Flurry of Policy Action on Oil Drilling Will Do Nothing to Lower Gasoline and Heating Oil Prices
With Americans frustrated by rising fuel costs and the start of the summer driving season just a week away, President Obama and both parties in Congress are addressing concerns with policy moves. The last two weeks have seen a whirlwind of proposals at the federal level aimed at increasing domestic oil production. But despite some claims that those proposals will help bring down the cost of gasoline and other retail fuels like heating oil, they would do nothing to bring down short-term prices and offer little to no long-term price relief.
On May 5, the Republican-controlled House of Representatives passed a bill requiring the government to restart sales of oil drilling leases off the coast in the Gulf of Mexico and in Atlantic waters off the coast of Virginia. Those areas had been opened up to drilling by the Obama administration in the spring of 2010, but lease sales were halted by the administration’s drilling moratorium following the April 20 oil rig explosion and subsequent oil leak in the Gulf. House Majority Leader Eric Cantor (R-VA) tied the Republican bill to lower fuel prices in pointedly partisan language, as quoted by the Washington Post:
In response to the Obama administration’s aggressive fight against domestic energy production, House Republicans have taken another important step to encourage economic growth, create jobs and lower gas prices – especially right here at home in the Commonwealth [of Virginia].
Last week, the House passed two more bills aimed at increasing domestic production of crude oil. Passed on May 11 and May 12, the bills would force the Department of the Interior to approve drilling permits within 60 days and open previously off-limits areas to offshore drilling, respectively.
Despite claims by Rep. Cantor and other Republicans, the measures proposed in the three House bills would do nothing to lower fuel prices in the coming months, and offer slim-to-none hopes of bringing prices down in the longer term. This fact was cited by the White House as a key reason for the President’s opposition to the bills. However, in a surprising announcement, the Obama administration offered its own plan to streamline domestic oil production that shared some common ground with the Republican oil drilling bills.
In his weekly address to the nation on Saturday, President Obama said he would take steps to increase “safe and responsible oil drilling here at home.” His plan includes extending leases affected by the drilling moratorium enacted last year, offering new leases in Alaska’s petroleum reserve, and speeding up environmental reviews of potential oil reserves off the Atlantic coast. In contrast to congressional Republicans, Obama ceded that increasing domestic drilling would not lower today’s high fuel prices, and emphasized that his proposals would reduce US dependence on foreign oil, help create jobs and stimulate the economy.
In the latest salvo in the war of rhetoric over fuel prices, Senate Minority Leader Mitch McConnell (R-KY) introduced a bill that would have forced government sale of leases off the coasts of Virginia and Louisiana. The bill failed to win enough support in the Democrat-controlled Senate on Thursday to enter into floor debate. In defense of the bill, McConnell repeated the errant belief that increased US drilling would bring down fuel prices. As quoted by UPI, McConnell told Senate leaders, “our plan would actually do something to increase supply, putting downward pressure on price.”
As reported by HeatingOil.com in April, increasing domestic production of crude oil would have absolutely no effect on gasoline and heating oil prices for two reasons. First, the price of crude is set on a global market that is driven by world supplies, so boosting crude supplies in the US would not affect prices paid for oil by American companies. Second, US crude reserves are simply too small to increase world supplies to an extent that would drive down global prices. Even if US production were to increase to 3 million barrels per day (as the third of the House drilling bills mandates by 2027), US crude would only constitute 4 percent of the approximately 74 million barrels per day generated worldwide, not nearly enough of a supply increase to bring about trickle-down reductions in retail fuel prices.
With gasoline and heating oil prices rising steadily once again, the summer driving season just days away, and a presidential election next fall, fuel prices have become the political issue of the hour. But so far, none of the policy proposals put forth by the president or Congress offer any hope of bringing prices down. So as both political parties jockey for a political advantage on the issue, consumers would do well to keep the realities of oil prices and world markets in mind and demand more effective and concrete solutions from their elected leaders.
Timeline of recent oil drilling policy proposals:
Thurs 5/5: House passes bill requiring lease sales in Gulf and VA coast.
Wed 5/11: House passes second bill forcing Dept of Int to approve drilling permits within 60 days, permits automatically approved it deadline not met.
Thurs 5/12: House passes 3rd of 3 bills—open new drilling areas in CA, AK, and Atlantic coasts; require US production to reach 3 mbpd by 2027.
Thurs 5/12: Senate hearing on Oil industry tax breaks
Sat 5/14: Obama extends Gulf and AK leases, increases frequency of rights sales in AK petroleum reserve
Thurs 5/19: Senate rejects McConnell-sponsored bill to reopen lease sales on VA and LA coasts closed after oil spill