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Why Lifting The Offshore Oil Ban Won't Help Gas Prices

By July 17, 2008

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A customer prepares to pump fuel on 17 July 2008 in Mill Valley, California. Photo: Getty Images
In an act that is as symbolic as much of the rigmarole that passes for security in airport check-in lines, President Bush has rescinded a 1990 executive order (signed by the prior Bush) that bans some offshore oil drilling. A 1981 law (signed by Reagan) also bans some offshore oil drilling and trumps the executive order.

Most of the arguments against expanded offshore drilling focus on the time lag: even if Congress were to overturn the law tomorrow, it would be years -- perhaps decades -- before any oil is being pumped, assuming that the estimates of where and how much oil might be found are accurate. And Bush's own Department of Energy says it would be 2030 before "access to the Pacific, Atlantic, and eastern Gulf regions would ... have a significant impact on domestic crude oil and natural gas production or prices."

But there's another, real argument as to why this drilling will not help prices. And that's because there is no guarantee that the firms would sell the oil domestically. As Forbes pointed out earlier this month, oil exports are up 33% this year." (tip)

In the first four months of this year, our oil exports were equivalent to 9 percent of total refining capacity. Because facilities were running at only 85 percent of capacity during that period, the actual percentage of refined fuel is greater. Moreover, April's gasoline exports were the most for any April since 1945, "when America was sending fuel overseas to ease supply shortages in other countries during World War II.

A record 1.6 million barrels a day in U.S. refined petroleum products were exported during the first four months of this year, up 33 percent from 1.2 million barrels a day over the same period in 2007. Shipments this February topped 1.8 million barrels a day for the first time during any month, according to final numbers from the Energy Department...

U.S. gasoline exports to Canada skyrocketed to 41,000 barrels in January-April this year from 9,000 barrels in 2007.

So what is it, exactly, that we are exporting? According to Forbes, here are the data for April 2008:

  • 387,000 barrels per day of diesel fuel, an almost seven-fold increase compared to April 2007;
  • 202,000 barrels a day of gasoline; and
  • 377,000 barrels per day of residual fuel exports, "up 10 percent from 344,000 barrels per day a year earlier."

If Congress were to be persuaded to lift the 27-year-old ban on offshore oil drilling on the coasts, they might couple it with something like the 1973 Trans-Alaska Pipeline Act, which required Alaska's petroleum to be shipped to US refineries rather than be sold to Japan. This is no guarantee that exports would be constrained, however. An export tax would probably be more effective.

In 1995 the Republican Congress lifted the ban on Alaskan exports, according to a 2005 CRS report (P.L. 104-58, signed by President Clinton in November 1995). At that time, according to the CRS report, net oil imports were 8.0 mbd; in 2005, net imports had increased to more than 12 mbd.

However, Alaska oil production peaked in 1988 at 2.0 mbd in 1988. By 1995, output was down to 1.5 mbd. In 2005, output was down to about 900,000 bd. In 2000, BP Amoco was the only firm still exporting crude from Alaska.

Finally, it's not as though there is demand for offshore oil drilling that is unfulfilled. From the Washington Post:

House Majority Leader Steny H. Hoyer (D-Md.) issued a release saying that there are already 68 million acres of public lands and waters open for drilling. The area is equal, he said, to Maine, New Hampshire, Vermont, Massachusetts, Connecticut, Rhode Island, New York, New Jersey, Delaware and about two-thirds of Maryland, combined.

I've said it before and I'll say it again. We cannot drill our way out of this problem.

See Oil Politics, At Home and Abroad (In Iraq) and Federal Budget: Spending and The National Debt.

On The Web

  • Executive Orders Signed By President Bush -- most current order available online today, 30 June 2008. Apparently, a memorandum lifting an existing executive order does not merit a link.
  • This CNN map shows where offshore oil drilling is allowed today -- most of the Gulf of Mexico and all around Alaska. It also shows where waters would be opened for drilling should the Congressional ban be lifted: that's a huge area along both coastlines.
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Comments

July 22, 2008 at 11:48 am
(1) KrazyKyngeKorny (Krazy not stupid) says:

The fact that the new drilling will take tears to come to production simply says we are years late getting started. We need to start ten years ago- during the Clinton administration.

However, the fact that we are starting will send a message to crude oil gougers, that they are at the end of their rope. The time to start drilling is NOW!

July 24, 2008 at 7:55 am
(2) DcunBluz says:

As a matter of fact we CAN drill our way out of this problem. All of the arguments against drilling, including these, demonstrate an astonishing lack of understanding about free markets. We need to drill here and drill now. We also need to build nuclear plants as quickly as we can assemble them. It will take all of the energy we can produce by all means necessary to maintain our standard of living (i.e. CONTINUE to EAT WELL).

July 28, 2008 at 5:37 pm
(3) Lucky says:

There is no guarantee that the oil being drilled is going to remain in US markets. We went into Iraq to stop the flow of oil because sanctions were about to be lifted on Saddam. Thank the Bush Administration for screwing the American people once again.

July 31, 2008 at 5:18 pm
(4) Brian says:

DcunBluz,

“Astonishing lack of understanding about free markets”? As in, your lack of understanding that drilling for oil in the US doesn’t mean it won’t be exported all over the world, on the international free market?

August 10, 2008 at 3:10 pm
(5) steve says:

DRill,Drill,Drill Stop lying to the public and stop the endless amount of our monet going to our enemies

August 16, 2008 at 12:26 pm
(6) fspandorf says:

The fog about gas prices and off-shore drilling is politics telling us what is necessary for the rulling parties friends to do well.
Remember that government is really about the distrution and redistribution of global wealth. It is not and never has been about the well being of the people it governs.
This is just another case of magical math:
FACT 1] the rate of rise of oil use outside the US makes trivial the oil use inside the US.
FACT 2] Oil exports are rising as a percentage of the oil we already produce.
FACT 3] The economy being supported is primarily China who is our major producer of goods.
This means that we are exporting (for higher profit thus driving up the US price of gas)our oil for the benifit of the oil companies. It aslo means we are producing cheaper goods in China than the US with the profits going to China and to the large corporations in the US. We are making the rich richer at the expense of the middle class, the wage earner.
We as a people have to understand our new role in the world. We are no longer the production king or the power nation we used to be. We are selling our country bit by bit. We borrow money from China. We hide stealing money from funds like the social security to buy down debt. We print more money (M3) devauing our dollar. Who does this benifit and who are the victums. This country is no longer about the middle class and opportunity.
We need to get smart and take our country back from big business and polititicians.
OIL DRILLING for the benifit of FAT CATS-NO!

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