A Home-Grown Solution to High Oil Prices?

Perspicacious Washington Post columnist Robert Samuelson has a simple elegant suggestion for boosting oil production and helping to lower prices. Why not drill for crude at home? He points out:

It may surprise Americans to discover that the United States is the third-largest oil producer, behind Saudi Arabia and Russia. We could be producing more, but Congress has put large areas of potential supply off-limits. These include the Atlantic and Pacific coasts and parts of Alaska and the Gulf of Mexico. By government estimates, these areas may contain 25 billion to 30 billion barrels of oil (against about 30 billion barrels of proven U.S. reserves today) and 80 trillion cubic feet or more of natural gas (compared with about 200 tcf of proven reserves).

What keeps these areas closed are exaggerated environmental fears, strong prejudice against oil companies and sheer stupidity. Americans favor both "energy independence" and cheap fuel. They deplore imports -- who wants to pay foreigners? -- but oppose more production in the United States. Got it? The result is a "no-pain energy agenda that sounds appealing but has no basis in reality," writes Robert Bryce in "Gusher of Lies: The Dangerous Delusions of 'Energy Independence.' " …

Members of Congress complain loudly about high oil profits ($40.6 billion for Exxon Mobil last year) but frustrate those companies' desire to use those profits to explore and produce in the United States. Getting access to oil elsewhere is increasingly difficult. Governments own three-quarters or more of proven reserves. Perversely, higher prices discourage other countries from approving new projects. Flush with oil revenue, countries have less need to expand production. Undersupply and high prices then feed on each other.

Whole remarkably sensible column here.

Comments

[z]

Yeah Exxon made $40B last year, but they also paid $60B in federal taxes(income and royalty), which works out to 2.5% of all federal receipts, paid by a single company! If only we had 40 more companies like Exxon Mobil no one else would have to pay a single dime in taxes.

[Naga Sadow]

Damn carribou!

[First Little Pig]

Here in the Santa Fe, NM environs we have a big battle going on between the oil companies that want to drill the Galisteo Basin and the vast majority of people who oppose it. The problem is partly a simple NIMBY thing but also because the oil and mining companies have a very poor track record keeping their promises of not destroying the local environment and polluting the ground water. And water is THE BIG DEAL here. No one wants to take a risk over that.

Would that it were different.

[Episiarch]

Alaska is a good option except for the hysterical enviros. There's not much NIMBYism when no one lives within a 1000 miles of where you want to drill.

[joe]

When someone whose thesis is that oil companies just can't get a fair shake in Washington tells me that environmental concerns are exaggerated, I take him very seriously.

[Naga Sadow]

I'm going to buy a shotgun and randomly fire at the ground. Jed Clampett had the right idea.

[T]

joe,

I don't necessarily think his thesis is that oil companies can't get a fair shake, although I can't think of any other industry that got hauled into DC lately to defend the amount of money they made. I think it's more that US energy policy is schizophrenic in that the enacted laws and policies are directly responsible for thwarting the desired results.

Of course, much federal policy is schizophrenic that way, so why should energy policy be an exception?

[Chris Potter]

Perversely, higher prices discourage other countries from approving new projects. Flush with oil revenue, countries have less need to expand production.

Huh? Many of these countries have extremely poor populations and govts with only a tenuous hold on power. Wouldn't they grab all the money they can get while the gettin's good? Or are they saving the oil for the future, when the price might not be as high and someone else will be in power.

[thoreau]

Is there any country that has become freer and less corrupt because of oil wealth?

[kinnath]

No new refineries in the last several decades due to NIMBY.

Few, if any, new nuclear facilities in the last several decades due to FUD multiplied by NIMBY.

One of the few areas that I want clear regulations and tight enforcement are for major industries that could produce widespread pollution. But way too many environmentalists won't accept any new development. So we ship our problems overseas and then bitch that we are too dependent on foreigners.

[Bhh]

Nah, we should save that stuff for later and burn King Assaweed's stuff now.

I'm with you on nukes though. Send them in two at a time, while I'm still young!

[joe]

No new refineries in the last several decades due to NIMBY.

Refinery capacity has been expanded enormously at existing sites during that period. In testimony before Congress yesterday, the representatives of several oil companies stated that they aren't interested in building new refineries, and are currently running at only 80% of capacity in the existing ones.

