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Lifting drilling ban wouldn’t do much for gas prices, report says

As national polls show that more than 70 percent of Americans favor lifting a 29-year ban on offshore oil drilling to help address skyrocketing pump prices for gasoline, U.S. Rep. Michele Bachmann, R-Minn., is crisscrossing her district with a call to remove barriers to drill in offshore areas and the Alaska National Wildlife Refuge (ANWR). 
 
According to the Center for Economic and Policy Research (CEPR) in Washington, however, there’s not enough oil in offshore areas to make much difference in world prices — which drive most worldwide pump prices, including those in the United States.     
 
Citing figures from the U.S. Energy Information Administration (EIA), the center said that at full production — which would be more than 20 years off, the EIA projects  — offshore reservoirs may yield 200,000 barrels of oil per day.

“This is only about two-tenths of a percent of current world production, and that’s not enough to affect world prices,” said Dean Baker, the lead author of a CEPR report entitled “Offshore Drilling and Energy Conservation: The Relative Impact on Gas Prices.”

And world prices are what’s critical here. Oil is a world commodity, and even though oil may be produced off the U.S. shore, it still would be priced in the world market. Unlike, for example, Saudi Arabia and Venezuela, which own and operate wells and refineries, U.S. oil is produced by private companies whose product is priced in the world market.  
 
In addition to knotty political problems (several governors, including Republican Arnold Schwarzenegger of California, oppose lifting the drilling ban), there is a worldwide shortage of drill ships that are needed to bore down to where the deep oil fields may be located. 
 
But Baker had a larger point to make. 
 
The CEPR said that had the U.S. improved automobile efficiency standards at a very modest rate of four-tenths of a gallon per year between 1985 and 2007, the United States would have saved a staggering 3.3 million barrels of oil a day, or more than 16 times the rate that may be obtained from offshore sources. 
 
Presidents Gerald Ford and Jimmy Carter pushed national fuel-efficiency standards in cars after the oil embargo imposed by the muscle-flexing Organization of Petroleum Exporting Countries (OPEC) in the 1970s. But as oil prices fell in the 1980s, automakers and their allied labor unions converged to politically stomp out a continuation of the fuel-efficiency requirements, a move that helped drive Americans to turn to gas-guzzling SUVs and large pickups. 
 
From 1980 to 1985, said Baker’s report, fuel economy in cars improved by 1.5 miles per gallon (mpg) per year, and for light trucks the efficiency went up by 1.1 mpg over the same period.  Large trucks were spared from efficiency standards, on the argument that they were needed by small business and agriculture. That led automakers to build passenger SUVs on truck frames, and that helped make the United States the world’s largest oil consumer (with 5 percent of the earth’s population, the United States consumes a quarter of the world’s oil). 
 
For its analysis, the CEPR assumed that auto-efficiency standards would have improved mileage by only a half gallon per year, less than a third of the pace when the standards were in place.   
 
While Americans express concern about pump prices exceeding $4 per gallon, compared to other countries gasoline here is a relative bargain. A worldwide sampling of gas prices: Japan, nearly $6 a gallon; Britain about $8.30; France over $9.50; Turkey about $11.25, and Germany $11.50. Venezuela, which nationalized the oil-production industry, charges its citizens just 12 cents a gallon.

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Comments (13)

  1. Submitted by Ron Gotzman on 07/09/2008 - 01:43 pm.

    When the Dems see high gas prices they cry “mission accomplished.”

  2. Submitted by Jacob Taintor on 07/09/2008 - 11:13 am.

    I think it’s obvious that the efforts that Rep. Bachmann and other supporters of lifting the off-shore drilling ban have more to do with campaigning than logic. In report after report, and news story after news story, it has been stated time and time again that opening off-shore drilling will not solve the fuel problem. If anything, it only serves to perpetuate it, giving people false-hope that their 45-minute commute in the family SUV will soon be cheaper.

    While I do believe that many off-shore drilling supporters – especially those who are up for re-election this Fall – understand these numerous reports about the (lack of) results this plan would yield, I fear that legislators like Bachmann will make good on their promise to voters and actually go through with this ridiculous scheme.

  3. Submitted by Thomas Swift on 07/09/2008 - 02:27 pm.

    Estimates of oil field capacities are always conservative. Google “reserves growth”.

    Too, estimated oil reserves historically do not take *all* of the oil that may be in place into account because typically a large fraction of any field is determined to be unrecoverable; or more properly stated economically unfeasable.

    However with oil at historic prices today, technologies that were heretofore considered unfeasable are feasable now. And as American oil production builds so will the technology and expertise to exploit greater percentages of oil in place.

    We will run out of oil at some point, but I don’t believe that point is anytime on the horizon.

    The Gulf of Mexico is estimated to hold as much oil as Saudia Arabia and Venezuela combined. It’s just down there, waiting to be tapped. (google “Noxal field” and “Cantarell field” to get a picture of what I’m talking about.)

    Finally, if we are not going to remove the oil, what earthly good is it?

