Saturday, August 23, 2008

Drill Here; Drill Now!

Both presidential candidates are pandering on energy policy, and a gullible public, sick of high gas prices and who have little understanding of economics, is buying it.

If we lift the Congressional ban on most oil drilling off our coasts and in ANWR, this would do nothing in the short term to lower gas prices. It would take ten years before new oil would come to market even if we started today. OK, some will say, if we would have started ten years ago, we would be better off today. If we start now that oil will be coming to market in ten years; so get started!

I agree we should drill offshore and in ANWAR, but it will have no impact on oil prices now and probably none in the future. Drilling in ANWR and offshore will have minimal environmental impact. The drilling site footprint in ANWR is the equivalent of putting a postage stamp on a football field. Offshore drilling is environmentally safe. There is a greater danger of an oil tanker springing a leak than there is of accidental spillage from an oil derrick.

I think we should have a national objective to wean ourselves off of oil and transition to clean energy. For the foreseeable future, however, as we increase our use of other alternatives, we will still need oil. If we are going to continue to need oil, I would prefer for more of that oil to be drilled at home.

Many chatter and bloggers and pundits advocating “drill hear; drill now” claim that if we would only drill we could return to $1.50 gas prices and achieve energy independence. Opening these oil fields will do little to lower gas prices.

We do not have a National Oil company that is required to sell oil drilled in America to Americans at a discounted price. We are not Venezuela or Mexico. Oil taken from ANWR or offshore will not belong to the American people but will belong to the company that drills it. That oil will not be cheap oil and there is a worldwide market for oil, not just an American market. The value of oil drilled in America will still be valued at the market price for oil. While any increase in supply will have some impact on prices, the new contribution to oil supply will be minimal. ANWR oil would add only 1 to 2 percent to the overall world oil supply. The oil cartel can simply cut production to match any new supply from these oil fields and prices will not be affected.

The new oil drilled in ANWAR and offshore, may not even serve American markets. If the oil companies find it more cost effective to sell the oil in Japan than in America, that is where the oil will go. While we should not expect new oil from ANWR or offshore to lower prices, there are two advantages to drilling American oil. One advantage is the balance of trade. When we buy oil or anything else from foreign markets dollars flow out of America. Increasing domestic oil production will lower the U.S. trade deficit and strengthen the dollar.

The other advantage is that American production of oil will enhance American security. While most of our imported oil comes from our friends Canada and Mexico, much of it comes from unfriendly regimes. By purchasing oil from these unfriendly countries we fund Muslim terrorist and hostile states. Also, in time of crisis these countries could shut off the oil spigot and wreck our economy and hold American foreign policy hostage to their oil.

For balance of trade reasons and national security reasons, increasing production of American oil makes sense, but don’t expect offshore drilling or ANWR to lower the price at the pump.

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1 comment:

  1. Hey Rod,
    A couple of points--Oil could start to be pumped from off the coast of California (Santa Barbara) in a matter of months since there are rigs sitting out there idle. One of the reasons it takes 10 years to get oil pumped out of our off-shore sites is due to regulatory hurdles and litigation by environmental groups. The Russians have recently found a new large deposit in the Caspian Sea. It’s not going to take them ten years to extract the oil.

    I agree with you that energy independence is not truly achievable, even if we tap all of our resources, but we certainly can have some effect on world supply and demand if we drill for known reserves in our own country.