Drilling Fever

With the price of gasoline topping $5 a gallon in some parts of the country, America suddenly finds itself gripped by what might be called "drilling fever." Yesterday, the president reversed his father's executive ban on exploratory drilling on the Outer Continental Shelf, and urged Congress to ditch the legislative restrictions that have kept the oil rigs within a limited parameter off our coasts.

Here in Florida, a state often mentioned as a prime candidate for future drilling, the idea of drilling is a hot topic in Republican circles. Two nights ago, I listened in on a telephone "town hall" meeting held by my local Congressional Representative, Republican Ander Crenshaw. Not surprisingly, gas prices were the hot topic. One caller after another voiced confidence that the way to lower gas prices was to start drilling. Crenshaw did nothing to dissuade them. Like President Bush, John McCain, and Florida's governor, Charlie Crist, Crenshaw has changed his mind on off-shore drilling and now favors a big expansion.

"With the price at the pump approaching $4.15 a gallon and crude oil at over $140 a barrel, it is time for us to drill offshore with common-sense restrictions," Crenshaw said.

One such "restriction" would be to keep the new rigs at least 50 miles offshore. But common sense would also dictate that when you live in a state where your leading industry, tourism, is predicated on pristine beaches, building a slew of oil platforms is no small gamble. The Exxon Valdez oil spill in Alaska, for instance, came to cover 11,000 square miles. Florida's coastline, by comparison, stretches 1,350 miles.
The debate on drilling is often portrayed as a simple matter of supply and demand. Many Americans seem to think that the O.C.S. is something of a dormant gas pump, just waiting for us to pick up and squeeze the nozzle. If we started drilling today, the world would have more oil and the price at the pump would immediately fall. That quick-fix mentality is witnessed in the "gas tax holiday" idea put forth by John McCain. Unfortunately, the reality of our predicament is that off-shore drilling alone won't lower oil prices for years, if at all.

Moira Herbs, writing in Business Week, explains why:

In theory, if the U.S. boosted supply, prices would slip and the country would be less dependent on foreign energy sources. Unfortunately, the oil market is far more complex. For one thing, oil production requires enormous investment, and companies such as ExxonnMobil, BP, and Chevron won't start major new projects until it is clear the project can be profitable. Any new domestic supply would take nearly a decade to tap. Moreover, much of the change in oil markets in recent years has come more from trading than fundamentals. Investors have poured vast sums into commodities, driving prices higher and causing many people to blame rampant speculation for the surges.

In other words, the President's proposals cannot have a significant short-term impact on oil prices, and only a questionable effect in the long run.

And The Wall Street Journal recently wrote about a Department of Energy study that detailed why drilling in the Alaska also won't do squat when it comes to lowering the price you pay at the pump for, say, the next 20 years:

The report makes two points that indicate that drilling in ANWR won't do much to decrease energy prices any time soon. First, the report states that drilling wouldn't add to domestic production for at least 10 years, and peak production can't be expected until the 2020's. Meanwhile, under the middle-of-the-road estimate for output, oil prices would be expected to decline by only 75 cents a barrel in 2025. If there's less oil than expected in ANWR the reduction in prices would be 41 cents per barrel in 2026, and if there's more than expected the drop in prices is seen around $1.44 per barrel in 2027. That would translate into a reduction in gas prices between just one cent and four cents, according to an alaysis prepared by Congress's Joint Economic Committee.

So, in ANWR's best case scenario, we'll pay one cent less for gas come the year 2027. Compare that savings to the billions that taxpayers were left paying to clean up after the Exxon Valdez.

Really, all the talk about immediately alleviating consumer suffering by expanding the scope of drilling in Alaska's Arctic National Wildlife Refuge or of our nation's coastline, amounts to little more than political hot air in an election year. It's the bogus "gas tax holiday" all over again.