It's like complaining that you haven't bought a new computer in two years, after having upgraded your OS and memory every two months.

[robc]

joe,

Im sure the current companies are happy just expanding their refineries. However, NIMBY prevents anyone NEW from getting in the business.

[Guy Montag]

What keeps these areas closed are exaggerated environmental fears, strong prejudice against oil companies and sheer stupidity.

That guy ain't gonna be workin' at the Post for long!

[Jozef]

Sorry, but I don't buy the argument that we'll lower oil prices by drilling for more. What are we gonna do with the excess oil anyway? The bottleneck is the refining capacity; US refineries have been running on 90-100% of capacity for the last 15 years, and their total capacity is the same as was 25 years ago. Unless, of course, we want to drill for oil and then export it to China...

[Abdul]

Is there any country that has become freer and less corrupt because of oil wealth?

Arguably, Dubai, the UAE, Bahrain and Qatar have all become a more liberalized than their neighbors due to oil wealth. (some may argue that free for Arabic monarchies is akin to saying "smart, for a blonde")

Norway's swinging scandanavian lifestyle is is also partly subsidized by North Sea oil and gas.

[Episiarch]

It's like complaining that you haven't bought a new computer in two years, after having upgraded your OS and memory every two months.

This makes no sense.

[Neil]

Norway and Canada have a lot of oil, they seem ok for socialists.

[J sub D]

Just drill dammit. The oil companies don't want another Exxon Valdez for it would cut into the bottom line. I'm not advocating turning a blind eye to extraction practices, but I am not too concerned about ANWR getting trashed. You can't hide it and it's expensive as hell when you inevitably get busted.

[Anon]

Thoreau,

I am positive there is a more recent work on this, but here's an article on the negative correlation between oil wealth and democracy. It's not exactly what you're looking for, but its on the right track.

Anon

[Naga Sadow]

What about the carribou, J sub D? Won't someone think of the carribou?

[kinnath]

4 June 2007 Washington - With gasoline prices averaging $3.22 for a gallon of regular nationwide over the Memorial Day weekend, traditional economic logic might suggest that this would be a good time to invest in new U.S. oil refineries and increase the supply of gasoline.

Yet no new refinery has been built in the United States in three decades, only one is in the works and oil companies are scaling back planned investments in new, expanded or modernized U.S. refineries rather than increasing them.

Overseas, however - where it's generally cheaper, faster and easier to build oil refineries - a boom in construction is under way to meet the growing demand for gasoline in the United States and in big developing countries such as China and India. That means that Americans increasingly will be filling their tanks with imported gasoline.

'Outsourcing refining'

In 2005, imported liquid fuels - mostly oil and an increasing amount of gasoline - accounted for about 60 percent of U.S. consumption, according to the Energy Information Administration, the statistical arm of the Energy Department. In a long-term assessment this month, the EIA said that figure could grow to 67 percent by 2030.

As I said, we ship our problems overseas then bitch about being dependent on foreigners.

[MikeP]

Is there any country that has become freer and less corrupt because of oil wealth?

Some thoughts on that question are collected in a post at portfolio.com.

Bottom line: Oil wealth does not appear to have much effect on freedom or corruption either way.

[Rimfax]

While some of his points have merit, he kinda ignores the fact that the domestic oil supplies are much more technically expensive to exploit and produce a far lower quality of product than most foreign sources. Combine that with evidence that many of the source estimates he cites are overly optimistic according to the oil companies themselves.

Oil companies would probably be much more eager to go after the domestic sources if they didn't realistically expect the price of oil to crash well below their price point of zero return. Right now, the Canadian oil sands are wildly profitable. If the price crashes, they'll have to stop production just to cut their losses.

[kinnath]

Refinery capacity has been expanded enormously at existing sites during that period. In testimony before Congress yesterday, the representatives of several oil companies stated that they aren't interested in building new refineries, and are currently running at only 80% of capacity in the existing ones.

This works great, right up unitl a hurricane flattens half of your refining capabilities.

[ed]

You know something is terribly out of whack when both Congressional busybodies and corporate PR hacks implore Americans not to purchse their product, or purchase less of it. When was the last time you heard anyone talk about conserving eggs, beef, copper or cotton?

