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Home Publications Blogs Beat the Press There Is Little Disagreement That Drilling Off the U.S. Coast Will Have Almost Zero Impact on the Price of Gas

There Is Little Disagreement That Drilling Off the U.S. Coast Will Have Almost Zero Impact on the Price of Gas

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Sunday, 04 March 2012 19:51

In an article on the debate over offshore drilling, the NYT told readers:

"while candidates have sparred over the reasons for rising prices, there is little disagreement over the call for more drilling, onshore and offshore."

The NYT should have also told readers that there is almost no disagreement among economists that drilling everywhere all the time offshore will have almost no impact on the price of gas in the United States. The reason is that we have a world market for oil. The additional oil that might come from offshore drilling is a drop in the bucket in a world oil market of almost 90 million barrels a day.

It is unlikely that drivers would even notice the difference between a policy where we told the oil industry that it could drill wherever it wants and pay no attention to the number of people it kills in the process or the resulting damage to the environment and local economies and a policy where we banned all new offshore drilling. Over the next 2 years the difference would be virtually non-existent and even after 10 years it is unlikely to change the price of gas by more than 2-3 percent.

The media should point out this fact to readers and that politicians who claim otherwise either do not understand the oil market or are being dishonest. It also would have been worth reminding readers that politicians of both parties receive large campaign contributions from the oil industry.

Comments (8)Add Comment
Norway Has Massive Off-Shore Drilling
written by Paul, March 04, 2012 7:53
And, with fewer than 5 million people, produces 1.7 million barrels of oil per day (which would be equivalent, on a per capita basis, to 100 million bpd in the U.S.), yet gasoline costs $10/gallon in Norway.

Obviously, more than 10 times the off-shore production in Norway is not doing its people any good in terms of prices.
...
written by RobertHurst, March 04, 2012 10:05
Paul,

Norway has surplus crude oil and is a net energy exporter, although their oil fields are in terminal decline. They could subsidize their citizens with cheap fuel, instead they tax the heck out of it, because they realize the huge benefits of doing so.
The Price of Oil Stimulates Exploratory Drilling
written by Ron Alley, March 05, 2012 5:54
It's the price of oil that stimulates exploration. Drilling ain't cheap baby. Many exploratory wells are dry holes. It makes no sense for an oil company to drill exploratory wells unless the demand for oil and therefore the price of oil assures that the successful wells will not only cover the costs of the dry holes but also return a profit.

The Times really misses the point -- how much exploratory drilling would we see if gasoline was $2.25 at the pump?
Norway's Oil is Priced by the World Market
written by Paul, March 05, 2012 10:35
RobertHurst,

My point is that no matter how successful the U.S. could be at producing more oil off-shore, like Norway, that oil would be priced by the world market over which we have no effective control. Norway is vastly more successful at producing off-shore oil on a per capita basis, yet it does not benefit Norways's gasoline consumers at all.

Any new oil that is found off-shore in U.S. waters will be sold on the world market and since any amount found will be trivial compared to market demand, it will have negligible effects on prices Americans pay at the pump.

The "Drill,Baby,Drill" slogan is just BS.
Deputy Director, Institute of International Economic Law
written by Mark E. Herlihy, March 05, 2012 11:10
It should also be noted that the US is now a net exporter of refined products, including gasoline. US purchasers at the pump are less and less insulated from world gas prices. This will be true independently of worldwide crude oil supplies.
@Ron Alley
written by fuller schmidt, March 05, 2012 6:41
Can you link to something that shows how oil exploration ceases when gasoline hits $2.25 and below?
@fuller schmidt
written by Ron Alley, March 06, 2012 7:21
What led you to believe that my question: "how much exploratory drilling would we see if gasoline was $2.25 at the pump?" suggests that exploration would cease if gasoline were $2.25 at the pump?

Oil companies sell products, petroleum and its derivatives, and need inventory to maintain sales and perhaps to increase market share. They deplete their inventories with every sale. Even without the crony capitalist incentives provided by the federal government, they would have to do something to improve the efficiency of extraction from their producing wells or find new producing wells. There will always be some balance between costs incurred to improve producing properties and the costs incurred to find new sources. The higher the demand for, price of, gasoline at the pump, (a shorthand for the price of raw petroleum and a rhetorical device to make the price figure more relevant to the driver), the greater the incentive to explore for new sources and the more willing oil companies are to embark on risky drilling ventures -- risky in terms of cost, probability of success and damage to the environment.

My message is that demand for oil is driving exploration and potential damage to the environment in a way that trumps any effort other than highly effect regulation of drilling operations.
@Ron Alley
written by fuller schmidt, March 06, 2012 11:23
I'm glad I asked.

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About Beat the Press

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.

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