DRILLING FOR OIL: WHAT BENEFIT?
DEAN BAKER, PROSPECT Let's see, John McCain wants to drill offshore to increase oil supply and lower gas prices. Barack Obama says he wants to protect the environment and maintain the ban on such drilling. What is a voter to do?
Well, one piece of information that might be relevant is how much we expect the potential oil production to lower prices. After all, we probably wouldn't destroy a nice city park for a 0.1 cent reduction in the price of a gallon of gas, while some folks would destroy Yellowstone, the Everglades and everything in between to cut gas prices by $1.00 a gallon, so what are we talking about here?. . .
According to the NYT, the Energy Information Agency estimates that the total amount of oil in the offshore zone in question is about 16 billion barrels. If we assume that it would take about ten years from the day of authorization to get to peak production and that most of the oil is pumped out over 30 years, this would translate into a bit over 1 million barrels of oil a day.
That would be equal to about 1 percent of world production in a decade. If we assume a long-run demand elasticity of 0.3, this would imply a drop in world prices of approximately 3 percent. In today's prices, we would be looking at a drop in the price of a barrel of oil from around $135 to $131. If this were passed on one to one in gas prices (this is long-run story), we might expect to see a drop in the price of a gallon of gas from around $4.00 to around $3.92 a gallon. These are of course very crude numbers (someone has probably done a serious analysis), but they should get us somewhere in the ballpark.
2 Comments:
What red-blooded American patriot wouldn't want American beaches to look like the Prince William Sound after the Exxon Valdez, if it means our starving oil company executives can reap a few billion more in profit?
" The facts on this one are clear: There is just not that much oil in these restricted offshore areas. Furthermore, we will not see any oil for close to a decade. This means drilling for oil in these restricted areas will do absolutely nothing for people struggling to pay their bills now and, in fact, it will provide zero relief throughout the next two presidential terms of office.
Furthermore, even when oil from these fields starts hitting the markets and reaches peak production levels, the flow will still be too weak to have a visible impact. The Energy Information Agency (EIA) projects that if we go the drilling route, we could hit peak production of 200,000 barrels a day by 2030.
Perhaps, John McCain and his team will sing the praises of the 200,000 barrels of oil per day that his policies will unleash in 22 years, but the reality is that this amount of oil will have too little impact on world oil prices for anyone to notice. The potential production from these environmentally sensitive areas is equal to approximately 0.2 percent of projected world production at that time. As the EIA comments, "any impact on average wellhead price is expected to be insignificant."
The media have portrayed the disagreement between Senators Obama and McCain as to whether to allow drilling in the currently protected offshore areas as a question of values. Senator Obama values the environment, while Senator McCain wants to bring down energy prices and promote economic growth.
However, the facts do not support this distinction. Obama advocates protecting the environment, but the evidence suggests that McCain's plan will have no measurable impact on the price of oil or on economic growth. In other words, Senator McCain is willing to jeopardize the environment in these protected areas for nothing."
http://www.truthout.org/article/john-mccain-wants-drill-your-toilet
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