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The oil-drilling solution

The oil-drilling solution
By Jay Bookman | Thursday, June 19, 2008, 11:37 AM

The Atlanta Journal-Constitution

We’ve gone over this before, but since it seems to be taking on new political importance, let’s review:

Would opening the Arctic National Wildlife Refuge and other coastal areas to oil drilling have any effect on gasoline prices, as many politicians claim?

No, it would not. For one thing, oil companies already hold a backlog of leases on offshore areas that they haven’t begun to tap, in part because of a global shortage of drilling equipment. They face no shortage of domestic areas waiting to be exploited.

On the other hand, it’s true that drilling technology has improved, and that environmental risks of offshore drilling are much lower than a generation ago. So we probably could begin to assess on a case-by-case basis whether to someday open areas now off-limits to drilling.

However, that would not lower gas prices and it would not alter our basic strategic energy situation. Here’s why:

Take ANWR as an example. Many Americans would be surprised to learn that oil produced from ANWR would be sold to Americans at whatever the global price for oil happened to be. There’s no “hometown discount” - U.S. consumers would pay 100 percent of the global price for ANWR oil, just as we do today for oil produced from Alaska, Texas or the Gulf of Mexico.

That’s because all oil produced in this country goes into the world oil market. All oil sold in this country is bought off the world oil market. The only way to change that would be to nationalize our oil industry.

So there’s only one way that opening ANWR and other areas could lower the price of gasoline here in the United States: It would have to put enough “new oil” on the global market to drive down the price of oil worldwide.

A newly released study by the federal Energy Information Administration says that simply would not happen. According to the EIA, if drilling began in ANWR this year, oil production from that region would peak around 2027-2030. At peak production, ANWR would produce enough oil to lower the world price of oil by about 1 percent.

So if gasoline is selling at $5 a gallon in 2030, that would amount to 5 cents a gallon.

That EIA prediction has actually been confirmed recently in the oil markets. Saudi Arabia has announced it would increase production by 500,000 barrels a day. It sounds like a lot, but it isn’t. Not when you consider total world consumption of about 85 million barrels a day. So it’s no surprise that the Saudi announcement has had no discernible impact on world oil prices.

Furthermore, the EIA predicts that as ANWR oil came on the world market, OPEC would simply cut back its own production, thus keeping the global oil supply - and the global price - unchanged, So in the end, drilling in the wildlife refuge and offshore areas would have little or no impact on oil prices. It is a false hope.