Wednesday, June 18, 2008

We can't drill through China

Today the Bush Administration announced it wants to lift the offshore drilling moratorium. Governor Charlie Crist's response is telling; he says "go ahead and lift it but not in my state." Which is pretty much what you can expect to hear from other coastal states where the value of tourism is high and oil rigs, with their commensurate risks and unsightliness, bite into that revenue. On the other side you have Democratic Senator Mary Landrieu of Louisiana, where oil refineries are big money, just upriver from the rigs of the Gulf of Mexico. By her calculations, new drilling was needed long ago so those deep water wells could be in production today.

The economic smoke here is thick, with groups like the Institute for Energy Research chiding Bush for not doing enough for "free markets." Yet those same international free markets for crude are the reason for high prices. China & India want more oil and they've got the money to pay for it. The potential production in the U.S.--even if it could be accessed immediately, all at once--would barely be a blip in global supply, meaning that its impact on demand would also be small. By the time that trickles down to the pump, consumers are likely to see little or no relief. Short of a requirement that companies donate new oil to the U.S., increased domestic production is unlikely to lead to lower prices for us.

This is also true because the new "drilling methods" being bandied about, like deeper water techniques and slant drilling, are only economical because the price of crude is so high. Oil rigs have been moving out of the Gulf of Mexico to places where the oil is cheaper and easier to reach. That's not a regulatory response, its an economic one. Similarly, existing oil rigs off California were going cheaply in the early 2000s, sold off by Chevron and others because the operating costs were too high. With oil prices now over 100$ a barrel it's worth it for companies to chase that last drop. It's disingenuous to paint oil drilling as a solution for gas consumers when it's plain and simple capitalism.

Oil drilling arguments play right into our economic irrationality; today's pain feels real, the potential costs down the road are abstract, diffuse. Maybe we'll never have to pay at all. Of course, this kind of thinking can get you into trouble like, say, mounting credit card debt, a foreclosure crisis based on NINA loans, or breaking into your brother's piggy bank for a dimebag. It's when we're in trouble that we're most vulnerable to the lure of the magic bullet, the quick fix, the miracle cure and yet that's what we have to resist.

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