Drilling could be part of energy solution

Freedom New Mexico

Sometimes popular opinion gets to even the most stubborn ideologues. House Speaker Nancy Pelosi has relented a bit on her refusal to allow a vote on lifting the moratorium on offshore drilling, though she still thinks the idea is a “hoax.”

“They have this thing that says drill offshore in the protected areas,” she said on Larry King Live last week. “We can do that. We can have a vote on that.” She wants it to be done in conjunction with a vote to withdraw oil from the nation’s Strategic Petroleum Reserve.

During elections, discussions on key issues get simplified to the point of caricature. Thus Republicans, including presumptive presidential candidate John McCain, have hit on the “drill here, drill now” mantra in response to rising gasoline and oil prices. Democrats have responded by claiming drilling now wouldn’t bring on new oil supplies for 10 years, so it’s not worth the risk to the environment.

How to sort out the rhetoric?

First, understand that genuine energy independence for the United States, if that means getting all our energy from domestic sources, is almost certainly impossible.

Given demand for energy in the world’s largest economy and the fact that the U.S. has maybe 3 percent of the world’s proven oil reserves, energy independence won’t happen — though politicians of both parties have been promising it for more than 30 years.

However, self-sustainability is a reasonable goal. Gven the levels to which oil prices have risen, it makes no sense not to go after oil known to be under American soil and off the U.S. coasts. Oil prices are determined by the interaction of supply and demand worldwide and are influenced at the margins. Throwing political barriers in the way of producing more supply ensures that prices for oil and other energy fuels will be higher than they have to be.

Some argue that oil companies are sitting on leases they already own and therefore it’s pointless to open up more. But the argument falls flat.

Leases are classified as “non-producing” until they are actually pumping oil, and many leases so classified are in the early stages of seismic evaluation, exploratory drilling and infrastructure building, which can take years and hundreds of millions of dollars. With oil prices above $100 a barrel, oil companies aren’t crazy enough just to sit on potentially productive sites.

Furthermore, as Harvard economist Martin Feldstein has explained, the current price of oil is affected by expectations for the future. An announcement that more supply will be coming online, even in five years or so (not 10), can reduce current prices.

Finally, oil prices are already beginning to fall, because of less demand for gasoline as well as petroleum-related products other than gasoline — plastics, synthetic fabrics, detergents, diesel, heavy fuel oil, etc. — during this time of economic slowdown.

The ordinary interactions of the marketplace, then, have already begun to reduce the price of crude oil. Beginning to drill offshore and in the Alaskan National Wilderness Reserve will not produce energy independence or cause dramatic reductions in gasoline prices. Because so many other factors go into the price of oil it is impossible to predict precisely what oil will cost when those sources actually start producing.

But beginning to drill — even announcing that drilling will begin — will put downward pressure on prices immediately and for years to come.

While the time may come that we get more or most of our energy from wind, natural gas, biofuels or solar power — as worldwide energy demand rises — petroleum will be our most important energy source for decades to come. It doesn’t make a bit of sense not to increase the supply, even if the increase seems small compared to the overall worldwide market.