Horizon Commission Report, formerly known as Deepwater, the Gulf Oil Disaster, and the Future of Offshore Drilling, is, according to Sam, the Citizen Kane of commission reports. Let me tell you something. I'm not exaggerating when I say that if you have a chance to flip through the commission's report, you will be surprised. You will not want to put it down. Read the first few pages and you'll be hooked. Thank you.