More Erroneous Responses to High Oil Prices

The recent precipitous rise of domestic gasoline prices and the concurrent rise of oil prices in general has given way to both parties proposing solutions which fall well short of addressing the issue in any tangible way. On the left, Barack Obama is proposing his pet project of a windfall profits tax on oil companies, assuming, it seems, that said companies would simply take the hit without increasing their revenue to offset the losses.

On the right, the new cause celebre is renewed offshore drilling by way of elimination of a 19-year moratorium. As I wrote last week, the oil companies have at their disposal more than 65 million acres of land on which to drill, and that only covers the land they've already leased but have refrained from drilling on. Much more land, including some acreage on the OCS, is available for lease, but has not yet been purchased. The Arctic Shelf region in Alaska, for instance, includes 91 million acres available for lease, but only 11 million have been leased for drilling. All told, of the lands already leased, oil companies are drilling 27% on land and 24% offshore.

Given those facts, the implication that simply opening up more land to drilling is the solution becomes clearly erroneous. As it is, the oil companies have no incentive to significantly boost production, as they have no desire to see a large drop in prices. To them, the oil is much more valuable in the ground than out of it. This isn't a partisan opinion, it's just simple economics. They boost their price by limiting availability of their commodity.

Even working under the assumption that increased drilling will have the desired impact, what no one disagrees with is that its impact is about 10 years down the road, which obviously fails to address the current prices. Nonetheless, Bush and McCain gloss over that pesky reality on their way to promising they've found the solution to current levels, and most journalists are loathe to question just how they plan to eliminate the ten-year lead time from drilling to market.

Juan Cole reports that "if all the known offshore fields were drilled and panned out, the lower 48's oil production would be increased by 7%. That would be 300,000 barrels a day." This would affect gas prices by a few pennies if it could be sent to market immediately, but again that isn't feasible. Not to mention the Saudis just promised to increase production by 500,000 barrels a day and prices were not affected to any noticeable degree.

What is certainly true of the proposal to eliminate the ban on offshore drilling is that it indicates a continued dedication to allow the US energy markets to be held hostage by Middle East insecurity. By all accounts, renewed drilling will not even approach a level which would eliminate or even lower significantly US dependence on foreign oil, and would require the country to remain forever tied to a medieval, tyrannical regime and subject to regional insecurity for its oil supply.

Rather than taking the opportunity to find sources of energy which are more stable and more capable of eliminating reliance on unstable world markets, the Republicans choose to offer a solution which does nothing to quell that reliance and ignores the entire decade in between renewed drilling and production.

John McCain understood this for much of his tenure in the Senate, and it is only now, in his continuing effort to prove his Republican bona fides to the base that he has altered his tune. But what was true a year ago is true today. The oil companies have plenty of land on which to drill, but have chosen not to. Even after the ten-year lead time for new drilling to make it to market, its effect would be nothing more than a stalling tactic preventing the US from finding sources of energy independence.

Domestic drilling is hailed as serving that purpose, but no analysis of the possibilities of domestic production has suggested that as a feasible outcome, despite the wishful rhetoric.


Related:

Pure Speculation, June 12

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