http://www.trust.org/alertnet/news/breakingviews-drilling-alone-wont-fulfil-cheap-us-oil-dreams/
24 Feb 2012 18:17
Source: Reuters // Reuters
(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)
By Christopher Swann
NEW YORK, Feb 24 (Reuters Breakingviews) – Republican presidential hopefuls are presenting the American public with a familiar fantasy: by expanding offshore drilling they can bring gasoline prices back to earth. With the U.S. pumping only 9 percent of global crude, its leverage on supply is modest. But the world’s biggest consumer can affect demand, the other determinant of price. That, however, requires frank talk about conservation.
Americans get restive as pump prices rise toward $4 a gallon. Chastising President Barack Obama, and pledging to cut prices back to $2.50 a gallon, as Newt Gingrich has done, is standard political salesmanship. It’s also economic hubris. The United States pumps just 7.5 million barrels of the world’s 82 million barrels a day of crude, according to BP. One nation can’t control world prices with such a modest market share.
Even if the United States were to throw environmental caution to the winds and open up areas currently out of bounds to producers, the extra output could be offset by oil cartel OPEC. Swing producers, most notably Saudi Arabia, might swiftly reverse the effect of years of extra American drilling if they were unhappy with the resulting oil price.
It is also hard for Republicans to argue that America is failing to exploit its own oil. Oil output has been rising for the first time since the 1970s – thanks to enthusiastic deep-sea drilling and surging output from shale regions in North Dakota, Texas and elsewhere. The result is that reliance on foreign oil has fallen below 50 percent, back to levels last seen three decades ago. None of this, however, has stopped the price of Brent from rising 60 percent over the past two years.
America’s real clout on global energy markets comes as a consumer, where it accounts for a fifth of all oil burnt. There is plenty of low-hanging fruit, here. The average fuel efficiency of the U.S. vehicle fleet is about half that of European nations. And federal taxes on gasoline, which are the most effective means of curbing usage and fostering efficiency, are correspondingly lower.
A plea for conservation is unlikely to appeal to voters of any political persuasion. But the economic laws of supply and demand are pretty simple. And they make a strong case for focusing on the latter over the former. In an election year, however, don’t expect reason to triumph over populism.
CONTEXT NEWS
— Republican presidential candidate Newt Gingrich has unveiled an energy plan that he said would bring down the cost of gasoline to just $2.50 a gallon.
— “Americans have every right to demand $2.50 gas – we are an oil-rich country,” the former House speaker said.
— Gingrich has promised to authorize more drilling on federal lands and open up offshore areas currently unavailable to energy firms.
— The United States accounts for 8.7 percent of global oil production, according to BP’s statistical energy review, and 21 percent of consumption.
— Reuters: Obama hits back at Republican criticism of high fuel prices
— For previous columns by the author, Reuters customers can click on (Editing by Rob Cox and Martin Langfield)
Special thanks to Richard Charter