Summary:
Jerry Taylor (Cato Institute) suggesting four things the US Congress could do in order to bring down the price of oil: 1) Opening up key areas for oil and gas exploration and development; 2) Opening up the West to oil-shale development; 3) Emptying out the Strategic Petroleum Reserve; and 4) Suspending (or ending) federal rules that force refiners to use only low-sulfur oil to make gasoline and diesel. (Published: 02/06/08)
Notes:
- skyrocketing energy prices:
- gasoline price at pump, now: $3.94/gallon; 5 years ago: $1.43/gallon
- home electricity, now: 10.31c/kWh; 5 years ago: 5.43c/kWh
- "we'll keep on finding ways to save as prices stay high"
- driving less, buying fuel-efficient cars, ...
- demand side: should government mandate more conservatism?
- No
- too much" conservation is as economically harmful as "too little"
- only thing government should do is ensuring that prices are "right"
- ie. reflecting total costs
- mainly an issue for electricity, where retail power prices typically bear little relation to wholesale prices
- governments need to encourage real-time pricing of electricity - so that consumers will get the signal to, for example, run the clothes dryer at night, when power is cheaper.
- supply side: four things government could do:
- Open up key areas for oil and gas exploration and development.
- Arctic National Wildlife Refuge and 85 percent the outer continental shelf are currently stated "off-limits" by Washington
- absurd and hypocrytical for our politicians to fulminate about the need for more oil production from OPEC when they won't lift a finger to increase oil production here at home
- will take years to get these fields on-line: all the more reason to start now
- by the time those new fields would be producing, global oil production will probably be about 100 million barrels per day
- optimistically, the fields would yield about 3 million more barrels a day - for a long-run cut in the price of crude of about 3 percent.
- however, will do more for natural-gas prices than for oil
- gas prices are highly sensitive to regional (rather than global) supply and demand issues, so we'd likely see far greater reductions in electricity prices
- Open up the West to oil-shale development.
- US has three times more petroleum locked up in shale rock than Saudi Arabia has in all its proved reserves
- costly to extract
- oil prices need to be at at about $95/barrel to allow a reasonable profit from extracting oil from Rocky Mountain shale
- probably profitable now
- problem: mostly on federal land; Washington has so far said, "Hands off!"
- Environmentalists object to both these first two ideas
- insist that the wilderness that would be despoiled by energy extraction is worth more than the energy itself
- nonsense - faith masquerading as fact
- How much something is worth is determined by how much people are willing to pay for it
- Empty out the Strategic Petroleum Reserve.
- holds 700 million barrels of oil
- draining it could add add up to 4.3 billion barrels of crude a day to the market for about five months
- if the theories of a speculator-created "oil bubble" are true, it would pop the bubble and send prices tumbling
- national-security risk is myth
- as long as we're willing to pay market prices for crude oil, we can have all the oil we want - embargo or no embargo.
- Suspend (or end) federal rules that force refiners to use only low-sulfur oil to make gasoline and diesel.
- best short-term fix for high gas prices
- refiners once relatively free to use heavy crude to make transportation fuel
- today: environmental regulations make it difficult and costly
- there's a (relative) glut of heavy crude right now
- light-crude oil markets are incredibly tight, with no real excess production capacity.
- heavy-crude markets are robust, with plenty of crude going unsold for lack of buyers
- suspending low-sulfur rules would bring those heavy crudes into the transportation fuels