    The renewable energy sources everyone says they want will not be forthcoming while there is still oil to be had…that’s just a fact.

    Our problem is convincing the public to shut down the environmental theocrats that have stifled any attempt to build new refineries. We have the oil, we just can’t refine it; that has to change.

    Oh, and for those that say we won’t enjoy a price drop for years after new oil is being produced I say: Every day we delay is another day wasted.

    Why wait.

    Thomas Swift

  4. Submitted by Thomas Swift on 07/09/2008 - 12:33 pm.

    Citing a report published by a think tank that is funded by leftist lunatic George Soros’ “Open Society Institute” to make an argument that flies in the face of every economist 101 college course?

    I just knew this was going to be amusing.

    I especially enjoyed the list of outrageously high gas prices EU citizens pay….sans the small detail that well more than half the price cited is due to the outrageously high taxes that are levied by the countries in which the fuel is sold.

    You sir, have done yeoman’s work to bolster Rep. Bachmann’s credibility on this subject.

    Thomas Swift

  5. Submitted by Sherry Gunelson on 07/09/2008 - 11:43 am.

    Bachman has never been about logic. In fact she may view logic as a challenge to her faith.

    The off-shore drilling crowd is all about politics. No logic required.

  6. Submitted by Reggie McGurt on 07/09/2008 - 01:08 pm.

    Thomas Swift said, “Citing a report published by a think tank that is funded by leftist lunatic George Soros’ “Open Society Institute” to make an argument that flies in the face of every economist 101 college course?”

    Typical conservative knee-jerk response: attack the source, ignore the argument.

    Your comment reminds me of the cliche: those who state, “it’s economics 101” have never taken it. Anyone who has taken a basic micro-economics class would know that as Ron Way writes, a tiny boost in supply will do almost nothing for the price at the pump. Folks who support this are purely playing politics.

  7. Submitted by Tony Wagner on 07/09/2008 - 01:31 pm.

    Mr. Swift —

    I, for one, am open to the idea of allowing this drilling, if it can be done safely and efficiently. However, I’m a little concerned that the EIA says there isn’t all that much oil to be found out there. What is the rebuttal to this argument? Is there a better estimate for the amount of oil that could be had through offshore drilling? Not to mention our capacity for actually processing the oil?

    Otherwise, it seems like an empty symbolic gesture at best, and at worst, it is a terrible, misleading ploy by politicians like Bachmann. I don’t care for partisan labels; I would much rather hear a genuine response to the issue at hand.

  8. Submitted by Thomas Swift on 07/10/2008 - 01:16 pm.

    Geeze, Tony.

    If you wanted to bash Rep. Bachmann, you should have just gone ahead and done so up front…you could have saved me the time and effort of my one sided attempt at discussion.
    Thomas Swift

  9. Submitted by Tony Wagner on 07/10/2008 - 09:57 am.

    Thanks for the response.

    Certainly it’s hard to gauge the accuracy of such an estimation, but that estimate would have to be orders of magnitude larger in order to have any impact on future oil prices. Plus, if we have to use previously “unfeasible” technologies just to access the new oil, not to mention build significantly more drilling boats and refineries to get it on the market, I don’t know that this new oil will come cheaply anyway.

    A second point is, are oil prices that unreasonable at the moment? There are some high-profile industries that have been affected, but overall I think people and organizations are adapting pretty well to them. It seems largely a political discussion, and politicians love pandering to their audience as “victims” of whatever change is currently in the economic or social winds.

    I’m with you — I don’t think we can rule out a potential oil source, as long as its recovery is safe and efficient. But do we really want to be building new infrastructure to significantly increase production of a commodity which will eventually run out and we probably want to begin phasing out anyway in the near future anyway? Mainly so some policians can score some political points in 2008, with the off chance that we will pay a few cents less at the pump in 20 years?

    All told, with the evidence that we currently have, to parade around one’s district predicting $2/gallon gas in four years if this drilling is allowed is irresponsible political gimmickry, if not outright deception. People of all political stripes should condemn Rep. Bachmann for such behavior, regardless of how they stand on the issue of offshore drilling.

  10. Submitted by Tony Wagner on 07/10/2008 - 03:26 pm.

    Thomas –

    Do you honestly think I’m not being forthright in my attempt at discussion? You, whose very first comment on the article was not about oil or drilling but rather about “leftist lunatic George Soros”? Rep. Bachmann is mentioned in the lead paragraph of the original article, and I think her general public justification for offshore drilling is shared by many and is rather important to the issue at hand.

    Putting aside the specifics of her “$2/gallon gas within 4 years” statement for a moment, do you think gas prices are unsustainably high right now? Do you think the American people and businesses will be unable to continue adapting to $4/gallon gas, to the point where we need to immediately drill offshore and build more production infrastructure? I think more drilling could be warranted — again, if it is done safely and efficiently, we will probably want to tap into those reserves anyway at some point — but as all the data I’ve seen suggests it’s a long shot to lower prices, and probably not for 20 years, it seems like it should really be examined separately from any present-day “gas price problem.” Thus, I believe we don’t have to decide on offshore drilling and huge infrastructure investments immediately.

