Offshore Oil Drilling

McCain plays with fire on offshore drilling

Now that gas is over $4, we're seeing increased pressure to expand drilling for oil here in the United States.  Not only in the Arctic National Wildlife Refuge in Alaska, but also in other environmentally sensitive areas in the Rocky Mountains and off the east and west coasts, especially in Florida and California.

The hypothesis is that if only those pesky environmentalists would let us, we could drill for more oil here in the US, and then the price of gas would come down, and we could free ourselves from dependence on foreign oil from the middle east.

The only problem is that this is complete, total B.S.  Even if we developed all our remaining oil reserves here in the US, it would only amount to a drop in the bucket in global supply.  And this new supply would be overwhelmed by continued increasing global demand.

The price of oil is determined by world wide supply and demand, not just what happens here in the US.  The reason oil and gas prices are so high right now is mostly due to increased demand over the past several years from rapidly developing countries such as China and India.  Global supply hasn't kept up with global demand, mostly because when oil was cheap only a few years ago, it wasn't economic for oil companies to invest in new supply.

Now Saudi Arabia and other countries are making investments that will increase supply by the end of this year and next, and into the future.  The amount of oil these countries will bring online over the next few years will dwarf any additional supply the US could bring on by new drilling in environmentally sensitive areas.  But even so, at best it will barely keep up with additional new global demand.

Short term, oil and gas prices will probably decline a bit later this year due to seasonality, and especially if the Federal Reserves raises interest rates this summer to strengthen the dollar and control inflation.

But over the long term, prices will probably keep increasing, even with all this new drilling.  Any additional drilling we do here in the US won't make a difference to the global price of oil, or the price we pay for gas, because we are only talking about drops in the bucket when compared to the global supply and demand for oil.

The bottom line is that we have reached the point where it is impossible to lower the price of oil or lower the price of gas by increasing supply, because any new supply will just be overwhelmed by increasing demand.   Every day, more people in China and India and other countries are buying cars and becoming wealthier, and using more energy.  This new demand is just overwhelming world supply, and whether or not we drill for more oil here in the US is trivial in comparison.

The only way out of this mess is to improve energy efficiency and conservation, and develop renewable alternatives.  We have to reduce demand.  Both here in the US and globally.  We can't solve the problem by increasing supply.   The problem is not that we need to wean ourselves off foreign oil.  We have to wean ourselves off oil, period. 

So we have a choice.  We can open all our beautiful coastlines and mountains and wildlife areas to oil drilling in an attempt to increase supply, ruining our environment in the process, and then do what we need to do to improve energy efficiency and conservation and develop renewables in order to wean ourselves off oil.

Or, we can skip the part about ruining our environment, and just proceed straight to doing what we need to do to improve energy efficiency, conservation, and renewables.

This means improving the energy efficiency of our cars, trucks, homes, factories, appliances, everything.  Develop renewable biofuels such as cellulosic ethanol  and sugar cane ethanol.

The best incentive to facilitate our transition from oil and gas to other alternatives would be to implement a carbon tax, or at least a cap and trade system for carbon emissions.  But we also need improved efficiency standards for cars and trucks.

The choice we face is very similar to the choice regarding the last remaining old growth forests.  We can either cut them all down, and then switch over to other alternatives to old growth forest wood products, or we can save our last old growth forests and switch over to alternatives right now.

So whether we drill for oil off our coastlines or not, we are still going to have to take serious steps to reduce demand for oil here in the US and globally.  We can either start doing that aggressively now, or wait until after we have ruined our planet by drilling for oil everywhere we can. 

A lot of people will say, well we have to do both.  We have to drill for oil and also do all that efficiency stuff at the same time. The problem is that once we spoil an environmentally sensitive place, we can't get it back.  We have already developed a lot.  And adding more supply just isn't going to make any difference.  Only slowing and reducing demand will make a noticeable difference.  We need to start now rather than wait.