Talking about Energy: Drill Here, Drill Now

Talking points for a plan to lower gas prices today

(A version of this article appeared in the Clayton News.)

1. If we want gas prices to be lower, we have to increase supply. People are already responding to high prices by reducing their fuel consumption—and it hurts. We also have to increase our domestic supply. Therefore, we need to drill off the N.C. coast and do it now. It comes down to the law of supply and demand. As long as we continue to depend on unstable countries for the majority of our vehicle-fuel needs, we will continue to see high prices—particularly as developing-world economies come online and consume more of the available oil.

2. Drilling now can lower prices at the pump now, despite the fact that the new supplies won’t come online for a while. Why? Oil would be less scarce in the future. The so-called “speculators” and other investors who are currently investing in oil due to the current scarcity (scarcity that’s reflected in the price per barrel) would then bid down the price—given the prospect of a real increase in oil supply. (Consider the $16 per barrel price decrease on the day the President announced he was lifting the Bush/Clinton executive drilling moratorium.)

3. Drilling will help create jobs in Eastern North Carolina. Gas and oil exploration, along with associated industries, will spring up in our state. Royalties to the state will also increase. One need only look at 2007 revenues (royalties) to states where limited drilling is allowed: TX ($65 million); LA ($158 million). (Note: 68 percent of North Carolinians support drilling.)

4. Drilling is safer than ever before. There has been a drastic reduction in the number (and severity) of oil spills since the 1980s, due to improved technologies and techniques. In fact, the Department of the Interior reports that damage due to the spills caused by Katrina and Rita were “minor.” N.C. should have few concerns about hurricanes causing severe oil spills, particularly since what is likely to be discovered offshore in N.C. is natural gas, not oil. And while we don’t put it into our cars, natural gas discoveries will relieve pressures on the energy market as a whole (and our pocketbooks). Royalties can be used for an environmental fund.

5. “Speculators” serve a valuable function in oil markets. Leave them be. They not only ensure that investment goes to areas where there are shortages in supply, but they make the market more predictable (less volatile) for people who depend on these commodities for their businesses, not to mention consumers. Most importantly, they help investment gets to where it’s needed. Blaming speculators for the price of gas is like blaming a thermometer for the temp.

6. We should not tax oil profits. Taxing profits is a tax on the incentives that prompt oil companies to make risky investments in finding new oil supplies (expensive ocean platforms, etc.) If they won’t profit from doing so, they won’t explore. Taxing profits means they’ll do less of what brings us more gas at lower prices. Oil companies’ profit margins are only 9.5 percent—which is in line with other major industries. (Compare the publishing industry, whose margins are around 20 percent.)  The price of a barrel of oil + fuel taxes = 83 percent of the price of a gallon. The remaining 17 percent goes to marketing, refining, and logistics (and, yes, profit).

Information in this brief comes from the EIA, U.S. Dept of Interior and the Institute for Energy Research.

For a more extensive presentation on energy policy, please contact Max Borders — max.borders -at-

This article was posted in Environment by Max Borders on July 22, 2008 at 4:09 PM.

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