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article imageOp-Ed: Examining Off-Shore Drilling and How it Will Affect the Average American

By G. Robert M. Miller     Aug 21, 2008 in Politics
Off-shore drilling is a sure-fire point of discussion this fall (though both sides will agree it must be done). However, in looking at the issue it seems as though it is merely a talking point, not an issue that affects (or benefits) the average American.
Many proponents of off-shore drilling claim that drilling off American coasts will drastically lower the price of gas, as well as direct American money away from Middle East states that harbour extremists.
This argument though, is far from sturdy.
First off, there is no definitive answer as to how long it would take for new oil to hit the markets (perhaps some of you saw the Daily Show montage showcasing roughly 10 'experts', all of whom give a different answer to this question - though I can't seem to find it online).
What we do know is that if off-shore drilling was made legal in certain currently restricted areas, companies would still have to prospect for oil, build the infrastructure, drill, refine the oil, and then distribute it (which is when there would be a drop in gas prices). And so, considering all that needs to be done in order to get off shore oil into our gas stations, perhaps we ought to consider more feasible solutions to this problem; and there are many.
The best solution is (of course) going to be the simplest, fastest, and least compromising one. And to find that solution, America may not need to look any further than the 49th parallel.
First though, it is important to recognize that it has been (grossly over)stated by many off-shore oil advocates that one of the main reasons that off-shore drilling needs to begin is to halt the transfer of US dollars to questionable nations who may be supporting anti-American extremists.
But Canada is the US’s largest provider of oil; and with Canadian oil production set to double within the next twelve years, America could satisfy its oil needs simply by buying oil from its (un-extremist) neighbour to the north. (America imported 3.66 billion barrels of oil last year, while Canada produced for export 2.77 billion barrels, meaning that if the US bought all Canadian oil that is for export, they would have to buy less than one billion barrels of oil from other countries (and Mexico could provide that)).
Moreover, if the US continued to research and refine alternative fuel sources as Canada increased it's ability to supply oil, it could well be that Canada - within five to ten years - could provide America with all the oil it needs.
Secondly, the solution to high gas prices may not be more oil. The solution, as pointed out by T. Boone Pickens in his advertisements (which air on CNN), may be to use alternative energy sources where we can, thus decreasing the demand for gas, and thereby lowering the prices at the pumps.
It is well documented that many believe this solution to be bird-brained, but it is far from it. Pickens is not saying that we all ought to be buying solar pads and placing them on our cars, or saving our farts for methane plants; what he is suggesting is that houses should no longer be fueled by oil – we should develop windmill generators to power homes; just as in Rockport, Missouri (as reported by a fellow DJ citizen journalist).
So right there are three good points that ought to be acknowledged. To restate them; a, we do not know how long it would take for off-shore oil to reach the markets; b, Canada has the resources to provide the US with nearly all the oil needed for the foreseeable future; c, the solution to this problem isn’t more oil, but rather, new energy sources (more oil simply sustains the problem).
Of course, we shouldn’t be surprised by the fact that this has become a talking point. To quote Phillip E. Jackson of this is politics 101 – when a topic catches on with the public, milk it and milk them:
“Contrary to the grade school myth about George Washington never telling a lie, political speech in this country (or any other country for that matter) has always been filled with lies, distortions, hyperbole and exaggerations. In one sense there’s never been a period of time when two opposing views were expressed cordially and with great respect for the facts of the matter, rather than simply making up the facts to support a preconceived position.
“What’s at stake, then, isn’t a return to some “purer” previous time when all points of view were discussed rationally and respectfully, but rather a sense of where we are now along this continuum of hyperbole and deception.”
So is this off-shore oil conversation simply hyperbole and deception? Well, if you were to ask Senator Harry Reid, he would say yes (even though off-shore drilling is being supported by both candidates); but don’t take my word for it:
“We can't continue importing 70 percent of the oil we use. We have to move to a new paradigm that is energy produced by the sun, the wind and geothermal.
"(when it comes to) drilling, I believe in more American production. We need to have more American production and that is why I led the charge in the senate to have 8.3 million new acres in the Gulf of Mexico available.
"There isn't a person in the world, I'm not talking about politicians, I'm talking about oil people, (who) will tell you that drilling will lower the price of oil. It takes at least 15 years before drilling a hole today in the ocean, 15 years before it would be in someone's gas tank.”
