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

[Jim]

I'm not an expert on energy policy, and won't pretend to be one, but the evidence suggests that a "gas tax holiday" would not provide any relief in the short-term, but would actually increase demand and prices, as well as deprive us of much-needed highway funds. McCain is still sticking with his bizarre love for this silly idea.

He flip flops on everything else, but sticks with a truly bad idea. That's the new definition of "straight talk," I guess.

He's admitted now that drilling offshore would most likely not have any short-term benefit, but would provide a "psychological" benefit for Americans. Gee, thanks.

[Casady]

What the heck are you talking about, Katman? You said you didn't bother to read the thread and made some assumptions regarding it's content. I responded by saying you really should read the thread because it is not what you percieved it to be.

And while I commend you on your volunteer work and I hope you are recovering comfortable, you act as if you are above all the barbs that are hurled about on this blog. Give me a break! You are as guilty as anyone for hurling barbs and insults at fellow bloogers. Even the jist of your most recent response on this wreaks of a condensending attitude. Shame on you!

[NoMoreMrNiceGuy]

My question is if oil and gasoline are over priced, what should the price be, who determines that price and what formula are they using? What about other products that are over priced? What about atxation is that is too high and causes financial fallout for certain a demographic? Whya re video games $60 instead of $20? Why is gold over $900 an oz? Why do some people's kids count mor than others?
We need more refinery cpacity but there are some idiots that conitnue to block any efforts to build additional refineries.

[Pub 17]

Katman-
Where did you get the rather startling information that drilling in ANWR and offshore now is going to have any impact whatsoever on "immediate energy problems"? They start tomorrow, it's ten to fifteen years before production starts.

[katman]

Gentlemen (to use the term very loosely) when I arise each morning, I ask myself what I can do for my country, my community, & my family and friends. Today I built homes for Habitat as I do Tuesdays thru Fridays.

When I come home, I check the 'sandbox' to see if you have been playing in it & making a mess. Often, I add my two cents which, in some case, is more than the value of what you have posted.

For my own edification, I have jotted down some words you will call me -- elitist, hypocrite, and so on.

If enough of you don't want me to post here, I'll fade into the sunset & there will be no love lost.

[Casady]

It seems that maybe you should wade through the responses because no one here is advocating a continued ban on drilling in the usual places. I was just posting some DOE sources that refute the Cal Thomas BS that Khmer Rouge was spewing earlier. Funny how the guy is nowhere to be found once he is confronted with some facts.

[katman]

Okay, I confess I didn't wade through all of today's messages. I would like for anyone (especially someone on the left) to tell me what we should do to solve the immediate energy problems if we don't drill in ANWAR & offshore. Your religion dictates Thou Shalt Not What about Thou Shall?

Seems to me we either increase the SUPPLY or decrease the DEMAND.

[Casady]

Here you go guys. I see where the 112 billion barrel figure is coming from and 2 point to Jim on that one. The 112 billion barrel figure is unproven reserves. And Cal Thomas is way off base on on his 86 billion off shore figure. Both unproven and inferred reserves only total to 40 billion barrels.

Granted this is nothing to sneeze at and personally, I feel there is a legitimate need to develop these resources in conjuction with the development of alternative sources but I guess this proves we are kidding ourselves by quoting "facts" from politically biased news sources.

And settle down there mdinaz, the current sitation has very little to do with refinery capacity. It is all about the price of crude and if I were a retail gasoline producer operating a refinery at at a capacity utilization level where I am optimizing my margins, where is my incentive to build a new refinery when the domestic demand for my product is actually declining.

I anxiously await Engineer's weigh in on this. He's pretty goo with this stuff.

http://www.eia.doe.gov/oiaf/aeo/assumption/pdf/oil_gas.pdf

[mdinaz]

"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?"

And who's fault is that, Guyen? Democrats and envirowhackos have been opposing refineries for decades. We haven't built a refinery since 1976 because of enviro-lawsuits and the impossible costs and laws that prevent building them. We have half as many refineries as we did 20 years ago. Pat yourself on the back for that and vote Obama for more of the same.

[Casady]

Jim:

I agree with your talking points on ANWR. I recently posted a May 2008 DOE report that pretty much drew the same conclusion although I'm sure Rogue and his ilk chose not to read it because it might conflict with their more fair and balanced sources. I also agree that Cal Thomas is about as unbiased as Greenpeace in his assessement of domestic reserves. However, the 112 billion figure also includes estimated reserves off the coasts, not just ANWAR. I'll check some DOE reports on the offshore estimates when I get a chance but I have a feeling that the 112 Billion is a best case scenario.