[J sub D]

What about the carribou, J sub D? Won't someone think of the carribou?

I've thought about them. I'd like to try the meat and the milk.

[T]

In testimony before Congress yesterday, the representatives of several oil companies stated that they aren't interested in building new refineries, and are currently running at only 80% of capacity in the existing ones.

They aren't interested in building new refineries because of the risk. Nobody wants to sit through 5 to 7 years of permitting and lawsuits before they can get approval to start construction when the approval isn't guaranteed. So it's better to expand existing refinery capacity, where your regulatory hurdles are much lower and the amount of publicity will be less. Of course, this means that you can only expand production incrementally.

[some fed]

From the article:

What keeps these areas closed are exaggerated environmental fears, strong prejudice against oil companies and sheer stupidity is the fact that Congress owns them.

Fixed. Ditto for the water issues in New Mexico á la First Little Pig. Would we have a place to discuss any of this if land and water in these areas belonged to private individuals with the normal motives of making a profit and not getting sued?

Unfortunately, for the same reason that Congress has an absurdly difficult time deciding whether to permit drilling, logging, cattle-grazing, etc. on federal lands, Congress has an equally difficult time just deciding to sell Federal lands.

If those responsible were just venal enough to sell the land and pocket the money we'd still be better off! All of that turf is not in the least bit necessary to permit the US Government to anything it does today--even the stuff I dislike--barring the storage of extraterrestrials and political prisoners/"terrorists".

[yoshi]

Bottom line: Oil wealth does not appear to have much effect on freedom or corruption either way.

Tell that to Venezuelan and Russian citizens.

[cesar]

I think as libertarians, its pretty easy to think that regulation is always the enemy, the root source of the problem. Supply < Demand, lets get more supply by drilling in ANWAR. While I'll agree that Drilling in ANWAR might one day be a solution, that day is still a long distance away. How can that be with WTI crude testint $120 resistance levels? The simple fact is that oil is only expensive, becuase the US dollar is cheap. The great scourge we have to face is inflation. Oil is priced in dollars, and when the value of the dollar has declined by nearly 73% to the EURO in 7 years, then not only has oil become more expensive for us, but its become cheaper for others. Oil at $120 is a reflection of the decreased buying power of the dollar, not the lack of supply. Unless we found a Saudi sized gusher under the Empire State building, no feasible amount of drilling will move this price down. Unfortunately, all the people that run our government failed their math and econ courses, thats why they got into politics in the first palce.

[MikeP]

Tell that to Venezuelan and Russian citizens.

I'll tell it to Zimbabwean and Burmese citizens too.

[joshua corning]

The US government owns tons of land and tons of resources.

The US government is under a ton of debt.

I have an idea. How about the US sells off all its land and resources to pay down its debt?

[joshua corning]

Im sure the current companies are happy just expanding their refineries. However, NIMBY prevents anyone NEW from getting in the business.

Ah...the sound of joe's nuts getting kicked in.

I love that sound.

[some fed]

That would require, of course, a two-year-election-cycle Congressman to worry about debt, which would in turn require the median voter to worry about debt. There's not too much of either lately.

You do know the US Government is in the market for buying oil, yes?

[cesar]

MikeP | April 30, 2008, 3:40pm | #

Tell that to Venezuelan and Russian citizens.

I'll tell it to Zimbabwean and Burmese citizens too.

Can't disagree with you there, but I will note that as loathsome as GWBush is, you can't compare the US market based economy to Zimbawe's or Venezuela's. Moreover, it's that sort of dimissive argument, in which the point brought up is not engaged, that has developed the climate where 2 out of 3 leading presidential candidates think they can solve this problem by cutting taxes for 3 months. If you believe in the market based economy, then perhaps try to find a market based solution. Find the break in the market equilibrium. It's not supply and demand. Its the fact that the dollar in your wallet buys a lot less today, than it did last year, and then it did 7 years ago.

[joshua corning]

Is there any country that has become freer and less corrupt because of oil wealth?

hmmm...

The world free and fair world of 1708 vs the corrupt and totalitarian world of 2008.

thoreau your talents are better spent in telling us how Bush is an undead vampire from planet X...at least those are funny

[joshua corning]

When someone whose thesis is that oil companies just can't get a fair shake in Washington tells me that environmental concerns are exaggerated, I take him very seriously.

