So . . . just who is it thats holding the world hostage to
high oil prices . . . OPEC or the United States Congress?
By INVESTOR'S BUSINESS DAILY |
Posted Thursday, July 03, 2008 4:20 PM PT
Oil: With the long July Fourth weekend,
you might get a chance to see your senator or representative. If so, you should
be ready to dispel a few myths politicians now have about drilling for more
IBD Series: Breaking The Back Of High
This is especially true of Democrats. Many in Congress seem either
disconnected from reality or intentionally disingenuous about our energy crunch.
They have well-honed negative responses to common-sense ideas about solving our
energy crisis, particularly drilling for more oil.
These responses are based on a number of widely held myths. Sadly,
they've become the backbone of the Democrats' energy policy. They
"We can't drill our way out of our energy
Actually, we can. As we've noted before, conservative estimates put the
total amount of recoverable oil in conventional deposits at about 39 billion
barrels. Offshore, we have another 89 billion barrels or so. In ANWR, 10 billion
In oil shale deposits, we have more than 1 trillion barrels of oil. In
perspective, that's about four times the total reserves of Saudi Arabia. And if
estimates of shale reserves as high as 2 trillion barrels prove true, we'll have
about a 300-year supply of oil just from shale. This compares with current
estimated total U.S. oil reserves of about 21 billion barrels.
ANWR alone is expected to yield 1 million barrels of oil a day. Now
make the highly conservative assumption that we're able to get a like amount of
oil from the other sources for a total increase of 3 million to 4 million
barrels of oil a day.
That's an enormous rise in oil output. Today, we produce just under 8
million barrels of oil a day from domestic sources. So we could, in effect,
boost our energy output 50%, and thus our energy independence, by bringing an
additional 4 million barrels of oil to thirsty world markets each and every
By the way, those calculations don't include the trillions and
trillions of cubic feet of natural gas found in the same locations, which, along
with nuclear power, could be used to fire our power plants.
By 2030, according to the U.S. Energy Information Administration, we
will need at least 30% more energy to fuel our economy. Nearly 85% of that
increase will come from oil and gas, even with expected gains for alternative
energy. Can't drill our way out? In fact, it's the only way out of our energy
"Oil companies are sitting on 68 million acres of oil leases and
refuse to drill."
This is yet another slander of "Big Oil" by House Speaker Nancy Pelosi
one that has become a major talking point for Democrats in Congress. It's
Oil companies have spent billions of dollars for those leases. Drilling
has increased by more than 66% since 2000. They are searching for oil even as
you read this. Some parts of those 68 million acres will have oil, some won't.
But at $145 a barrel, you can bet oil companies have plenty of incentive to find
That said, 68 million acres is in fact a minuscule amount. Some 94% of
federal lands 658 million acres remains off-limits to exploration. Another
97% or 1.7 billion acres of federal offshore properties likewise remains
off-limits. These lands contain tens of billions of barrels of recoverable oil.
It's there for the taking, now.
How much energy is there? Federal lands, according to the American
Petroleum Institute, hold 651 trillion cubic feet of natural gas, enough to fuel
60 million households for 160 years. They hold at least 116 billion barrels of
oil, maybe more. That's enough to fuel 65 million cars and provide fuel oil for
3.2 million homes for 60 years.
As such, it's the height of irresponsibility for Congress to leave
these lands off the table. It ensures we remain vulnerable to pariah petrostates
like Venezuela, Saudi Arabia, Libya, Iran and others who wish us
"Even if drilling works, it'll take a decade or more for the oil
This is quite an argument coming from the Democratic Party, which has
made keeping oil off the market a linchpin of its energy policy for
If President Clinton hadn't vetoed the idea of drilling in ANWR back in
1995, we'd have that oil on the market today. Ditto if Congress had approved
ANWR drilling in 2002, when President Bush requested it.
Even so, the larger point is false anyway. New oil will be flowing in
some cases within three to four years, according to industry estimates. But the
impact on prices will be immediate. Why? Because markets would suddenly have to
discount future oil prices for the expected gain in oil supply. That would cause
oil prices, especially in futures markets, to drop.
By the way, this isn't just conjecture. President Reagan, within a week
of his inaugural in 1981, removed domestic controls on oil. Energy prices began
tumbling almost immediately, with oil falling from $34 a barrel in early 1981 to
just $11 by 1986.
It worked before, and it'll work again.
"Record profits by big oil companies are the reason for soaring
It's true that oil company profits have never been higher. But put into
perspective, oil company profits are high because the price is high. As a share
of revenue, profits aren't so high.
The average profit, as we've noted before, is around 8 to 9 cents to
the dollar. That compares with about 7 cents to the dollar for manufacturers and
more than 15 cents to the dollar for computer makers.
In short, oil profits aren't out of whack with the rest of
What doesn't get said is that while oil companies have profit margins
of about 8%, about 12% of the price of a gallon of gas goes to the government in
the form of taxes. When indirect taxes are included, the share is even
So who are the real price-gougers?
From 1981 to 2006, the oil industry made $867 billion in profits. Yes,
that's a lot. But over that same time, they paid total taxes of $1.2 trillion,
Energy Department data show. And that doesn't include taxes of $519 billion paid
to foreign countries.
Please remember that the next time a politician vows to hit "Big Oil"
with a windfall profits tax or some other idea. The tax won't be paid by the oil
company; it will be paid by you, the consumer.
In coming weeks, we'll try to look at some of the other myths
surrounding America's energy. The problem is, there are so many that dispelling
the falsehoods about energy can become a full-time occupation for a
In the meantime, let us suggest that if you think more oil will help,
you should tell your local members of Congress. They're easy to find at the
government Web site thomas.loc.gov. The only problem is, on this topic, many
won't want to be found.