Gas prices are at $4 a gallon heading
toward $5. We, the people, are unhappy. Seeking to address our plight, the
current President Bush is seeking to end a ban on offshore oil drilling.
John McCain, speaking to oil executives in Houston yesterday said the same thing.
Would offshore drilling make any difference? The likely answer is... no. Cost
is determined (primarily) by supply and demand. Supplies of oil and refining
capacity have been growing slowly while demand has been skyrocketing, thus the
price of gasoline is higher than ever. It is a fact of basic economics that
if we add enough supply the price of gas will come down. But can we add
enough? The prices of oil and gas are determined by the world market. Unless
we nationalize our oil industry, the price of US oil (with adjustments for quality
etc.) will be the same as the price of oil from Saudi Arabia, or Canada or Norway.
For the sake of discussion let's say we opened up all of the US coastline and
ANWAR to oil drilling. In approximately 10 years, being supremely optimistic, this might add as much as 5% to world oil supply. If demand were flat then costs would come down. But...
demand isn't flat.
The economies of China and India have been exploding
and billions more people are beginning to achieve middle class status.
If you think demand for oil and gas is high today, just wait. Imagine
what it'll be when those Chinese and Indian families will start to achieve the
American dream of two cars in every garage. Yikes!
The US does, in fact, have enough oil reserves to make a real difference in the
price of crude. Those reserves are trapped in shale deposits in Colorado,
Utah and Wyoming. By some estimates the
deposits
of shale oil in the USA equal all of the known reserves of crude oil in the
world.
Another factor to consider is that many potentially productive offshore
areas are currently open for drilling and the US oil industry is not drilling
in them. One reason for this is a shortage of offshore drilling ships.
Like oil itself, the demand for ships that can set up offshore rigs to get the
oil is international and overwhelming. Similarly there is a huge backlog of orders
for offshore oil platforms. Last but not least, we need more refining capacity to turn oil into gas. Building refineries takes many years.
There's nothing we can do about high gas prices for at least 10 years. But
there are many things we can do today that can improve things substantially
by 2018 and beyond. Of those many things we can do, opening up new areas for
offshore drilling is surely one of the least productive. New oil wells
off of US beaches will not change the price of gas one penny this year and is
unlikely to change it more than two pennies a decade from now.
