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Home Publications Blogs Beat the Press Does the Public Think that Drilling for Oil in Environmentally Sensitive Areas is an End In Itself?

Does the Public Think that Drilling for Oil in Environmentally Sensitive Areas is an End In Itself?

Friday, 30 April 2010 05:26

NPR told listeners that the public has supported drilling offshore because they objected to the country's dependence on foreign oil and the wars in the Middle East.This is very interesting because it shows how badly the media have reported on this issue. There are no projections that show drilling offshore will have any noticeable effect on U.S. dependence on foreign oil. The media (including NPR) have horribly misrepresented the potential impact of offshore oil so that tens of millions of Americans actually believe that it has anything to do with dependence on foreign oil.

It would have been interesting to report the attitudes towards offshore drilling among those who know that it will not have any noticeable impact on U.S. dependence on foreign oil or the price of gas.

Comments (12)Add Comment
written by izzatzo, April 30, 2010 7:41
Salazar Oh Salazar,
Wherefore Art Thou Salazar,
It was Drill Baby Drill,
For Our Independence,
Then Wind Baby Wind,
NIMBY Cape Cod Repenance,
Set up Dams of Hold,
On the Mighty Mississippi,
Keep the Oil Out,
And the Water Inside,
Before Another Energy Plan,
Gives Us Valdez Hives.
There is always an easy solution to every human problem--
written by Scott ffolliott, April 30, 2010 9:28
H.L. Mencken said: "There is always an easy solution to every human problem--neat, plausible, and wrong."
written by PeonInChief, April 30, 2010 10:49
It has become very clear over the last few days that Mother Nature is opposed to offshore oil drilling.

But I wonder if Bobby Jindal is opposed to the government spending required to deal with the oil spill heading directly for the Louisiana coast.
written by Queen of Sheba, April 30, 2010 11:22
I have often wondered whether people yelling, "Drill Baby Drill" actually understand how the world oil market works. More to the point, even if they had it explained to them, would they admit the error of their slogan?

The least NPR (and the rest of the media) could do is spend a few minutes explaining to their listeners/viewers why drilling in the U.S. won't do what they think it will do.

PeonInChief: Jindal has already asked the federal government to pay the cost of calling up the state's National Guard to deal with the oil coming ashore in LA. Oh what a tangled web they weave when first they practice demagoguery.
written by PeonInChief, April 30, 2010 1:15
Queen of Sheba: That always happens with the rightwing nuts. Services that benefit me are necessary defense expenditures. Ones that benefit other people are wasteful and socialistic.
written by Brooks, April 30, 2010 2:15
Re: the country's dependence on foreign oil and the wars in the Middle East.

That whole rationale for expanding domestic drilling on the OCS -- (1) the mistaken belief that it will have some significant impact on the price of oil and gasoline in the U.S, and (2) it will lesson the degree to which we fund nations hostile to us -- is nonsensical; it would have no significant effect on prices, not in the short or even long-term, because not only does it NOT matter where the oil is from, but the magnitude of incremental OCS-related production in question just wouldn't be large enough to significantly affect prices in the global market. From the EIA:

The projections in the OCS access case indicate that access to the Pacific, Atlantic, and eastern Gulf regions would not have a significant impact on domestic crude oil and natural gas production or prices before 2030. Leasing would begin no sooner than 2012, and production would not be expected to start before 2017. Total domestic production of crude oil from 2012 through 2030 in the OCS access case is projected to be 1.6 percent higher than in the reference case, and 3 percent higher in 2030 alone, at 5.6 million barrels per day. For the lower 48 OCS, annual crude oil production in 2030 is projected to be 7 percent higher—2.4 million barrels per day in the OCS access case compared with 2.2 million barrels per day in the reference case (Figure 20). Because oil prices are determined on the international market, however, any impact on average wellhead prices is expected to be insignificant.

And because the price of oil is set in a global market, and oil is essentially a fungible commodity in terms of who sells and who buys, it doesn't matter from whence our oil comes, other than insofar as it affects trade balance, which I'm assuming wouldn't be much in the case of expanded OCS drilling. If we bought less from the Middle East, other buyers would buy more. It's still the same global market, with a fungible commodity.

Should we try to reduce our dependence on oil and gasoline (regardless of its origin)? Yes, for the climate/environment, long-term economics, and the short-term sacrifices in dollars and lives that are linked to our military objective of securing the supply of oil ("stability", shipping lanes, etc.) from the Middle East.

Should we care where our oil comes from? No.
written by Ron Alley, April 30, 2010 4:13
NPR also has reported that BP estimates the spillage at 1,000 barrels per day and that the federal government has increased its spillage from 1,000 barrels per day to 5,000 barrels per day. NPR stated that the BP estimate is based upon the production history for the well. I would presume that BP has paid royalty based upon that same production history -- i.e. a stated percentage of the total amount produced.

