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The False Promise of ‘Drill, Baby, Drill’

Ignoring Real Solutions to Promote More Domestic Drilling

SOURCE: AP/James MacPherson

More domestic drilling would provide zero relief from high oil and gasoline prices now, and make a scant difference in 10 years.

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The recent upheaval in Egypt led to a spike in oil prices due to fears about Middle Eastern oil production and transportation. In response to this recent price hike, Big Oil and its congressional allies predictably amplified their demand to “drill, baby, drill.” This short-sighted reflexive slogan will not save families money at the pump nor make America more secure. When, knee-jerk responses become policy, we place a higher burden on working families, sustain dangerous or unstable regimes, and risk disasters—like the BP blow out—which threaten public health and the livelihoods of thousands. There are other real solutions that reduce consumption and would make both a short- and long-term difference in prices while reducing oil use, saving families money, and enhancing our national security.

Think Progress noted that allies of big oil “exploit[ed the] Egyptian uprising to shill for more domestic oil drilling.” This began after oil prices climbed nearly $7 per barrel between January 27 and 31 because of fears about the security of the 2.5 percent of world oil transported through Egypt.

Yet more drilling would provide zero relief from high oil and gasoline prices now, and make a scant difference in 10 years. The Energy Information Administration noted that the “long lead times from discovery to production limit the increase in production, particularly offshore.” This means that an increase in U.S. oil production will make little or no difference in the world oil price or what Americans pay at the gas pump.

Ken Green, resident scholar with the conservative American Enterprise Institute, has explained that crude oil is a global commodity whose price will be unaffected by new U.S. production. Greenwire reported that:

“The world price is the world price. Even if we were producing 100 percent of our oil,” Green said, if prices increase because of a shortage in China or India, “our price would go up to the same thing…We probably couldn’t produce enough to affect the world price of oil,” he added. “People don’t understand that.”

Two weeks ago, Green astutely predicted that some politicians would exploit higher oil prices to boost Big Oil’s desire to drill on fragile lands and in coastal waters. “We’re likely to see a replay of the McCain-Palin ‘drill, baby, drill,’ ‘drill here, drill now.’ It will probably be a cause célèbre for the tea party.”

In reality, there are very few measures that government can undertake to offset price hikes in the short term. There are, however, two proven solutions that would reduce demand and prices. If oil and gasoline prices rise to unbearable levels—say $120 per barrel or $4 per gallon at the pump—the administration can reduce prices by selling oil from the Strategic Petroleum Reserve—currently at its full capacity of 727 million barrels of oil. Each 1 million barrels put on the world market per day would increase the oil supply by more than 1 percent, putting downward pressure on prices.

Previous emergency SPR sales had an immediate impact. President George W. Bush ordered the sale of SPR oil to keep prices down once they hit $69 per barrel after Hurricane Katrina. The SPR oil was on the market in 17 days, and prices dropped 12 percent in a month.

Another immediate action the government could take would be to use some of the proceeds from selling SPR oil to pay for public transportation trips to encourage people to drive less. For instance, selling a half a million barrels of SPR oil per day for a month at an average price of $120 per barrel would raise $1.8 billion. This could pay for an additional 1.6 billion transit trips, saving 800 million gallons of gasoline.[1] Lastly, the Commodities Future Trading Commission must have the staff it needs to enforce new safeguards to prevent speculators from driving up oil prices as they did in 2008.

More oil drilling cannot meet our long-term energy needs either. The United States has only 2 percent of the world’s oil reserves, yet we use one-quarter of the oil produced annually even if we were drilling everywhere, including wildlife refuges, off beaches, and other fragile places. We cannot produce enough oil domestically to significantly reduce our dependence on foreign oil. Our consumption helps finance and sustain unfriendly regimes because one in five barrels of oil consumed in the United States comes from countries that the State Department considers to be “dangerous or unstable.”

The only real long-term solution to high prices and foreign oil dependence is to reduce our consumption. The Obama administration undertook the first serious effort to cut oil use in 35 years by increasing car and light truck fuel economy standards. When implemented, these standards will reduce oil use by nearly 2 billion barrels from cars and light trucks built between 2012 and 2016. The administration is developing even more efficient standards for cars built from 2017 to 2025, and the first ever efficiency standards for big rig trucks. The combination of the most effective standards for these vehicles could save more than 3 million barrels of oil per day by 2030.

There are other steps the president could take without Congress by using existing administrative authority. He can issue an executive order to double the number of federal vehicles that use non-oil-based fuels. The order could also require that other new federal vehicles have significantly higher fuel economy than the average vehicles in that class. The Environmental Protection Agency should implement the Clean Air Act requirement that bus fleets in large metropolitan areas use “low polluting fuel” such as natural gas.

During his State of the Union address, President Obama reiterated the goal of putting “1 million electric vehicles on the road by 2015…this would “reduc[e] oil consumption by 785 million barrels by 2030.”

This effort has already begun with the encouraging launch of the new plug-in hybrid electric Chevy Volt. It went on sale last fall, and demand is high for the North American Car of the Year. General Motors plans to significantly increase production of the first American PHEV. Some drivers report fuel economy of nearly 170 miles per gallon. Orders for the all-electric Nissan Leaf are also high.

To keep electric cars on track, President Obama proposed that Congress convert the existing $7,500 per vehicle tax credit into a cash rebate to help increase sales. Sen. Carl Levin (D-MI) and Rep. Sander Levin’s (D-MI) bills, S. 232 and H.R. 500, would expand the eligibility for this benefit beyond the 200,000-cars-per-company limit. Another crucial element is an investment in electric car recharging infrastructure to make refueling more convenient. President Obama proposed in the State of the Union a $300 million “race to the top” pilot program for the cities best prepared to build recharging stations.

A recent study by Pike Research predicts that additional steps are needed to reach the goal of one million electric vehicles on the road by 2015. Bloomberg reports that these steps including raising the gasoline tax, higher fuel economy standards, and a “‘feebate’ system that rewards buyers of high-mileage cars and levies a fee on those who buy low-mileage vehicles.” The panel predicted that:

“If U.S. companies and workers are leaders in this emerging industry, the economic payoff for the manufacturing sector of the U.S. economy, and the economy as a whole, could be enormous. If, instead, Asian and European firms dominate the emerging sector, the future of America’s troubled manufacturing sector could become even bleaker.”

Congress should also support passage of the NAT Gas Act that would create incentives to purchase buses and medium and heavy trucks powered by natural gas. This bill would also encourage the creation of natural gas fueling infrastructure. Deploying 3.5 million natural gas vehicles could reduce oil use by more than 1 million barrels per day.[2]

No matter what the energy problem, Big Oil and its allies have only one solution: “drill, baby, drill.” When all they have is a drill, everything looks like a well. This approach will make big oil companies billions of dollars more in profits, but won’t help American families cope with higher gasoline prices.

The only immediate ways to lower demand and prices is to sell a tiny amount of reserve oil and use the proceeds for public transit. President Obama is already implementing his long-term plan to cut oil use with more fuel efficient vehicles and electric cars. He must work with Congress to invest in natural gas trucks too. These are the pro-innovation, pro-family, pro-security solutions to our oil vulnerability just exposed by the events in Egypt.

Thanks to Valeri Vasquez and Richard Caperton.

Daniel J. Weiss is a Senior Fellow and the Director of Climate Strategy at American Progress.

Endnotes

[1] These estimates based on data from the Public Transportation Fact Book 2010.

[2] For other oil saving measures, see Senate Oil Savings Greatest Hits.

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