U.S. drilling won’t solve oil crisis

People who call for more oil drilling never give hard numbers on what it would do for gasoline prices and energy independence. Using The Star’s oil market data (6/19, A-1, “Energy and where to get it heating up political debate”), here’s what almost any economist can confirm:

1. Under impossibly ideal conditions, we could achieve energy independence for three years by using up our proven oil reserves. Based on published estimates, new discoveries could extend that for a year or two, not much more.
2. During that three- to five-year period, if OPEC did nothing the price of oil would drop by perhaps 20 percent and then go back up. (This assumes short-run demand price changes will equal 80 percent of quantity changes.)
3. More likely, OPEC would cut production and there would be almost no drop in prices at the pump.
4. More than 75 percent of any consumer price benefit would go to foreign countries. (That’s because oil has a single, unitary world price.)
5. Almost 100 percent of the environmental damage would stay in the U.S.
6. Thereafter we would be 100 percent dependent on foreign oil.

I personally don’t find this bargain very attractive.

David Burress
Senior economist, Ad Astra Institute of Kansas, Inc.
Lawrence

When are the Bush and McCain ditto-heads going to figure out we don’t have the refineries to process the oil we already have?

Guyen Morrison
Kansas City

Comments

[NoMoreMrNiceGuy]

There is plenty of alternative energy in place, apparently those making comments about little being done, spend little time outside their cubicle.
Funny, there is a wind turbine is supposed to power the Great River Energy HQ in Maple Grove,MN. The prductivity of that turbine last year was 32%, meanig 68% of the time it was not able to produce electricity. Pretty sad, a half mw wind turbine can not power a 20,000 sq ft building. So go ahead and let Obama convince oyu that wind will replace a baseloadable fossil fuel.

[NoMoreMrNiceGuy]

Pub17 - you are too general. I have to drive and I do not drive a diesel. My profession requires travel, no way around it. It also required flying, no way around it. Lower mpg will only increase consumption, lower prices do not dictate more conservation. Conservation is about discipline, many that bark the loudest about gas prices are often less disciplined even though the may drive a Prius.
There is more to the picture than just gasoline and that is what people are refusing to admit. I just got finished with a meeting regarding energy projects in India and China. China averages 1 new coal fire unit going on line every 10 days or less. India is catching up. This does not include the enormous manufactrying capacities adjacent to this. The problem is not "oil barons" and 8% net margins, it is global demand and consumerism.

[GCYL]

“Jeez, do I hate reposting.” - Pub

“Honda Motor Co. last week said it plans to lease 200 FCX Clarity hydrogen fuel cell vehicles over the next three years with a goal of mass production within a decade.”

I guess that in the hypothetical you’re correct about the “here and now”.

I’ve always stated that both major political parties never did anything but lip service to alternative energy. I pity the political party in power when “cheap” gas is gone. On the other hand I’m impressed with the brazen use of the private market to change behavior. “Only $4.00 a gallon? We’re going to make it $10.00 a gallon and make you suffer, er, I mean CHANGE you energy consumption.” I have to admit, that concept caught me by surprise.

[Pub 17]

Mr. Nice Guy
You're zeroing in on an important point. Remember when we all assumed that diesel was naturally cheaper than gas, because it's easier to refine? WHAT THE H HAPPENED? Demand for diesel increased, but demand for gas exploded. So if refinery capacity is hurting us in the gasoline supply, it's KILLING us in diesel supply-there's absolutely no market incentive to build new diesel refinery capacity, because price elasticity on diesel is so much lower (most diesel users have to pay the posted price, since they're professionals who HAVE to drive, vs. gas users who're consumers who can choose not to drive if the price of gas goes up).
So what happens to the price of diesel if the private car fleet starts switching? Diesel prices go DOWN, because now refiners have to make diesel or die.
Rule 24-TRUST THE MARKET.

