The American Spectator

Political Hay

Shut Up and Produce Some Oil

By Peter Ferrara on 7.23.08 @ 12:08AM

Liberals are flailing about looking for some political cover on energy and gas prices. For decades now, they have supported the policies of extremists who have systematically sought to shut down every major energy source for our economy. We can't drill for oil offshore, we can't drill in the frozen tundra of north Alaska, we can't even develop oil shale on the mainland. Liberals are even opposing the development of new oil discoveries in the Plains states. Meanwhile, China is now producing oil from wells in Cuban waters off the coast of Florida, selling and reaping enormous profits from oil that America should be producing.

Nuclear power? Can't have that. Jane Fonda showed us in a movie in the 1970s how dangerous that is. France and Japan have produced most of their electricity for decades through the nuclear power technology that America developed, and they are now competing to sell nuclear plant development to China and India.

One of the last U.S. nuclear projects was the Shoreham plant begun by Long Island Lighting Company in 1973. After years of ridiculous regulatory delays, the plant was shut down in 1989 by protests by liberal flower children, before producing any electricity. Long Island Lighting went bankrupt as a result. New Hampshire's Seabrook plant was held up for 14 years by similar regulatory delays, before finally opening in 1990 (and operating without harm ever since).

This is why there has been no new nuclear plant construction in the U.S. since then. Those regulatory delays are due to laws and policies adopted by liberals, who are willing to let extremists use them to shut down any such construction.

LIBERALS ARE NOW even opposing the development and even the maintenance of coal fired electric plants. The energy policy statement on Barack Obama's website says, "Obama believes that the imperative to confront climate change requires that we prevent a new wave of traditional coal facilities in the U.S." In Georgia, a state judge denied a permit for a new coal electricity plant on the grounds of global warming (which is a figment of the liberal imagination to justify a big government power grab). Meanwhile, China opens a new coal plant every week on its way to eventually pass the U.S. as the number one economy in the world.

The last new oil and gas refinery was built in the U.S. in 1976. A good example of the reason why is going on right now in Indiana. BP is constructing a $3.8 billion expansion of its already existing Whiting refinery in that state. But the National Resources Defense Council (NRDC) has now brought suit against BP seeking an injunction against the expansion, and fines of $32,500 for each day construction has been under way. The NRDC is urging the court to adopt a new interpretation of state law that would require BP to get a new state permit first because with the expansion the refinery would supposedly discharge more "pollution" than the current state permit allows. If the NRDC has found a liberal enough judge, it may get its way, to the great detriment of the rest of us.

Some liberals are even now calling for the elimination of already built and operating hydroelectric power plants, on the grounds that the dams in such projects distort the environment too much. This would require dams to be destroyed and occupied valleys to be flooded.

The problem for liberals is that we are now running into the iron logic of the law of supply and demand, which, unfortunately for them, most voters can understand. Shut down the supply of oil and you get gas prices starting to run towards $5 a gallon. This winter, the price of home heating oil will brutalize the budgets of many families. We are getting to the point where an effective bumper sticker will be, "Keep the Lights On, Vote Republican."

THAT IS WHY the bold Republican initiative to expand oil production and other energy supplies, originally developed by Newt Gingrich, is so effective, and so threatening to liberals. Polls show increasingly overwhelming public support.

As a result, liberals are flailing about offering increasingly absurd distractions. One argument is that even if we started drilling for oil now, we wouldn't get any increased supply, and any reduction in gas prices, for 10 years or more. One popinjay from the misnamed Center for American Progress was recently spouting on TV that there would be no effect until 2030.

Well, let's see. On Friday, July 14, the price of a barrel of oil hit $147. On Monday, July 17, President Bush withdrew the Executive Order banning offshore drilling. That doesn't even start any new drilling because there is still a Congressional ban in place. Nevertheless, by Friday, July 21, after 4 straight days of decline, the price of oil had plummeted to $128, a decline of 13% on a symbolic action alone. The Center for American "Progress" was only off by 21 years, 51 weeks.

There are oil wells off the Pacific coast that were capped years ago when the offshore drilling ban was first adopted. They could be brought back into production in less than a year. Expert oil engineers recently interviewed have said other sites could be producing in 18 months. The standard estimate for production from new drilling in Alaska is 10 years. But if the government gets the lawsuits and regulatory delays out of the way, here's betting the new wells would be producing in less than 5 years.

More importantly, if Congress adopted a comprehensive plan to open up domestic oil production in the U.S., everyone would know that in the long run the price of oil would be heading down. That would break the back of the oil panic today that has driven the price up to ridiculous levels. If the Fed reversed its weak dollar policy at the same time, within a year the price of oil would drop by 50% or more, dropping the price of gas down close to $2 a gallon, which is where it should be. In a competitive market, price is supposed to equal the marginal cost of production. For a barrel of oil, that would be $25 to $40 at most, which is where the long term price of oil would be if the U.S. removed production restrictions.

ANOTHER DISTRACTION is the argument that even if new oil production is allowed, there is no guarantee the oil companies won't sell the oil to Japan or China rather than to American consumers. This argument is 100% bad economics. The truth is, it doesn't matter where the oil is sold. All the new production would increase the world supply of oil regardless of where it is sold. With world supply up, the world price would decline. If new production from Alaska is sold to Japan, the oil that would have otherwise been sold to Japan could then be sold to the U.S.

In fact, if you look at a globe, you would see that Alaska is close to Japan. It would be most efficient, meaning reduced costs and prices, for the production there to be sold to Japan, and for production from South America that would otherwise go to Japan to go to the U.S. instead. That would be the natural result of an efficient market. But to counter the distracting nonsense of desperate liberals grasping for power at all costs, the new production can always be required to be sold in the U.S.

Letter to the Editor

topics:
Barack Obama, Economics, Environment, Global Warming, Law, Energy, Alaska, Oil