 The concept of
offshore drilling as a way to reduce the price of gas is gaining
traction. The reasoning is that the price of gas is
determined by the price of oil and the price of oil is determined by
supply and demand. I wrote on this subject previously
and made three main points:
1. The worldwide demand
for oil will continue to outpace supply because
of explosive growth in China and India. $5+ a gallon gas is likely to
come in the next few years regardless of what we do.
2. The price of oil is
determined by world markets. Additional oil from new wells
on US coastlines would be added, like drops in a bucket, to oil from
wells in Saudi Arabia, Iran, Venzuela, Russia and elsewhere. There is
simply not enough oil in USA coastal waters to make a meaningful
difference in world markets.
3. It would take 5-10
years before delivery of oil from new offshore wells
begins.
However, if we mandated
that oil from re-opened coastal areas could be sold only in domestic US markets
we just might see a meaningful drop in gas prices. Instead of
adding drops to a bucket we'd be adding drops to a glass... and the
glass might overflow. If that happened gas prices
would fall... or at least rise less quickly. I'm not
advocating offshore oil drilling. I believe that money and
effort would
be much better spent on developing alternative souces of energy as
proposed by T
Boone Pickens.
All I'm saying here is that IF
we want to benefit from drilling new offshore wells THEN we should require
that the oil from those wells be delivered exclusively to US
oil refineries. In this manner we'd essentially cause US oil companies
to sell oil domestically for less than they would get than if they sold
it internationally. Even if oil companies were constrained in this
manner they would make very healthy profits and have plenty of
incentive to proceed.
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