The oil industry has created
In general, we should take the optimal amount of risk in the sense that the benefits from any activity exceed the expected costs of the activity, drilling motorincluding the potential costs of an accident.Unfortunately,Tubtrugs, the response to the environmental damage caused by the tragedy of the Deepwater Horizon has been an overreaction to risk on the side of the federal government. While the moratorium on drilling was lifted in October, only six new deepwater (over 500 feet) well permits have been issued since then.
Given that the Gulf accounts for a third of the nation's domestic oil supplies and 10 percent of the natural gas, mostly from the deepwater region, it is important to examine carefully what economists call the opportunity cost of not drilling as well as the expected losses from an accident.Oil is now in excess of drilling motor$100 per barrel, and gasoline is at almost $4 per gallon. The political turmoil in the Middle East has created uncertainties in world oil production, creating demand for oil production from politically stable areas.At the same time, several drilling contractors have pulled their rigs out of the Gulf to use them for offshore drilling in Brazil and West Africa. The opportunity cost of restricting oil drilling in the Gulf region is now more costly than it was a few months ago, and it is likely that regulatory constraints will become even more costly in the future.
The expected losses from drilling in the Gulf have been reduced substantially. A positive effect of the Deepwater Horizon blowout was a better understanding of the environmental risks of different types of drilling operations. The oil industry has created a Houston-based Center for Offshore Safety to ensure rigorous audits and the use of best drilling practices by all companies drilling offshore.All oil companies have an incentive drilling motorto make sure the other companies abide by best practices and keep risks to a minimum since any accident will limit the ability of all companies to continue and expand drilling operations.
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