Monday, August 18, 2008

Driller Killer



Setting aside general questions as to the desirability or feasibility of energy independence (topics I hope to waffle about at a later date) I have been alternating between bouts of frustration and fits of the giggles every time I hear a candidate or interest group advocate for increased oil exploration and drilling in the United States as the way past high energy prices.

Even if we ignore the time it will take to bring any oil to gas stations (about 10 years), the shortage of drilling rigs, and the shortage of refineries, the minuscule savings per gallon the experts project will be eaten up by general inflation, never mind fluctuations in the oil market. The current best guess is a savings of 10c a gallon when the oil comes online a decade from now. That's about 3% of today's price per gallon at the gas station down the street from where I sit ($3.64). Ten years ago in August 1998 the average national price per gallon was $1.06. In the past decade therefore, the price of gas has more than doubled, going up by about 240%. That dime a gallon the oil companies promise you'll save if they are allowed to drill offshore and in ANWAR? If the next decade follows the same sort of price trends the past decade did, all that drilling, all those subsidies, and all that environmental damage would mean that prices would only climb by 237% rather than the 240% of the past decade. What a savings!!!

Lets be fair and assume that the price rise over the decade would be much less steep. Maybe T Boone Pickens strapped a windmill to a Mobil station or something, and gas only went up by 100%. Again, all this drilling would only mean that you'd be a mere 97% worse off at the pump. Unless oil and other prices increase by a factor of less than 3% of today's prices over the course of the next decade, additional drilling in sensitive locations will not lower prices, or even do much to arrest price increases. It will however allow oil companies to pump more product as demand continues to grow world wide and therefore generate greater profits.

And therein lies the truth behind this push for drilling. Don't get me wrong: I'm a firm believer in open markets (I feel they are the key to global prosperity if they are truly open) and capitalism. In fact my belief in the market is one of the reasons I feel this push to extract more oil in the name of "energy independence" is a crock- when was the last time you heard of an oil company that sold its product exclusively to its home country? The hydrocarbon markets are global, so the idea of more domestic oil lessening our demand for "foreign" oil is a non-starter.

From a simplified market standpoint, being a net consumer of fuel puts one in a weak position. It would be far better for the United States to offset (and hopefully reduce) that fuel consumption by being a net exporter of clean energy technology. Why should we base our entire on economy on something we don't have a lot of (oil) rather than something we have a goodly amount of (tech expertise and R&D spending)?

Of course, that's a topic for another post. But I did want to jot down my thoughts about drilling and the silliness that is currently prevailing in the election campaign around energy independence and pocket book issues.

2 comments:

jamie said...

but already the big oil companies are having trouble competing.

http://www.nytimes.com/2008/08/19/business/19oil.html

won't somebody please think of big oil!

weasel said...

So... drill offshore and in ANWAR to help the oil companies keep up their margins while the bulk of the unrelenting global oil demand has to be supplied by Messrs Chavez, Putin, Ahmadinejad, & Yaradua (and which ever sect or ethnicity has the upper hand in Iraq this week), or get out ahead of the problem for the price of a medium-sized war of choice.

Why is it that conservatives are so madly in love with drilling when it means paying countries they hate?

My head hurts.

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