I first heard this chant at the Republican National Convention last week. Frankly it baffles me. I’m reminded of course by the obligatory quote from Will Rodgers, “If you find yourself in a hole, stop digging.” I’m constantly frustrated that the majority of people just don’t seem to get that drilling for oil in the US might sound like a solution but it is, at best, a distraction from the real work that needs to be done.
Some Statistics: The United States apparently consumes a little less than 25% of the total oil consumed in the world. We currently produce only about 44% of our oil domestically and import the other 56%. About 30% of our oil is imported from Mexico and Canada. The rest is imported from other countries with the other largest being Saudi Arabia, Nigeria and Venezuela. About 42% of our oil consumption is for transportation.
While drilling for more oil offshore and even looking at more drilling in the Arctic will have a small long term effect on our energy independence it won’t have a significant impact for at least 15-30 years. And it will have almost no impact on the actual cost of transportation fuel because even optimistic projections increase our domestic oil production only by 2-4% of the world oil supply if we drilled both offshore and in the Alaskan National Wildlife Refuge (ANWR). This might have an effect of lowering the cost of a barrel of oil on the open market by less than $3. The price effect on gasoline would be almost nothing.
The other fact that seems to be missing from these discussions is the fact that domestically produced oil is not sold to the US cheaper than foreign produced oil. The oil produced in the US is sold on the open market for the same price as oil produced elsewhere. Raising our production doesn’t automatically lower our prices, and should the world wide consumption continue to grow as it probably will, the price won’t go down at all. The result could keep the price from rising higher than it would otherwise but that isn’t a recipe for fixing the problem we have, it only keeps the problem exactly where it is.
Large corporations making massive profits (like oil giants in the US) don’t take huge risks to develop alternatives to their best selling products. The price of oil jumping from $65 a barrel to more than $140 didn’t make anyone at Chevron or Exxon unhappy. Their profits exploded because the relative cost of producing that barrel of oil didn’t go up (about $25 per barrel), only the market price did. Their incentive is to keep oil prices high enough to make giant profits but not high enough to wake us up and make us change our behavior. Unfortunately for them the recent prices did just that and lower consumption in the US is one of the factors, along with the relative strengthening of the US dollar, which is resulting in a nearly $40/barrel drop in the cost of oil. Simply allowing Exxon or Chevron to drill for more oil in the US will not create an incentive for them to do so. Their stockholders want a return on investment and that depends on the price of oil remaining relatively the same place it is now.
It is true that long term the effect of more domestic oil production is a lower trade deficit and less dependence on foreign nations to supply our vital oil requirements. However the economic impact is far less sure.
It seems obvious to me that the answer for short term and long term is to reduce our consumption. We can do that by chipping away at oil usage with Wind, Solar, Natural Gas, Nuclear and Bio Fuels. Long term we must stop using gasoline to power transportation in this country. The US is lagging behind other countries in developing alternative energy transportation. The Big 3 automakers in Detroit seriously misjudged the landscape (again) and are woefully behind the curve on developing hybrid and other technologies that will reduce our dependence on oil for transportation.
Unfortunately that leaves us with the choice of either using public funds to help the car makers develop those technologies or allowing our domestic automobile market to fall further behind foreign producers who somehow managed to figure out that huge SUVs weren’t the most prudent long term market for automobiles.
I fully support additional drilling, however it should not be the main thrust of our energy policy. At heart its not a policy at all. Its simply continuing to do more of what we’ve already been doing. It seems apparent to me that we cannot drill enough domestically to match our demand for oil without reducing our consumption. We must immediately put the majority of our efforts in reducing our consumption of oil in order to be energy independent. Drill, Baby Drill is not the right rallying cry for America. The right phrase is more like Innovate, Baby, Innovate!