But this energy controversy deserves mention here. You've all heard the claims that the current high price of gasoline in America is due to the moratorium on off-shore drilling, and that if Congress would only lift the ban, the prices would soon drop. Even Obama, who initially supported maintaining the moratorium, has finally relented and agreed to allow some limited increase in off-shore drilling as part of a larger program of energy independence.
Well, the facts show that the price of gasoline has nothing to do with off-shore drilling, that increased off-shore drilling would do nothing for lowering the prices, and that the Republicans are using the issue to go on the offensive and blame the high costs on "the liberals," while at the same time diverting attention from their own fault in this crisis.
So here we go: the high, $4 per gallon cost of gasoline is due to four factors, namely,
- Increased demand for petroleum from the surging Chinese and Indian economies (good old supply-and-demand economics),
- The lower purchasing power of the U.S. dollar,
- Speculation on the commodities markets, and
- Instability in the Middle East.
If you listen to the press and the pols, you'd think that no off-shore drilling was allowed (which would probably confuse you when you hear about off-shore rigs threatened by hurricanes). The U.S. Minerals Management Service, part of the Department of the Interior, estimates that the Outer Continental Shelf contains about 86 billion barrels of undiscovered but recoverable oil. That sounds like a lot, and it is, and better yet about 70% of it is in areas where no drilling restrictions exist at all and the oil companies can come and get it. (source: Federal Register, vol. 73, no. 149, p. 45066)
But they're not. Concerns about increased supply lowering the price are preventing the oil companies from drilling at these open areas while they're earning record profits (there's that pesky supply-and-demand thing again). Only about 30% of that 86 billion barrels of undiscovered oil, about 26 billion barrels, is estimated to be in the restricted area. If the oil companies aren't clamoring to get at the 60 billion barrels already available to them, do you really think that they're going to start drilling for another 26 billion barrels in environmentally sensitive areas where drilling will be more difficult and more expensive? Of course not.
So why is everyone making a big fuss? Why are a group of wingnut Republican legislators holding a pajama party in Washington demanding that Congress come back to session and lift the moratorium? Why has John McCain joined the call for Congress to come back and to come back now? Why are the oil companies demanding that the restrictions be lifted?
That's an easy one. By having more land under lease, even if only for "undiscovered and technically recoverable" oil, the corporate balance sheets are improved by putting more assets on the books. Company stock value rises and so, accordingly, does the CEOs' compensation. But they know that have to act now before the Administration changes and while every one's outraged by the gas prices to have any chance at getting these additional leases on their books.
The oil companies are major donors to many Republican congressmen (including "Exxon" McCain) and the congressmen want to keep their campaign donors happy. And finally, since many Americans unfortunately believe that the high oil prices are due to the drilling moratorium, the issue plays to popular opinion while diverting attention to the real economic causes, much of which can be traced back to the failed economic policies of George W. Bush.
Sorry if all of that sounded pedantic or partisan. That's the reason I try to avoid posting this kind of stuff in this blog.