I was planning on ignoring this column from Charles Krauthammer -- always a good idea -- but two or three people have asked me about it now, so I guess it's worth saying something.
Krauthammer's thesis is that when we put areas in the U.S. off limits to oil drilling, we push drilling into countries that have less sophisticated technology and fewer regulatory restrictions, thereby doing more environmental damage in the aggregate. In other words, by protecting the American environment here we hurt the environment globally.
He concludes:
There are a dizzying number of economic and national security arguments for drilling at home: a $700 billion oil balance-of-payments deficit, a gas tax (equivalent) levied on the paychecks of American workers and poured into the treasuries of enemy and terror-supporting regimes, growing dependence on unstable states of the Persian Gulf and Caspian basin. Pelosi and the Democrats stand athwart, shouting: We don't care. We come to save the planet!
I guess I see why this argument has some prima facie appeal, but on the merits it really is total nonsense.
What Krauthammer has constructed is an extremely good case for using less oil. Saving a barrel of oil is cheaper than buying one. It leaves the environment untouched (in Nigeria too), lowers the trade deficit, reduces transportation costs for Americans, and makes the U.S. less dependent on foreign regimes.
What Krauthammer has not done is make a case for drilling in protected U.S. areas, which would accomplish none of those goals. Not one. In 10 years when we got the oil, it would go straight to the global market, making a tiny ripple and otherwise having no effect whatsoever.
What neither approach will do, at least in the short- to mid-term, is prevent drilling in Nigeria or anywhere else. Supply is so tight and demand from China and India is rising so fast, any oil on the margin -- either produced by us or saved by us -- will be hoovered up immediately.
We could try to keep up in the race of producing and procuring as much oil as possible, but that's increasingly a mug's game. The smarter thing to do in the long run is to model a developed economy that becomes more robust, resilient, and self-reliant by using less fossil fuel. If we pull that off, maybe Nigeria will follow suit. That's about the only thing I can think of that will ever prevent drillable oil from getting drilled.
Oil: enough energy to melt glaciers!
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sunflower Posted 2:59 am
07 Aug 2008
Oil is dirt cheap. Water costs more than oil in Saudi Arabia. Super tankers return to Arabia filled with seawater for ballast, the source of tar balls on beaches. We could fill huge polymer bags of delicious fresh water in those tankers and trade water for oil.
Our offshore oil will be much more valuable in the future than it is today. Our best investment today is leave US oil in the ground for future value and get smart with commodities trade and oil efficiency.
US carpooling alone could save more oil than that exported by Saudi Arabia to the entire world. Oh wait, that would cause instant demand destruction, an oil price collapse, not good for Texas.
What's in it for US? Job security.
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Sean Casten Posted 5:42 am
07 Aug 2008
This explains why 10 years ago, when oil was touching $9/bbl, North Sea oil rigs were starting to curtail production. It also explains why today we're going like gangbusters in Albertan tar sands that have a $40 - 50/bbl cost of production. Drop the price of oil back to $40 and you will immediately shut down the Albertan economy.
None of this is to suggest that peak oil, demand, etc. aren't factors - but rather that if we let people produce off-shore oil, they will run those rigs only so long as the market price (which, as you note, has almost nothing to do with their production activities) is higher than their production cost. So if the price is high enough, it will all get sold on international markets and have no impact on domestic gasoline prices. If the price is low enough, it won't operate and will have no impact on domestic gasoline prices. So the only way it doesn't amount to more than the proverbial fart in a whirlwind is if the fields we are opening up for production are (a) really cheap to produce from and (b) of a significant size relative to global demand.
I've not heard anyone suggest that either of those are the case (e.g., they are not going to convert us into the Saudi swing producer). Which means that we are not going to be $700 billion richer if we drilled off Florida, nor will suddenly have no dependency on the middle east. Might we move slightly in those directions? Yeah, I guess so - but only to a trivial degree.
Which raises a fun, and timely question. What has the more trivial impact on US oil price, environmental destruction of Nigeria and US balance of payments: opening up offshore drilling or keeping our tires inflated? I don't know the answer, but I'd sure love to see someone honest run the math!
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