The Corpus Callosum

The House is considering
legislation
that would do two things: force oil companies to
give up unused leases, and ban the export of oil from Alaska.

It’s brilliant because it highlights the absurd
fallacy: that opening up more land for drilling would lower gas prices.
 The fact is, oil companies already have leases that they are
sitting on, not drilling on.  

Opening up more land for oil leases will not cause them to drill more
oil.  It’d be like putting more gas in the tank of a
driverless car.  Putting more gas in the tank will not enable
the car to go farther.  The car will go nowhere, because no
one is driving it.

Bush’s response was predicable.  It’s one of those comments
that is either stupid, or a blatant lie:

href="http://news.yahoo.com/s/nm/20080717/ts_nm/congress_bush_oil_dc_1;_ylt=AsMhfIXlijsfVIjiHAWezMiAsnsA">White
House threatens to veto oil drilling legislation

“By blocking some firms from competing for new leases, this legislation
would further increase gasoline prices that already exceed $4 per
gallon and result in unintended consequences due to litigation,” the
White House said in a statement.

No no no.  As incredible as it may seem, the President
sometimes does lie.

The reason oil companies are trying to lock up leases, is that doing so
will enable them to control the supply of oil.  If permitted,
that action would increase prices, not decrease
them.  Big companies with deep pockets can buy the leases and
sit on them.  This prevents competition.
 

This is href="http://www.democracynow.org/2008/7/15/with_crises_in_fuel_food_housing">explained
by Naomi Klein, in an interview with Amy Goodman:

I just want to add one more point, and I just want
to take this
opportunity, because I feel like people are being so bombarded with
these oil industry talking points, and it really is changing public
opinion. I mean, people need to know this. There’s–polls are being
commissioned that are finding that 67 percent of Americans support
offshore oil drilling, because they think it’s going to lower the price
at the pump.
What’s actually going on is the oil companies may not even
bother drilling. What they’re doing is they’re stockpiling leases. And
what that means is that the oil companies will have a much greater
control over the oil supply. When the oil companies have a much larger
control over the oil supply, they can turn it on and off. They can
control price. They can fix the price. So, in fact, what this is doing
is the opposite of what they’re saying. It’s actually giving the oil
industry much more power to drive the price of oil up by controlling
supply, by just giving them all of these leases. And we keep hearing,
well, they have all these leases already, and they’re not using them,
and they want more. Why? Why do they want all these leases? Because
that is what gives them control over supply. That’s what allows them to
fix prices.

This tactic would be prevented by a use-it-or-lose-it leasing policy.
 What would make sense, is for the companies to have to pay
for the lease.  If they can’t show progress, then the lease
expires and we keep the money.

The use-it-or-lose-it policy would not “block some firms from
competing.”  On the contrary: it would make it more difficult
for large firms to corner the market.  

We will hear things like: ‘if the oil companies are allowed to drill
offshore and in ANWR, then they could produce more and bring prices
down.’  That happens to be true, as far as it goes.
 They could produce more, and they could
bring prices down.  Sure, they could, but would
they?  They are the greediest bastards on the face of the
earth.  Why would we expect them to be benevolent?

So, the use-it-or-lose-it policy is brilliant.  Thoughtful
people will think about it, and realize what the game is.

Now, the second part — the part about prohibiting export of Alaskan
oil — is pointless.  It would do nothing to alter the
supply-demand equation.  If there is less oil available
outside the US, then foreign oil will be more expensive.
 Perhaps we would pay less for the Alaskan oil (although that
is not assured), but we would pay more for the oil we import.
 So there would be no net gain.  All we would do is
irritate our neighbors.  Plus, we would risk setting off a
wave of unhelpful protectionism.  It may come to that
eventually, but there is nothing to be gained by doing it now.

Comments

  1. #1 Dr. Kate
    July 18, 2008

    I also find it interesting that no one is talking about whether doing more offshore drilling or drilling in ANWR would actually have any effect on anything. I suspect that the amount of oil we could actually get by doing that is relatively minor. It would probably not affect prices all that much–just as adding one farmer growing half an acre of corn would not do anything to lower corn prices.

  2. #2 Doug Alder
    July 18, 2008

    There is also the fact that those in support of drilling never mention the time line of 5 to 7 years minimum before that oil hits the market. They are deliberately misleading the public into believing that it will bring the price down immediately.

  3. #3 arby
    July 18, 2008

    A “time line of 5 to 7 years minimum before that oil hits the market” provided they had the rigs to start drilling now. There might be a similar waiting period until they could lay their hands on a rig that isn’t already booked. rb

  4. #4 derek
    July 18, 2008

    Emptying ANWR now, when oil is moderately pricy, means it will be gone in the future when oil is much more valuable. Better to import oil foolishly extracted and offered for sale by foreigners, and save your own national treasure.

    Notice I speak only of energy security considerations, saying nothing of global warming prevention, according to which the time to take a reservoir of fossil carbon out of the ground and add it to the air is “never”. I don’t think anyone is listening: every politician on Earth is conspiring to empty fossil ground stores into the atmosphere as fast as possible, making humbug of their “green” talk. Gordon Brown, in the UK, is calling for ways to pull the last gasps of methane out of the North Sea, and is in talks with Nigeria on how we can support their society against civil unrest, the better to empty West Africa’s stock into the sky.

  5. #5 GAC
    July 26, 2008

    I have a question. I definitely would support a strategy that would lower gas prices, but I want to ask — are the leases that these companies are sitting on economical to develop? That is, would the resulting drop in oil price result in oil dropping low enough that those fields actually operate at a loss? Or would it just be reduced profits?

    I honestly doubt that the oil companies aren’t sitting on land that *could* be developed economically and just not developing it. I only ask because someone else raised the question and a cursory search doesn’t turn up anyone who addresses it specifically.

    (Unrelated — how do you set yourself to get alerts/RSS for COMMENTS on this board!)