Is it Worth Drilling For More Domestic Oil?
Newt Gingrich’s American Solutions group has mounted an online petition designed to persuade Congress to open up domestic sites that are currently closed to oil and natural gas exploration. That’s certainly an understandable sentiment, given the skyrocketing increases in the price of oil over the past couple of years. But opening up for exploration is not going to do much for prices right now–oh sure, domestic exploration might drop the price of oil and provide some relief from any speculation driving up the price, but it’s not going to change the fundamentals on the ground for over a decade. In other words, oil might drop in the near term, but it won’t drop that much and it will start to go up again. Additionally, drilling for more oil won’t do anything for the price of gas without a concurrent expansion in refinery capacity.
So, even if we were to open up all of our offshore and onland sites for oil exploration today, it would be at least a decade, if not longer, before that oil started pumping. Meanwhile, over that decade, subsidized consumption in India and China would continue to rise, OPEC fields would continue to be maxed out, refineries would likely still be running at full capacity, and as a consequence, gas prices would still continue to increase at a decent clip. And the consequences of those gas prices rising–more mass transit, more fuel efficient vehicles, more investment in alternative energy sources–would also likely continue.
So after a decade of those trends, how much of a difference are new sources of oil going to make? If it turns out that alt-energy can’t keep the pace yet to make up for oil, then new supplies of oil might not be enough to cover ever-increasing demand. So at best we might just be looking at a slowdown in the pace of oil price increases. If it effects oil prices much at all. Granted, an increase of supply usually causes a decrease in prices, but given that offshore oil and shale oil cost more to extract than sources found in a lot of foreign fields, those costs have to be transmitted into the price. Not to mention the very real danger of demand exceeding supply a decade from now–even with the new oil sources. If that’s the case, our new sources of oil aren’t going to put a dent in the price. So is there really that much of a benefit, here?
On the other hand, if more alternative energy supplies become more feasible and help to decrease the overall demand for oil over the next decade, a sudden glut of new oil supply might threaten to take us one step backward by making oil cheap enough to slow down alt-energy development. Economically beneficial, sure. But even if you’re a global warming skeptic you have to admit that’s not good for the environment from other perspectives. Additionally, increased production from US oilfields would still not be enough to eliminate the necessity of the importation of foreign oil, so the problems associated with that would move back to the forefront.
On the other hand, if over the next decade alternative energy sources and ultra-fuel efficient vehicles become good enough, you might run into a situation where the higher costs of domestic oil extraction make it less profitable for oil companies to continue extraction–especially of shale oil sources. If that’s the case, then what’s the point of opening up the fields in the first place? (This is, admittedly, the least likely of these three scenarios, but it’s not that far out there.)
So what I’m left with here is a pretty high level of skepticism that, given the long time frame involved, opening up more domestic production of oil is going to have much of a benefit for the average American. So while I’m not necessarily opposed to more drilling in principle, in practice I just have to say that right now I’m not sure if there’s much point to it.