Why wouldn't it? Just pump that stuff out and ship it a few short miles over to gas stations in Tampa Bay, ready to dispense at our local convenience stores. How cheap would that be?
Unfortunately, it doesn't quite work like that.
Advocates of drilling off the U.S. coastal shelf and in environmentally sensitive areas such as the Arctic National Wildlife Refuge (including Big Oil, which is running TV ads touting such a scenario) insist that if the U.S. marginally adds to the world's oil supply, prices will have to go down. That reduction might take five or 10 years to kick in, the most honest of those drilling advocates say, but politicians like John McCain make the bold promise that approval of offshore and ANWR drilling will have an immediate "psychological" effect on the market that will drive prices lower.
There are two main problems with those claims. First, the addition of those U.S. oil reserves would be, literally, a drop in the bucket. Worldwide production stands at about 85-86 million barrels a day. The offshore and ANWR production, once up and running in 10 years, could add an estimated 1-3 million barrels daily to that total. Could be a bit higher, could be lower.
The second, bigger problem with the offshore drilling theory is that oil is traded on a "fully integrated" global market, as the Robert S. Strauss Center think tank at the University of Texas puts it. That means that oil produced on and off our shores doesn't necessarily end up in our gas tanks. If some Chinese company wants to pay more for a barrel than the company that supplies the 7-Eleven down the street, the price continues going up and our oil ends up polluting Beijing further.
Then there is the fact that a barrel of oil is used to produce lots of different kinds of petroleum products: light, refined oil becomes gasoline; medium crude makes heating, diesel and aviation fuels; and heavy crude becomes, among other things, asphalt. While our consumption of gasoline is down (thanks to U.S. conservation and a flagging economy) is down, consumption of the other categories is up, continuing to drive up the price of oil futures. Not all oil ends up in our automobile gas tanks.
Throw in the control that the oil cartel OPEC has on production, and you have to question the assertion that offshore drilling will lower our gasoline prices.
The best argument we have seen comes from more realistic oil executives, who say that increasing conservation in the U.S. and pursuing alternative fuels would combine with the marginal increase from offshore drilling to make a very real difference in the global market, thus driving down prices and giving us a modicum of energy independence. If we do all those things. And if we believe oil executives.
This article appears in Sep 3-9, 2008.