Political Hay

Shut Up and Produce Some Oil

There's absolutely no reason why liberal energy obstructionists should be given political cover on gasoline prices.

By 7.23.08

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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.

Still another distracting argument is that the oil companies already have millions of acres in oil leases, so why don't they just produce more oil from those areas? The oil companies pay for those leases for exploration. There is no guarantee that any leased areas will actually hold producible oil. Given that the oil companies must pay rent for the term of those leases regardless of whether any oil is produced, and that the price of oil is at record, unprecedented, historic levels, any oil company that was not producing all it could from any of its leases would be subject to shareholder lawsuits for waste of corporate assets. It is just like liberals to demand that oil companies produce more from areas that do not hold any more oil while denying access to areas with massive proven reserves.

Liberals argue that if we would just sell a small portion of the oil from the Strategic Petroleum Reserve that the U.S. government holds in case of emergency, oil and gas prices would fall. So now all of a sudden liberals recognize that increased supply on the market would reduce prices. But any such sales would be a drop in the bucket, and only temporary, likely, indeed, to be reversed later to restore the reserve. So this would have no significant, lasting effect.

Yet another distraction is that we should just increase the required miles per gallon under the CAFÉ standards for the production of new vehicles. This is no answer to the oil and gas price problem because it involves only restricting consumer freedom of choice, and ultimately reducing the American standard of living. It means that consumers should be prohibited from buying the vehicles they want, and instead should be allowed to buy only the vehicles the government wants them to have. The SUV explosion was all about the American consumer wanting bigger, more powerful vehicles rather than vehicles with better fuel economy. There have long been low cost vehicles available for sale in the U.S. operating with close to 50 miles per gallon in fuel efficiency. But consumers have failed to choose those cars, while close to half of sales of new vehicles have been SUVs with low fuel efficiency exempt from the CAFE standards.

IF NOW WITH HIGHER gas prices American consumers want to abandon SUVs and buy more fuel efficient cars, that should be their choice. But the government should not be imposing that choice on them. Yet Barack Obama says on his website that he wants "to double fuel economy standards within 18 years." That involves an assault on the standard of living of the middle class, which would be forced to give up the big, powerful vehicles they now enjoy for the tiny, little sardine cans that most Europeans drive. In fact, there has been talk precisely of allowing car manufacturers to import into the U.S. the little fuel efficient vehicles that they now make for Europe.

Assaulting the standard of living of the middle class is what Barack Obama is all about. For you can search through all of his position papers, speeches and talking points and not find a word about reducing the price of gas or oil. He clearly has no intention of trying to reduce the price of gas at all. He has said, in fact, that the high price of gas and oil is good for the environment, and the only problem is that the prices increased too suddenly. This is the Marie Antoinette school of energy policy.

Remember Obama's famous quote:

"We can't just keep driving our SUVs, eating whatever we want, keeping our homes at 72 degrees at all times regardless of whether we live in the tundra or the desert, and keep consuming 25 percent of the world's resources with just 4 percent of the world's population, and expect the rest of the world to say you just go ahead. We'll be fine. That's not leadership. That's not going to happen."

What he means by this is that the current standard of living of the American people is unfair. It represents massive inequality in comparison to the rest of the world. So here we have a leading Presidential candidate who thinks truth and justice requires a reduction in our opulent middle class living standards. Good luck, and good night.

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About the Author
Peter Ferrara is Director of Entitlement and Budget Policy at the Heartland Institute, General Counsel of the American Civil Rights Union, Senior Fellow at the National Center for Policy Analysis, and Senior Policy Advisor on Entitlements and Budget Policy at the National Tax Limitation Foundation. He served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under President George H.W. Bush.