[Pub 17]

Mr. Nice Guy
You're zeroing in on an important point. Remember when we all assumed that diesel was naturally cheaper than gas, because it's easier to refine? WHAT THE H HAPPENED? Demand for diesel increased, but demand for gas exploded. So if refinery capacity is hurting us in the gasoline supply, it's KILLING us in diesel supply-there's absolutely no market incentive to build new diesel refinery capacity, because price elasticity on diesel is so much lower (most diesel users have to pay the posted price, since they're professionals who HAVE to drive, vs. gas users who're consumers who can choose not to drive if the price of gas goes up).
So what happens to the price of diesel if the private car fleet starts switching? Diesel prices go DOWN, because now refiners have to make diesel or die.
Rule 24-TRUST THE MARKET.

[NoMoreMrNiceGuy]

What about those of us that require a truck for our profession? The Honda won't cut it. Also, are the government and the enviro Nazis going to subsidize everyone dumping their current "gas guzzler" to get into a green machine? If we get more miles per gallon, you don't think consumers will consume more? They will. The problem is not mog it's consumerism and indulgence. If beers at the stadium were $1 people, you don't think people would drink more?

[Pub 17]

Jeez, do I hate reposting.

Actually, most of this stuff IS here now, on the ground, as is the support structure. We have diesel, we have hybrids by the million, one of the best has already come and gone. There's nothing at all weird about a constant-velocity diesel/electric hybrid; they're out there now. This ain't fuel cells and solar panel stuff-but, again, none of it's going to happen with cheap gas, even if it were available, which it's not. Saudi Arabia is never going back to being what it deserves to be, a sand dune with privileges, unless the price of gas is high enough to pull powerful solutions out of the market, not b.s. like "we'd all be driving cars that run on fuel cells if the government would only give us seed money." Econ 101: the cure for high prices is high prices.

[kcstar_is_one_sided]

Pub -

You may be right, but here is what is not on the ground, an infrastructure both mass produce these items, and support them. We are years away from that.

[Pub 17]

Here's what's on the ground RIGHT NOW and being driven by human beings in the real world:
1. Honda Clarity-runs on hydrogen
2. Next-gen diesels. You want to scare yourself senseless, YouTube one of the Audi V-10 diesels that's won LeMans FIVE TIMES IN A ROW-they sound like ripping silk, go like stink and are HERE NOW. More important, the Japanese are selling next-gen diesels in passenger cars in Europe NOW.
3. Really scary real-world hybrids like constant-velocity diesel/electrics. You have a tiny little diesel engine that never shuts off, just continues to pump up the battery like the pump in a water tower. Makes ALL its own electricity, with or without regenerative braking.
4. The Insight. Doesn't Honda wish it had held off a couple years on this one? 80 MPG is real, available, and we'd still have them in showrooms if they'd been introduced with $4 gas at the pump.
Point? None of this is going to happen with $1.45 gas. Econ 101: the cure for high prices is high prices. You don't cure alcoholics by giving them cheap booze till they find where the AA's meeting.

[NoMoreMrNiceGuy]

Casady I guess all we can do then is nothing. Petroleum based products cost what the market dictates. Volume drives unit cost, typically. There is not a surplus of crude, if there were prices would have some relief. If the crude were domestic, it would negate some of the speculating contributing to the increased price.
We still have a consumption issue although you believe there has not been an increase.
As for the liberal that made the comment
All I know is confiscating profits businesses is not the answer. I am tired of hearing the bogus statements about the insane profits of oil companies. Billions of dollars in profit does not make them guilty of price gouging, when you consider their net margins are single digit.
Only 60% of the HTF is used forwhat it supposed to be used for so it is yet another pork barrel program. Devin believes I am incorrect, yet these are the numbers provided by the government themselves.
Why do so many think taxtion is the answer?

[Engineer]

Casady
Of course you are correct, but we would still be better off with domestic production. A somewhat similar situation to any foreign owned company manufacturing in the US.

