Among the myriad falsehoods that attach themselves to oil and gas in politics, one of the most persistent is also one that should be easy to see through. It's the idea that doing nothing makes money. And it's once again steering energy legislation toward costly senselessness.
Like most fantasies, this one has a tentative link with reality. At times, the Organization of Petroleum Exporting Countries does make money doing nothing—or at least doing less than everything possible. It sometimes elevates crude prices by not producing oil above certain rates. Success, though, is intermittent. Historically, price management has been difficult to implement and even harder to sustain.
Still, many people think OPEC consistently makes money by not producing crude. From there, analogy runs wild, and critical thought hides its head.
Loitering tankers
News stories after the Iranian Revolution of 1979, for example, gushed about tankers anchored off New York City, waiting for the price of crude to rise before discharging cargos. Prices were indeed rising because of the disruption to oil supply. So a reporter took a helicopter ride away from land and, sure enough, there they were: full tankers going nowhere. What else could they be up to except deliberately doing nothing (not selling oil) in order to make money (by profiting on future price increases)?
The question had less sinister answers, of course. The tankers were waiting on harbor pilots or berthing space in New York Harbor or responding to any of many other routine reasons for tankers not to steam into port from open sea without stopping. While they were at anchor, carrying costs and various daily fees mounted on cargos and ships, giving owners strong incentive to dock and unload promptly, whatever the price of crude.
But routine explanations make dull news. So a myth was born: In the oil industry, it's possible to make money at the expense of others by doing nothing. Persistence of the myth became evident last year, when news stories preposterously accused companies of closing refineries to limit oil supply and raise gasoline prices. Refineries that do nothing don't make money and never will.
With oil and gas, however, ungoverned suspicion suspends disbelief. Politicians thus have managed to persuade themselves and others recently that oil and gas operators need the federal government to prod them into action on leases on the Outer Continental Shelf. After discovering that drilling has not occurred on a large number of OCS leases, lawmakers concluded that companies delay the work to hold oil off the market and await, if not aggravate, price increases.
Like tankers at anchor near a port, leases with no drilling under way have routine explanations for the inactivity. Operators must secure permits before they can work on OCS acreage, which takes time. Environmental and other challenges create delays. Seismic and other surveys usually precede drilling. Operators often must wait on rigs. And they assemble leaseholdings according to their best guesses about how plays might develop, never planning to drill well on every lease or to make holes in the seabottom as fast as mechanics and logistics allow.
These are sound, routine reasons for a large number of OCS leases to be undrilled at any given time. And operators have incentive to keep that number as low as they can. They have bonus money tied up in leases and pay rentals until production starts. While they have good reasons to do nothing at certain times on certain leases, they surely don't make money that way.
Enforced diligence
Yet last week the House Committee on Natural Resources held hearings on legislation that would require the interior secretary to define and enforce "diligent development" of OCS leases. The measure would impose government judgment on decisions that rightly belong to companies risking money on leases.
Inevitably, the distortion to investment planning would discourage leasing and slow OCS development—in rich conflict with the bill's aims. And at the bottom of this pile of energy-policy rubble would lie the assumption, forever discredited yet apparently immortal, that doing nothing somehow makes money.