NPR reported the story as a question of who is correct -- BP or the federal government.

The more important question is, if the federal government is correct, has BP been understating production and underpaying royalties?
written by scott, May 01, 2010 3:12
Brooks, you are wrong, Drill, baby, Drill would raise prices, because domestic oil is more expensive to extract. Only libertarians and fools think that multinational oil companies have no influence over our gov't. If they really wanted to drill there, they would've gotten that right long ago.

No, drill, baby, drill came out as a clever slogan during the middle of an oil glut, by politicians. They oil companies have actually shut down refineries since '07 when speculators at Goldman Sachs drove prices up to $4/gallon during an OIL GLUT. During the middle of that oil glut, Bush and Bodman (Bush's Energy Sec. head of the very agency that was reporting weekly 1 million barrel surpluses) came out and said we were short on oil. We were smack dab in the middle of a 17 week oil surplus.

Even today refineries are operating at 85% (or were) spills like this can close ship channels and distort the figures for a week or two. (95% is max capacity for these refineries. They don't want to operate them below 89% so, we may see more refinery closings.

Even though we haven't built a new refinery in decades, we've vastly expanded our existing refineries. So, next time you hear that old shibboleth about not having built new refineries try an analogy that grown men haven't grown new heads since they were born. Things grow and expand, even refineries.
Foreign Oil?
written by Thomas Dooley, May 01, 2010 1:00
What is "foreign Oil?" What makes it foreign? The US does import from foreign countries mainly Canada and Mexico why is that bad?

Notice the term "foreign oil" is used not "Persian Gulf oil" or "Middle Eastern oil." That's because the US does import a lot of oil, but not from the Persian Gulf. Only 10% of US total supply comes from the Persian Gulf leaving 90% being supplied by the US itself and other sources. That supply from the Persian Gulf could be easily replace with other sources.

Listen carefully to the politician and pundits. You'll them use the term "foreign oil" not "Persian Gulf oil"

At 5 million barrels per day the US is the third largest oil producer behind Russia and Saudi Arabia.. Of those 5 million barrels per day the US actually exports 2 million barrels per day mainly in the form of refined products like gasoline. The economics of the oil industry makes this practical.

The idea that there is such a thing as "foreign oil" is deceptive. Certainly there is oil in the world that is located on US soil and oil located in foreign countries. If there is such concern that oil in foreign countries (Canada, Mexico, Venezuela, Norway) will not be available to us in the future then pumping and depleting US reserves makes no sense. The more sensible thing is to buy from foreigners and let them deplete their reserves. If, as some say, oil is going to become scarce enough to become a political problem how can the answer to that problem be to drill and deplete US reserves as quickly as possible?
written by Brooks, May 01, 2010 8:33

Prices are set in a global market. I assume some differences in distributions costs from different sources (nation/region of suppliers) to a given destination (market), but I don't see why higher extraction cost in one location vs. another should affect prices. Other than differences in distribution costs or distortion of markets by governments (e.g., tariffs, quotas), I don't see why a given supplier with higher extraction costs that produces more would be able to dictate higher prices in a given market for oil of the same grade and the same in any other key features. Why would buyers buy from that supplier at a higher price if they could buy the same thing from other suppliers at a lower price?
written by scott, May 01, 2010 11:32
Brooks, markets don't all set their prices the same way. Inelastic markets like oil are ultimately cost plus. There are certainly trade-offs--sometimes the refiners bank, other times it's extraction, almost never do the gas stations win.

This is the nature of utilities. Gas stations are in a competitive market, refining, extraction and distribution is are a cartel.

Finally, your bare assertion that oil is fungible is not absolutely correct. Brent North Sea Crude is currently selling for $5 bucks less than West TX intermediate in Cushing OK. By the way, Cushing is bursting at the seems and the world has over a hundred supertankers full of oil, waiting for a buyer.

Your argument is based on one logical error. You are assuming oil prices are based on supply and demand. They aren't. They are another way to screw the little guy with absolute speculation. Thank the "stimulus" of the Fed at less than 1/2%. In an engine this would flood the carburetor. In inelastic markets, it just rises the price, creating another market subsidy for the banksters.
written by Brooks, May 02, 2010 8:45

Isn't your comparison of Brent North Sea Crude and West TX intermediate in Cushing OK reflective of different grades of oil (and/or differences in distribution costs)? In other words, are you failing to control for the factors I mentioned?

As for price equilibrium in an inelastic commodity market, that refers to demand for the product in a generic sense; I assume it does NOT mean that an individual supplier can charge more for the same thing just because its own cost is higher than that of other suppliers.

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Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.