[Engineer]

Pub 17
My point was that even if those things did not result in large decreases in the price of gas they would stabilize and strengthen our economy. They would do this by eliminating or at least greatly decreasing the outflow of funds for the purchase of foreign oil. Of course this is all obvious except there seems to be a number of interests lined up in opposition to domestic production of oil. On the other hand it would seem that all of these steps would put downward pressure on the international price of oil. As to your new driving habits, what is there to say? I have always driven that way in town.

[Pub 17]

Unless this is being real slow today, my last one didn't fly.
Anyway, I was talking 15% better mileage from a couple of simple moves combined with driving 15% fewer miles, actually about 28% improvement compounding. What's startling is that I'm NOT drafting semis or pushing the car out of the driveway or shutting off the engine-this is just from using the hills in JoCo and gliding into stops. Oh yeah-and actually keeping it to the speed limit. Scroo the Saudis, I need the money worse than they do.

[katman]

Sounds like Amateur Hour. The B.S. is thick enough to fertilize my garden and the facts could fill my shot glass.

"I think I've got it. We should produce more, conserve more, and look for alternatives" Yes, that's the long and short of it. Oil from ANWAR & closer offshore wells would be in the pipeline within a year. The prospect of it coming onstream would cool the speculators who are currently responsible for 30-40% of the price increases.

Conservation has a much longer parameter. As for speaking to you in a condescending manner, what else is possible. Several of you have a 7th grade mentality and a 4th grade level of expressing it. I said SEVERAL not all.

Whenever I step on someone's toes or say something disagreeable, I can hear the screaming on my computer.

The modus operandi I prefer, is to arise & post early where I don't have to deal with your comments. Then, in the evening I can read your takes on the issues. For that reason, I sometimes don't respond immediately or at all -- and it frustrates the crap out of you.

[Casady]

Sorry Pub, I guess it would be 30% ($4-$2.80)/$2.80. I'm still curious about how you are getting there.

[Casady]

How does improving your mileage 15% cut your costs by 40%? Just curious. And I also thought about the coasting vs. down shifting but doesn't that wreak havoc on yours. I wonder what the cost trade off is for that? You know, savings on gas vs. increased cost in brake repair. Let me know how that works out.

Neal

[Pub 17]

I think I've got it. We should produce more, conserve more, and look for alternatives. This may not have much effect on price but we'll be the better for the effort. Deeply insightful, Engineer. I'd like to go further: we should pursue virtue and avoid vice.

Anybody got any USEFUL advice out there? I'll start: all I'm doing is coasting hills and gliding into stops. My mileage has improved just short of 15% in the last month (4-cyl, 5-speed pickup). My short-term goal is to cut my miles per month by 15%. That'll bring my effective price of gas down to about $2.80, relative to last month.

[Casady]

Engineer: Agreed with the exception that the dollars will stay in the US. I believe the royalty payment would but as I pointed out before, who can guarantee that the proceeds from the sale of crude would? Isn't it possible that the rights could end up with BP or Royal Dutch? Not that it makes much of a difference to me as I am a belei ver in global free trade but I'm curious as to what you think of that.

NMMNG:

Please explain how an increase in refinery capacity would affect the price of crude. Seems to me that an increase in such capacity would only increase the demand for wholesale crude which would only increse the price of crude.

[Engineer]

Casady
My main thought on this is that we should drill everywhere we can as soon as we can. If the oil is produced domestically its sale price stays in the US economy. As to reserves, historically additional reserves have always been found when exploration is pushed. New production techniques make more sources recoverable and prices make their use feasible. However, as I have said before, we also need to conserve and to seek alternative sources. So far, none of the alternative sources we have used or studied can be more than supplements until various problems concerning their use have been solved. Our best efforts regarding increased production, conservation and use of alternative fuels may not have a major effect on he price of oil but they can provide a major strengthening of our economy.

[Jim]

Katman, like Rogue before him, has probably taken his marbles and gone home.