$10 says the American public are more concerned about oil prices then they are about global warming.

So much for the democrat controlled congress being democratic.

[MikeP]

Can't disagree with you there, but I will note that as loathsome as GWBush is, you can't compare the US market based economy to Zimbawe's or Venezuela's. Moreover, it's that sort of dimissive argument, in which the point brought up is not engaged, that has developed the climate where 2 out of 3 leading presidential candidates think they can solve this problem by cutting taxes for 3 months.

Who are you talking to?

[cesar]

sorry, misread the thread. dont post in forums often.

[Timon19]

Ditto on the UAE, Bahrain, Qatar, Norway, Canada, etc. counter-points to the "oil = corruption" trope.

Add Oman (sorta).

[Oleg]

Is there any country that has become freer and less corrupt because of oil wealth?

Norway. I encourage everyone to visit. Great country. Great people. 🙂

Tell that to Venezuelan and Russian citizens.

Don't know about Venezuela, but problems with Russia are hugely exaggerated in the West. I'm natively Russian, so visiting it gives me opportunity to know what's going on there not through hearsay.

Yeah, media is weak, it's hard to establish political party, opposition is suppressed (quite frankly, opposition is lame, anyway). But for the majority, it's quite safe and free. Economy is being liberalized.

Not to mention, things are many-many times greater than in 90s, when a lot of people couldn't find how to feed themselves.

[Cindy]

Oleg, First off, say hi to Russia for me. My husband is Russian. I agree Russia is energy free. No need to buy from Arabs.

I say we drill here and be done with the Arab countries already. If we have it, we should use it. Fossil fuels and the global warming issues, No concrete proof of that. Endangered species in the area....my new famous line is "relocate it's ass". The idea of developing these other sourses of energy are costing and going to keep costing more. Not to mention, who wants to buy and pay for the higher price of a vehicle to run on this stuff? What will we do with the existing vehicles? All of this makes no sense. We need to drill.

[R C Dean]

Is there any country that has become freer and less corrupt because of oil wealth?

Norway.

How corrupt and oppressed was Norway before the North Sea oil fields?

[Oleg]

First off, say hi to Russia for me.

I will. 🙂

How corrupt and oppressed was Norway before the North Sea oil fields?

It seems corruption and oppression were never an issue for Norway in modern history. But oil should have played some role, at least. 🙂

Yet, I agree that Norway would be as well without oil as they are with it. It's all about people. Norwegians are a great example to follow. My favorite place on Earth. 🙂 All Scandinavia, actually. But Norway, especially. And beautiful nature, too!

[Guy Montag]

Didn't Norway have that whole Qusling issue during WWII? Isn't that individual corruption on a national scale?

[Guy Montag]

Oleg,

Can you print up some fiat money for me? I pay top rubel!

[joe]

robc,

However, NIMBY prevents anyone NEW from getting in the business.

Oil refining isn't a mom-n-pop operation. You don't open up a 20,000 square foot oil refinery.

And with refineries at only 80% of capacity as it is, the idea that there is pent up demand for new refineries being denied by NIMBYism just doesn't hold water. Somebody's going to spend billions on creating a new facility when there isnt' demand for one? There's demand for new refineries, but the companies already in the game aren't interested in meeting it?

That's just not plausible, beyond the joshua-corning-will-believe-it-if-he-thinks-it-makes-me-look-bad level of analysis.

[joe]

T,

They aren't interested in building new refineries because of the risk. Nobody wants to sit through 5 to 7 years of permitting and lawsuits before they can get approval to start construction when the approval isn't guaranteed.

But they made this statement to Congressmen, to people eager to take up their cause and reduce those regulatory hurdles. If they were actually that interested about this problem, this is exactly where we'd expect to see them raise their complaints. They didn't, and that's significant.

[st4rbux]

"who wants to pay foreigners?"

Everyone seems to think all the oil comes from the Middle East and Venezuela, but the #1 source of US oil imports: Canada. Saudi is #2, Mexico #3. Imports from Canada and Mexico are greater than from Saudi, Nigeria, Venezuela and Iraq combined.