So while he does agree that off-shore drilling should be done, he dually notes that it will not affect the price of gasoline for some time.
This is not to say that finding a large quantity of oil in ANWR wouldn’t have an immediate impact on the price of oil per barrel (price reductions based on speculation is quite common), but the likelihood of instant reductions in gas prices, based on the potential of more oil in the future, is slim to none.
As noted by R. Morris Coats and Gary M. Pecquet, finding new oil in a place like ANWR may instantly lower oil prices per barrel, but not gas prices:
“(many claim that) Production in ANWR will have no impact on current or short-term gasoline and oil supplies and prices. While this is something that everyone seems to know, it is a case that the theory held by everyone just happens to be wrong. Since future prices are expected to be lower, future profits are also lower, so the value of oil not produced now, but held for future sales, is lower, making it more profitable to go ahead and produce and sell now instead of waiting for future profits. Using oil now reduces the amount of oil available for the future, which involves the opportunity cost of forgone future profits, which are sometime called the marginal user costs or scarcity rents. (…) If an amount of newly discovered oil is significant enough to reduce prices in the future, any drop in future prices reduces the future profitability of oil, reducing the marginal user costs of oil now. That reduction in the marginal user costs reduces the current price of oil just as if there were a reduction in the marginal costs of extracting oil now. (…) (As a result) oil that is expected to reach the market at some time in the future has an immediate impact on oil prices (now).”
The notable exclusion of lowered gas prices in that equation surely was not an error in writing; it was deliberate. In other words, finding a large quantity of oil - for example in ANWR - would have an immediate positive effect for those at the helm of Big Oil - lowering the cost of their oil - but would not lower the price at the pumps for the everyday average person.
Another point worth considering is the contracts between American oil corporations and the Iraqi government for drilling rights in Iraq's six largest oil fields. Reported roughly two months ago, the Iraqi government (upon the ‘advice’ of US officials) agreed to short term contracts allowing American companies to take control of 75% of Iraqi oil field operations.
Considering that these contracts (which have collapsed in the past few days) – which were meant to allow US oil companies to control for export 75% of the worlds fourth largest oil reserve – did not adversely affect gasoline prices in America, why should we believe that finding a quantity in ANWR or elsewhere would?
Again, if the prospect of controlling 75% of the fourth largest oil reserve known to mankind wasn’t enough to lower gas prices significantly, off-shore drilling and the (relatively small) fields that may or may not be found, will not drastically effect either oil or gas prices (the only exception would be if one of the largest oil reserves known was found, in which case oil prices would be significantly reduced, but again, this would not reflect in gas prices for some time).
As should be evident, the off-shore drilling issue is exactly what Jackson warned of; an exaggerated issue which has been distorted to seem crucial to American gas prices in order to rally support for one candidate or another.
For the average person - for me and you - off-shore drilling will not adversely affect our bank accounts for some time. This is not to say that because it won’t help for some time that we shouldn't consider pursuing it, but it is to say that we should not treat it as the be-all-end-all solution to our energy and gasoline problems.
To end US dependency on foreign oil will not take off-shore drilling – it will take, first and foremost, new innovations in alternative energy sources (from hydrogen fuel cells, to geothermal power (which Google has invested in), to wind power, and beyond), and yes, an increase in at-home produced oil, or perhaps Canadian oil.
The point is that the fervent support that off-shore drilling is receiving is a facade; it is yet another not-so-subtle attempt by politicians to gain support by any means available. The American people are concerned about gas prices, so politicians are promising to lower gas prices any way believable.
Simply put, because off-shore drilling appears to be a remedy to high gasoline prices it is getting (too much) talking time. But for the average American, off-shore drilling will provide no relief at the pumps. So as we listen to the each candidate talk about off-shore drilling, listen closely to what they are saying; are they being honest about the issue or are they simply trying to buy your vote?
What do you think? Will off-shore drilling provide instant relief to high gas prices? Why didn’t Iraq oil-contracts dramatically lower gas prices (they have been going down steadily for the past month or so, but are no where near the prices of just a year ago)? Is there a single solution to the gas-price problem? Are gas and oil prices going to rise astronomically with today's news that Iraq and China are revisiting Hussein-era oil contracts?
Thanks for reading.
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of
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