Thursday, July 03, 2008

Gas Prices - Drill ye tarriers, drill

Ok, the title refers to construction of railroads (a very old folk song) and gas prices - two incompatible areas. But I try to be cute with titles.

I wanted to express opinion on the "Drill for oil" movement that has gained a lot of press. I'll also insert some facts, but no links this time. It's too close to a holiday and I don't want to work that hard.

A lot of people are talking about drilling for oil. Drill offshore, drill in ANWR, drill, drill, drill. Opponents are worried about the environment (haven't heard that much this time), worried that it will take 10 years and some are even saying it won't affect supply.

There are (at least) three factors that affect gas prices - Supply of oil, Demand for oil and the future price of oil. The last two items will be discussed later, this post only deals with the supply. The idea behind drilling is that if the supply increases, cost will go down.

Ecological impact of drilling is important. You can look at the Exxon Valdez, the 1969 Santa Barbara oil spill and see the impact. There's no question that this is a bad thing. But in reality, neither of these even made the list of top 10 worst oil spills. (oops, there went a link)

Ecologists aren't complaining this time and in one case I heard of (no links) they are even getting payoffs in California to keep quiet.

Others are saying it will take 10 years to see any results. If you look, you'll find that this number "10 years" or "a decade" is thrown out quite a bit. But the number is just a round number and not based on any facts. Sure, some of it will take 10 years, but some oil would be coming out of the ground very quickly. Jed Clampett, eat your heart out.

The most surprising argument I've heard is that it won't help. The story goes that oil wells in Texas and the North Sea are drying up. Any increase in oil will be offset with decreases other places. Well, maybe this is true (I can't find any links on it), but wouldn't it be better for oil production to be flat rather than drop?

So, I think drilling is good. It will increase (or maintain) supply and hopefully lower prices. The sooner drilling is started, the better.

But who should drill? Well, the people that should drill are the ones best qualified - the oil companies. The government should stay out of it. No incentives to drill, no telling them when, where or how much. The market will determine those things.

Where should we drill? On this, I'm slightly torn. Part of me says the free market will determine this. Stay out of it. But also, I recognize that national security somewhat is impacted by the fact that we get most of our oil from somewhere else. It would be a good thing to encourage us to be more self-sufficient and not dependent on foreign interests.

As before, if you have comments about this specific post, please put them here. If you have comments on other areas related to gas prices, they are welcome too, but please post them under my initial post on gas prices here.

*Update - Immediately after writing this post and publishing, I saw this article about maintenance on North Seas oil fields. This will tighten supply. No word on how long this will last.

1 comment:

Anonymous said...

As with the classic tree-planting illustration, the best time to drill was 5-10 years ago. The 2nd best time to drill is now.

And get some more nuclear reactors while we're at it.