[Jim]

"Mr. Thomas, quoting the DOE, is talking strictly automobiles on the roads using gasonline."

Actually, all he says is "according to government estimates," he doesn't actually say where he gets it.

There's a difference between proved and unproven reserves. Proven reserves can be claimed with reasonably high certainty as recoverable in future years with existing technology. Unproven reserves are really based on little more than guesswork.

Cal Thomas is most likely talking about unproven reserves and acting as if they're proven reserves.

He might be referencing this report, which many ANWR drillaholics love to cite:

http://tonto.eia.doe.gov/ftproot/service/sroiaf(2004)04.pdf

That qualifies as a "government" source, but the 112 billion barrels figure is nowhere to be found in that report, so who knows where he gets it?

Regardless, here's the DOE's best estimate of the benefits of ANWR drilling from that very report:

"Opening the coastal plain of ANWR is projected to reduce 2025 oil import dependence from 70 percent in the AEO2004 reference case to 66 percent in the mean resource case. "

Not a compelling argument for the supposed short-term benefits of drilling.

[Casady]

Well, there are many more uses for oil than automobiles, aren't there. Seems a bit myopic to me to just look at automobile consumption, doesn't it?

Seems to me you are always looking for a fight, Khmer Rouge whether someone is agreeing with you and maybe trying to shed some more light on your statements, or if they are disagreeing with you. That is a hell of a chip you have on your shoulders.

[Rogue]

Well for Chrissakes, lopealong, where do you get your 20 million barrels a day? Does that include all forms of fuel? Diesel, jet fuel, home heating oil, kerosene? I bet it does,doesn't it?

Mr. Thomas, quoting the DOE, is talking strictly automobiles on the roads using gasonline. Gosh, do you suppose that could account for the difference between, sixteen and sixty years?

If the United States announced tomorrow, that we are going to instiute a program to develop 112 billion barrels of oil in the next 10 years what do you think that would do to the current price of the stuff?

Here's a hint, Lope along, "the price won't go up".

[Casady]

No, we won't grow our way out of a growing economy and these resources need to be tapped (in case you do realize this, I am agreeing with you).

My point is that the 119 billionm barrels is a valid DOE number. The 60 million cars for 60 years BS is Cal Thomas's spin on that number and it doesn't quite work that way. Whoever taps those reserves will sell them on the open market. They will not necessarily be earmarked for US refining and consumption. If the demand is in China, the oil will be sold to China, etc. That is how multinations work. Our oil industry is privatized, not nationalized.

Just think for yourself for a minute and do the math, that is all I am saying. At 20M bbls a day, 119 billion bbls a day will last 16 years. It's straight math for Christ's sake. How can you argue with that?

[Rogue]

Its not my math Hoppy, it is from the DOE.

Developing our existing reserves will give us the time to develop alternate sources without causing serious harm to our economy.

Saying we can "conserve" our way out in a growing economy is simply foolish. Almost as foolish as muttering "solar" and "wind" power.

BTW everyone is so pyched about electic cars, how are we going to generate the power to charge all those batteries? We can't burn coal anymore, and of course nuclear is out of the question?.

I know,I know,"solar", "wind"........

Right Lope along?

[Casady]

I'm all for drilling in ANWR and off the continental shelf but Khmer Rouge, you need to check your math. Daily consumption in the US is roughly 20M bbls per day. 119 billion bbls of untapped reserves will last us roughly 16 years, not 60 years, and that is not accounting for increases in demand. Not that long in the grand scheme of things and once we burn through that reserve, then what?

[katman]

Rogue, I see I'm leaving the matters in good ahnds for the day. "Give 'em hell, Rogue"

[Rogue]

http://www.townhall.com/Columnists/CalThomas/2008/05/13/in_defense_of_big_oil

112 billion barrels of oil, enough for 60 million cars for sixty years without importing a drop. David, you are full of it, and I ain't talking about "oil".

[katman]

Do you think changing light bulbs, driving a hybrid, & choosing paper over plastic is going to lessen Global Warming?

Burrus, is the correct acronym for your economic institute basis in liberal old Lawrence--ASS?