Drilling could make a big difference

Peter Morici:

When Barack Obama assumed the presidency, gas prices were less than $2 a gallon. He proceeded to shut down deep-water drilling in the Gulf, tightened other federal restrictions on petroleum development, and vetoed the Keystone Pipeline. Now, even with Americans driving not a lot more than three years ago and global growth slowing, gas is nearing $4 a gallon. 

The liberal theocracy in academia, the media and the Democratic Party leadership relentlessly expounds that drilling for oil in the United States won’t much affect U.S. gas prices, because petroleum prices are set in global markets. And, more domestic oil production or U.S. access to Canadian petroleum won’t much change global supplies, or the pace of economic recovery and unemployment. 

Balderdash! 

Oil prices paid by U.S. refineries in the Gulf do move with global prices but not in lockstep. Increasing North American production would lower U.S. refinery acquisition costs, because U.S. refineries, like others around the world, are built to handle the special characteristics of oil produced by their primary sources supply. And gasoline produced by individual refineries is not wholly fungible either—differing fuel characteristics are required across the United States and Europe to meet environmental standards. 

Although tensions with Iran are growing and pushing up oil prices everywhere, prices have diverged between, for example, U.S. and European markets. For years, prices for West Texas Intermediate and North Sea Brent moved closely, but now WTI is selling for $17 less than its North Sea counterpart. This indicates the U.S. market is becoming somewhat separate and less wholly determined by global conditions; hence, more domestic production and increased access to Canadian oil would lower U.S. oil and prices—more drilling in the Gulf and elsewhere in North America, and the Keystone pipeline would significantly affect gas prices and employment. 

More importantly, whether Americans pay $115 a barrel for oil from Saudi Arabia and Nigeria or obtained from the Gulf of Mexico and other domestic deposits makes a huge difference. The annual trade deficit on petroleum is about $300 billion. Raising U.S. oil production to its sustainable potential of 10 million barrels a day would cut import costs in half, directly create 1.5 million jobs, and applying Administration economic models for stimulus spending, create another 1 million jobs indirectly. 

Overall, attaining U.S. oil production potential would boost GDP about $250 billion. Not bad, because it could be accomplished by increasing federal revenues from royalties and reducing the federal deficit, instead of adding to it through additional stimulus spending and subsidies to questionable solar and wind projects.

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There is more.

This analysis makes much more sense than that used by President Obama and the anti energy left.  When you add the fact that royalty income from oil and gas is second only to income taxes for the US government, we are wasting assets that could help reduce the deficit by not drilling in federal controlled properties.  We are also not creating badly needed jobs.