By JIM DIPESO
Members of Congress are back home during their Easter recess, undoubtedly listening to constituents’ worries about gasoline prices that have surged past $4 per gallon in many parts of the country. Unfortunately, there’s not much Congress or the president could do in the short term to drive down prices, although that doesn’t stop politicians on both sides from pandering to a mistaken belief that they possess such powers.
Watch the hooey meter rise as they bash speculators, call for opening the Strategic Petroleum Reserve, or demand an aggressive expansion of oil drilling on public lands and in offshore waters.
More about that latter point in a moment. First, an explanation of why consumers shouldn’t fall for the gas price panaceas flung about on the campaign trail.
High gasoline prices are largely a function of high crude oil prices, and crude oil prices are set in a global market. It’s all about supply and demand worldwide, and there is not much we can do about events overseas that influence supply and demand.
Supply is tight, a result of disruptions in producing countries in Africa and the Middle East. Meanwhile, demand is up. Japan is buying more oil to make up for its idled nuclear power plants. China is buying more to fuel its fast-growing economy.
The threat of conflict with Iran over its nuclear program has injected a "fear premium" into oil prices.
A response we hear is to bring on more domestic supply. Domestic production has increased 10 percent since 2008, thanks to the rapid growth of shale oil production. The U.S. also is demanding less petroleum, thanks to improved fuel efficiency. Neither, however, has been sufficient to nudge prices down.
It’s also worth noting that domestic oil resources that are costly and difficult to access, such as miles-deep water, aren’t economically attractive to produce unless prices are high enough to justify the investment.
Would a significant expansion of oil production on public lands and offshore help? Oil production is an important use of federal lands and marine waters in the right places. Figuring out where and under what conditions drilling should take place deserves thoughtful consideration.
Two questions must be part of that consideration: One, how much of an influence would the extra production have on oil prices, and two, what other benefits do these places provide that could be put at risk by no-holds-barred drilling.
Alaska’s offshore is one of the places where increased production has been proposed. No one knows for certain how much oil lies beneath those choppy waters.
In 2010, the independent Energy Information Administration (EIA) did a what-if analysis that assumed the discovery of a large Alaskan offshore oilfield that boosts domestic production by nearly 700,000 barrels per day. EIA concluded the production boost would have "only a modest impact on crude oil and petroleum product prices" because the extra output would go into the larger global pool that sets prices.
Oil production off Alaska’s coast would be risky. If an offshore rig were to blow out in the winter, howling winds, extended darkness, and ice would make spill response far more difficult than was the case two years ago when the Deepwater Horizon rig blew up in the temperate Gulf of Mexico.
Expanding offshore production into Alaska’s Bristol Bay would put at risk the enormous fisheries the bay supports, a renewable resource that produces 40 percent of the U.S. fish catch and more than $2 billion in economic value every year.
There is no doubt domestic oil production would have significant economic and energy security benefits. Like every other energy solution, however, opening more public lands and offshore waters to oil drilling should be considered with a cold-eyed appreciation of the facts and of the trade-offs.
Politicians should leave their pandering and panaceas at the door.
Jim DiPeso is vice president for policy and communications at ConservAmerica. DiPeso can be reached at [email protected].