    This isn’t just a “we’re going to drill it eventually anyway, we might as well do it now” question. If we don’t need the expensively found offshore oil right away, there isn’t much sense in going after it when our oil production infrastructure is already at peak capacity. And there isn’t much point in expanding that infrastructure to take in more expensively drilled oil that we don’t immediately need, especially for a non-renewable energy source. If we were actually losing oil from another source, it might make sense to open up this new source, but right now it seems like a solution in search of a problem. Let’s continue the research and discussion, but try to steer clear of the politically expedient games.

  11. Submitted by Matty Lang on 07/11/2008 - 08:39 am.

    I disagree with Mr. T. Swift. The price of gasoline is not high enough. Those EU prices look about right, IMO. That’s what it will take for this country to finally build the much needed multi-modal transportation system (both passenger and freight) that will allow individuals and businesses the flexibility to avoid the negative impacts of ever climbing hydrocarbon based fuel prices.

    We cannot drill, pave and drive our way out of the problems associated with a dwindling, polluting global commodity (oil). Mr. T. Swift points out a couple of sources that suggest oil may be never ending. One can also easily point to hundreds if not thousands of sources that suggest we are at or have already passed the peak of global oil production. These sources also suggest that global production follows a bell curve with a very steep and very fast decline after we reach the peak.

    We’ve got a choice before us. Develop and expand options to driving and trucking goods (funded in part by the elimination of subsidies for driving) or hold on tight as our economy comes to a screeching halt under the weight of global oil prices that will most likely never be lower again.

  12. Submitted by Thomas Swift on 07/10/2008 - 04:47 pm.

    Tony, we can discuss this issue without problem; but it is in no way disingenuous to point out the background and funding of the author’s source material.

    It is also not disingenuous to point out blatant omissions of fact (such as why the price of gasoline is outrageous in Europe) that color the impression the reader is left with.

    To ignore the political motivations (and there are many) of those who are working so hard to “pull the plug” on the oil industry, is to ignore a crucial aspect of the entire issue. I have supplied two sources of information that suggest that not only are we not nearing “peak oil”, but that oil may in fact *be* a renewable source of energy in and of itself.

    You are not going to get that information from a report from a leftist think tank.

    If you’re really interested in learning more about this issue, and I certainly believe that it is worth the time and effort to educate ones self, there is a wealth of information available on the internet, in industry and government publications and elsewhere.

    Don’t take what I say as gospel (yes, who am I?), but neither should you blindly listen to any one source for anything else.

    Yes, the price of gasoline is too high.

    Yes, it is adversely affecting our economy and our productivity.

    No, I do not think that industry is capable of continuing to absorb the crushing economic blow that $4.00 a gallon gasoline is administering without passing the debilitating effects on to all other aspects of our lives.

    Someone mentioned that American Oil companies already have several off shore oil leases that they are free to drill on. I don’t know if that is true, but if it is, we also do not know whether they have already explored those leases and found them unproductive.

    Oil is traded as a futures commodity. The price we are paying today reflects what the market sees as its long term supply outlook as opposed to demand.

    We know, for a fact that there are billions of gallons of very high grade crude oil within our reach in the Gulf of Mexico and off of the Pacific coast as well as in Alaska and the Dakotas. Attempts to discount the huge reserves that we know exist as “a drop in the bucket” are whistling in the graveyard.

    When an oil company announces the discovery of a huge new oil field, the market will respond immediately…as long as traders believe that oil can and will be brought to market.

  13. Submitted by Tony Wagner on 07/11/2008 - 10:32 am.

    Thanks, Thomas. I wasn’t necessarily criticizing your points about the think tank and its report, I was mainly contrasting your consistently aggressive tone (“leftist lunatic”) with my rather tame (and legitimate, IMHO, responding to a direct quote) “bash” of Rep. Bachmann, which you surprisingly objected to as a deliberate attempt to not engage in discussion.

    As fair as it is to call into question the “political motivations” of the cited report, I think it is just as fair (and necessary) to question the political motivations of those (like Rep. Bachmann, and you, apparently) who claim that current gas prices are having a “crushing” debilitating effect on our economy. All of the data I’ve seen suggests that overall our economy is still growing, despite $4/gallon gas and the high-profile concessions made thus far by individuals and industry. This growth is simply falling slightly behind inflation for the first time in a few years, due to a variety of factors (oil, housing, etc.). It’s still nowhere near the economic issues we had in the 1970’s, for example,

    It seems that regardless of the time, people like to hear (and politicians like to say) that the economy needs fixing, and they also like to hear allegedly “quick fixes” that may or may not be true. ($2/gallon gas within 4 years is about the “quickest fix” I’ve ever heard!) I hope that all of us — especially our policy-makers in leadership positions — step out of this political, campaign mindset before committing to something as big as a dramatic expansion of our oil infrastructure, at a time when our domestic oil consumption should be leveling off if not dropping.

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