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Will More Oil Drilling Lower Gas Prices ?

2012 Obama 2012/03/17 23:53:49
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Now some Conservatives and their candidates would like us to think the reason we have higher gas prices is because we don't do enough drilling even though drilling in the US has quadrupled in the last 4 years.

So here is a little lesson on supply and demand:

gas prices drilling drilling quadrupled 4 years lesson supply demand

If increasing oil drilling lowered gas prices, we’d know it already. When President Obama took office in 2009, there were fewer than 400 drilling rigs operating in the United States, a number that dwindled to fewer than 200 by April 2009. Since then, even as his administration conducted a wholesale review of drilling regulations in the aftermath of the worst offshore oil spill in the nation’s history—the BP Deepwater Horizon oil catastrophe in the Gulf of Mexico—the number of oil rigs operating in the United States has quadrupled. But that massive influx of supply has done nothing to reduce the price we pay to top up our tanks.

As fundamental as the law of supply and demand might be to macroeconomic theory, the on-the-ground reality is that more drilling will not lower gas prices. Here’s why:

It hasn’t worked yet. There are currently more oil rigs operating on U.S. lands and waters than in the rest of the world combined, production is at an eight-year high, and the most recent “Short-Term Energy Outlook” from the Energy Information Administration projects production to continue growing at least through 2013 based on current activity. By the end of President Obama’s recently issued five-year drilling plan, fully 75 percent of our undiscovered, technically recoverable offshore reserves will be open to drilling. All that additional activity hasn’t stemmed the recent gas price spike.
If oil companies wanted to increase production, they could. In March 2011 the Department of the Interior released a report revealing two-thirds of oil-and-gas companies’ offshore leases and more than half of their onshore leases are not being produced.

Pumping oil takes time. Opening new offshore areas will take seven years to produce any new oil, and the Arctic National Wildlife Refuge will take 10 years to produce a single drop of oil. Even if more production would lower prices, it wouldn’t happen tomorrow. And the Energy Information Administration finds that even if we wave the green flag for our entire exclusive economic zone, it will do nothing more than reduce the cost of gasoline by two cents, and not until 2030.

You can’t put crude oil in your tank. Ultimately, gasoline supply is constrained not by oil production but by refining capacity. More than half of the nation’s refineries are controlled by five companies, and last spring, as gas prices surged close to $4 per gallon, the Los Angeles Times reported domestic refineries were “operating at about 81 percent of their production capacity,” and that exports of refined products such as gasoline were increasing because foreign buyers were “willing to pay a premium.” Take one look at gas prices in Europe and you’ll understand why.

Supply is global too. As U.S. production increased, other oil-producing countries actually reduced their output to ensure the price didn’t fluctuate. Remember, there are two ways to make money—increase volume, or increase price. Countries such as Saudi Arabia, whose reserves are reportedly on the decline, have every motive to ration their golden geese’s eggs.

There’s no doubt high gas prices are bad for economic recovery and growth. So if your freshman year economics professor was right about the whole supply-and-demand thing, when the increased supply of one particular thing doesn’t lower prices, then we should look to diversify our source of that thing while also reducing demand for it. This is a large part of President Obama’s answer to high gas prices.

Under the Obama administration the United States has put in place new fuel economy standards that will require cars sold in this country to average 55 miles per gallon by 2025. That helps answer the demand side of the equation. The administration is also incentivizing the development of renewable sources of energy that will reduce our dependence on fossil fuels. Diversifying sources of energy will result in greater supply and drive energy prices down. Similarly, we are investing in alternative, domestically produced liquid fuels that may prove capable of supplementing or even replacing traditional gasoline to reduce prices at the pump specifically.

http://www.americanprogress.org/issues/2012/02/drilling_gas_p...
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Top Opinion

  • Lulu's Mom 2012/03/18 00:55:41
    No, more drilling is not the answer...
    Lulu's Mom
    +4
    There is no lack of oil. Greed is the only reason that it is so high now.

