BCT Editorial – 7/25/08

This page was last updated on July 26, 2008.

Huge stakes; Editorial; Beaver County Times; July 25, 2008.

The editorial subtitle is “The next president must be a leader on the energy front.”

Below is a detailed critique of the subject editorial.

“More domestic oil production will not necessarily translate into lower prices at the pump.

“With the price of gasoline topping $4 a gallon, Americans overwhelmingly support more offshore and domestic drilling for oil, something that Republican politicians and conservative talk radio and television infotainment shills have been quick to exploit for political purposes.”

[RWC] I never cease to get a kick out of the Times engage in name-calling. In this case, you’re a “shill” if you don’t support the Times position.

You’ll note the Times fails to mention the folly of lefty proposals. For example, House Majority Leader Nancy Pelosi (D-CA) believes tapping our National Petroleum Reserve – intended solely for national emergencies – is a good idea. That’s only 700 MMBBLs, wouldn’t have an effect, but would leave us without supplies in an emergency. Or what about Senator Chuck Schumer (D-NY)? Back in May during a Senate floor speech, Mr. Schumer said “If Saudi Arabia were to increase its production by 1 million barrels per day that translates to a reduction of 20% to 25% in the world price of crude oil, and crude oil prices could fall by more than $25 dollar per barrel from its current level of $126 per barrel. In turn, that would lower the price of gasoline between 13% and 17%, or by more than 62 cents off the expected summer regular-grade price - offering much needed relief to struggling families.” Why would additional foreign production result in lower prices but additional domestic production won’t?

“Energy independence — or at least semi-independence — is one reason for the push. However, an often unstated reason for its enormous popularity is that many Americans no doubt believe increasing domestic oil production will mean lower prices for gasoline and home heating oil.

“It’s not going to happen.”

[RWC] Is the author basing this conclusion on economics or crystal ball gazing? All else constant, increased supply means lower prices. Undoubtedly some of you correctly and quickly note demand is increasing and current supply is decreasing. Doesn’t that mean at best prices would remain where they are? Perhaps, but wouldn’t prices surely rise without incremental new production? In other words, regardless of what the price is, the price will be lower with more production than it would be without. This is a point expert economists like Times editorial authors either don’t know or choose to ignore.

“What many people overlook is that expanding domestic drilling, building offshore drilling platforms and squeezing oil from shale deposits are only economically feasible if prices remain high.

“When gasoline is above $4 a gallon, extracting oil from shale deposits makes sense. The same holds for tapping marginal domestic oil fields and remote offshore drilling sites. The profits justify production costs. But if the price of a barrel of oil drops significantly, so does the incentive to invest in these areas. (The same is true of exploration and extraction of natural gas.)”

[RWC] No kidding, Sherlock. You’ll note the editorial fails to note the same is true for all forms of energy. That’s why we’re using coal, natural gas, and oil instead of the Times beloved alternatives.

Also note the comment about “remote offshore drilling.” The editorial fails to note deepwater drilling in the Gulf of Mexico is/was profitable at prices far, far lower than today’s. For example, Shell is currently building an oil platform in 8,000 ft. of water in the Gulf of Mexico. In addition to the 8,000 ft. of water, Shell is drilling another 24,000 ft. to reach the oil field. This project began years before the recent run-up in prices, so it’s clear even “extreme” offshore production is economically viable at prices far below those we see today.

“Whether the United States produces more oil domestically will not impact the overall price of gasoline, home heating oil and other related products. The days of cheap energy are over, and Americans must adjust to the change.”

[RWC] This is the “increased domestic production won’t affect prices” BS again.

“Reducing our reliance on imported oil through increased domestic production is one way to do that. Others are conservation, which is the quickest way to reduce consumption, and the development of clean energy sources.”

[RWC] “Reducing our reliance on imported oil through increased domestic production is one way to do that?” I’m getting whiplash!

“New York Times columnist Thomas L. Friedman recently wrote that making this transition requires presidential leadership, something that is sorely lacking in the present office holder.”

[RWC] Once again the Times treats an opinion writer like a real data source.

“Americans can only hope that either John McCain or Barack Obama has the vision and understanding to lead the nation. When it comes to energy independence, it’s 1776 all over again.”

[RWC] You’ll note the editorial doesn’t explicitly describe the Times proposal (other than conservation) or what it means by “vision and understanding.”