No country so restricts offshore drilling as ours, but the Bureau of Ocean Energy Management (BOEM) is considering opening up new offshore areas for drilling – a welcome development for Americans interested in energy security. The Bureau has just announced it’s extending its comment period on this matter until August 15. This means there is still an opportunity to register your support for a commonsense energy policy that moves us closer to energy self-sufficiency and lowers gasoline prices for consumers.
The U.S. Outer Continental Shelf is the location of more than 6,200 active oil and gas leases covering almost 34 million acres and producing approximately 18 percent of domestic oil production and 5 percent of domestic natural gas production, according to BOEM. These areas also, however, hold an estimated 89.93 billion barrels of oil and 404.52 trillion cubic feet of natural gas of undiscovered, technically recoverable resources.
Unfortunately, only the western and central portions of the Gulf of Mexico and some limited areas off the Alaskan coast are available for leasing in the federal government’s current leasing program. Some 87% of offshore areas have been closed off from drilling by our government while, incredibly, other countries are allowed to develop the resources just off our shores (including Canada, Cuba and the Bahamas). Imagine what opening other areas off the Atlantic coast or the eastern Gulf of Mexico would do for our economy and especially consumers.
The Energy Information Administration reports the price of gasoline (all grades) on August 4 was $3.51 nationally and $3.89 on the West Coast, where no drilling is permitted except under old leases. Compare that to December, 2008, when it was $1.67 and $1.90, respectively.
It is estimated every one-cent increase in the gasoline price causes a roughly a $1 billion increase in household energy costs. It’s more than fair to considerate this a tax on consumers, given that the US supply of gasoline has been artificially restricted by government action putting all these offshore areas off-limits for drilling. The cost of gasoline is now $1.93 higher than it was in December, 2008. Our federal government, therefore, has arguably imposed the equivalent of a $193 billion tax on US households.
The naysayers will counter that there are many reasons for gasoline price increases, which is true, but all of them come back to the basic law of supply and demand. When the government limits the supply (oil production on offshore Federal lands has declined 13% since the gasoline price was $1.67) it raises prices – plain and simple.
We also know the price would be much higher today than the $3.60 per gallon we’re currently paying, but for the development of tight oil resources such as the Bakken Shale in North Dakota. The Wall Street Journal, for example, recently noted that “If this were 2005 we would have seen a 20-30 cent jump in gas prices. But, it’s lower today because domestic energy production is so much higher.” Opening up offshore areas to drilling would magnify this positive effect and save consumers billions.
The Heritage Foundation captured the both the problem and the opportunity nicely in one of their recent reports:
Production of crude oil in the United States is up to 8.36 million barrels per day—the highest since January 1988. The increased supply of oil has widespread economic benefits, but a new Congressional Research Service report shows that when the numbers are broken down by ownership it becomes clear that the situation could be even better. Although oil production overall has almost doubled in less than six years, production continues to fall on federally owned land areas.
They also note, “Daily federal onshore oil production is equal to about one-third of what is produced every day at the Bakken formation alone.” That’s not too surprising if you recall that87% of federal waters are not open to energy development. If the Bakken can help mitigate wild price swings caused by international crises in oil-producing countries,, then development of offshore areas would almost certainly stabilize gasoline prices.
Offshore oil and natural gas development takes time, of course. Even though the energy supply may not hit the market for years, the federal government can send positive signals to the market by supporting expanded energy access. The fact is we need to act now to have an impact on future gasoline prices and, if we act now, the market will price that future action into the price today.
So, do something about it by using this convenient link to file your comments.