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  • Not Einstein 2012/03/19 00:31:30
  • 2012 Obama Not Ein... 2012/03/19 00:33:23
    2012 Obama
    +1
    Good find!
  • Not Ein... 2012 Obama 2012/03/19 00:37:35
    Not Einstein
    +1
    Thanks, the vote it refers to, and the article, are actually from last year, May 11, 2011.
  • ehrhornp 2012/03/18 23:49:46
    No, more drilling is not the answer...
    ehrhornp
    +2
    Prices are going to go up thanks to an expanding economy and the appetites of both India and China. Best way to limit gas prices is to switch to other energy sources.
  • Pat 2012/03/18 17:47:39
    No, more drilling is not the answer...
    Pat
    +1
    No, in fact, my understanding is that if we do drill in the U.S. the oil will actually go elsewhere. Anyone know anything about this? The answer is finding a new, reliable, cost effective source of power. We must or we will kill this planet within one or two generations.
  • ehrhornp Pat 2012/03/18 23:52:18
    ehrhornp
    +1
    I heard that the oil from Canada's tar sands is suppose to go somewhere else like Japan. Why they don't just build the pipeline across Canada to their west coast is beyond me.
  • Tedster 2012/03/18 16:11:19 (edited)
    Undecided
    Tedster
    +1
    Hey, if you're going to use facts and logic and cite statistics then the next sound you hear will the heads of the Obama critics exploding. Seriously, great post!
  • 2012 Obama Tedster 2012/03/18 23:52:13
    2012 Obama
    Lets hope!
  • Tedster 2012 Obama 2012/03/19 08:34:35
    Tedster
    The next blog someone should do should be about Climate Change. Whenever I engage a con about it I generally ask them how to explain that 97% of climate scientists believe its happening and ask them "what if you're wrong?" Or to explain how 10 of the last 12 years have been the warmest ever and the last couple of decades have been the warmest decades.
  • RogerCoppock 2012/03/18 02:53:22
    No, more drilling is not the answer...
    RogerCoppock
    +3
    No! More drilling will not lower gasoline prices. However, enforcing securities laws already on the books and jailing some Wall Street manipulators will.
  • Tea in the Harbor 2012/03/18 02:07:19
    No, more drilling is not the answer...
    Tea in the Harbor
    +2
    Of course not. Gas prices are rising because speculators want to give the GOP an issue to run on. They know if Obama wins it's very likely that their gravy train is going to get some attention, and if the GOP does they'll be allowed to write their own new regulations just like they were by Cheney under Bush.

    The oil companies would love to go back to snorting coke off of hookers bodies while "negotiating" oil leases like they can under the GOP.
  • 2012 Obama Tea in ... 2012/03/18 02:18:25
    2012 Obama
    +2
    Sheldon Adelson, Koch oil and Bain are probably doing a little speculating is my guess!
  • Tea in ... 2012 Obama 2012/03/18 02:24:56
    Tea in the Harbor
    +2
    Probably as deep as they can get, why not make a few extra billion while helping their friends?
  • 2012 Obama Tea in ... 2012/03/18 02:31:16
    2012 Obama
    +2
    It makes sense that they would do that in an election year and the Dems probably figured it out as well because they just started an investigation into the speculators so we will see.
  • rikonjohn 2012/03/18 01:13:46
    Undecided
    rikonjohn
    +2
    We've got more drilling under Obama than we had in the latter years of Bush. International demand for oil is driving up the price.
  • Keeping It Real 2012/03/18 01:01:14 (edited)
    No, more drilling is not the answer...
    Keeping It Real
    +1
    Let POTUS tell you about it!
  • Lulu's Mom 2012/03/18 00:55:41
    No, more drilling is not the answer...
    Lulu's Mom
    +4
    There is no lack of oil. Greed is the only reason that it is so high now.
  • Grabitz 2012/03/18 00:34:18
    No, more drilling is not the answer...
    Grabitz
    +3
    It all goes on the open market with mainly the commies buying it up and the money only goes to the oil corporations not you as we pay them subsidies same as we give American corporations tax cuts to outsource . Tea party that advocates all this is your worse enemy in this country .
  • luvguins 2012/03/18 00:34:02
    No, more drilling is not the answer...
    luvguins
    +4
    For all the reasons given, and because all oil goes onto the world market. Speculators know that China and India will pay more for it, and it takes more from us.
  • Darnel 2012/03/18 00:27:33
    No, more drilling is not the answer...
    Darnel
    +3
    Start shooting speculators and investors who bump the price of oil up everytime someone in the middle East clears their throat - and the price will go down.
  • bob h. 2012/03/18 00:22:17
    No, more drilling is not the answer...
    bob h.
    +4
    Of course not; they sell to the highest bidder.
  • FAWKES' NOOSE ~ ΔTX 2012/03/18 00:04:05
    No, more drilling is not the answer...
    FAWKES' NOOSE ~ ΔTX
    +3
    Canada produces more oil than it consumes. They still have to pay the same price per barrel as everyone else.
  • Idiot repubs 2012/03/17 23:54:59
    No, more drilling is not the answer...
    Idiot repubs
    +2
    We currently export oil, more oil will just leave less for us down the road.
  • 2012 Obama Idiot r... 2012/03/18 00:01:28
    2012 Obama
    +3
    Yes and that is exactly where any new oil we drill for would go and the XL oil is all slated for sale to China. It wouldn't lower gas prices at all and the tax payer foots the bill for the refineries through tax breaks to big oil.
  • Tedster 2012 Obama 2012/03/18 16:18:39
    Tedster
    And 57 homeowners would've lost their homes to imminent domain.

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