Enough Oil?

A report for November 2011 indicated that, for the first time in forty years, the U.S. was a net exporter of petroleum products.  Liberals seized on this report as evidence that the U.S. needs no acceleration in drilling, no XL pipeline -- indeed, no new exploration or production of any kind.

This was the point of a politicsusa.com piece by Ray Medeiros appearing on January 2.  In this piece, the author referred to drilling for energy independence as "the big GOP lie" and noted that America is already exporting oil products.  The "ONLY real solution," Medeiros writes, is more government regulation and increased subsidies for green energy.

How mistaken liberals are, especially when it comes to energy independence.

First of all, the export of energy products such as refined fuel, kerosene, and lubricating oils bears no relation to the importation of oil, which still proceeds at 9 million barrels per day.  If anything, the two figures operate inversely: the more refined products we export, the more unrefined oil we must import as feedstock for our refineries.

In reality, the U.S. still imports 51% of its oil despite the existence of vast undeveloped reserves to be found offshore and onshore.  The fact that America imports 51% of its oil, at huge cost and from unfriendly regimes including Venezuela, is hardly an argument to halt drilling.

Yet that is the argument filling the pages of liberal media like the Huffington Post.  America has an abundance of oil, we are told.  After all, America is an oil exporter -- an outright falsehood, but one that sounds plausible to casual readers.  And in the greatest lie of all, "we need not worry about future energy security. We have enough oil to be exporting it, so we need not look for more."

Not to be left behind by his green supporter, the president immediately seized on the report as grounds for eliminating $4 billion in annual tax adjustments for oil and gas companies -- tax breaks similar to those enjoyed by businesses in other sectors.  The logic, apparently, is that oil companies that are able to export their products must be doing well, so $4 billion should be confiscated from them and handed over to solar and wind companies like Solyndra.  That is the gist of Obama's suggestion that the "money saved ... be invested in new energy resources."   

In point of fact, the International Energy Agency recently issued a warning that global oil supplies will be tight in 2012.  Stockpiles are dwindling.  Global demand for 2012 is estimated at 90.5 million barrels per day.  At the end of 2011, global production was estimated to be 90.2 million bpd.  With many of the world's older oil fields depleted, significant new production is needed to avoid a shortfall and price-squeeze.

The most recent economic reports in the U.S. and China, the world's top consumers of petroleum products, only add to the argument for increased oil and gas production.  Increased employment in the U.S. will inevitably lead to more energy consumption.  In China, where the overall economy has cooled along with the housing market, 2012 GDP is still predicted to expand at more than 8%.  And while Europe may experience a mild recession, that slowdown is expected to be brief.  Once Europe, China, and the U.S. return to normal levels of growth, demand for oil will increase well above 90 million bpd.

Along with increased demand will come higher prices, and this is where domestic production is so important.  The 9 million bpd that America now imports acts like a tax on every American.  At $100 per barrel, the cost of importing half our oil amounts to $328.5 billion per year.  Imagine the economic effect of circulating that amount of money within our own economy rather than shipping it off to Venezuela, Saudi Arabia, Nigeria, and other suppliers.

One immediate effect of increasing U.S. oil and gas production would be increased employment.  If the goal of energy independence were met, millions of new jobs would be produced -- an additional 9.2 million jobs, to be precise, the same number who now work in the energy sector.  Not only that, but energy costs would be reduced for all Americans.  And with a trade surplus rather than a deficit, America's currency would strengthen, thus lowering the cost of imports and reducing the prospect of inflation.  Finally, government revenues from taxes and royalties would double along with production.

If increased production is such a good idea, why are the president and his leftist supporters so strongly opposed to it?

One can conclude only that the Democratic Party has put politics ahead of the nation's well-being.  Despite the president's talk of support for increased domestic production, his administration has spent three years banning and stalling new production.  So far in 2012, the Obama administration has nixed the Keystone XL pipeline, proposed national regulation of hydraulic fracturing, opposed arctic drilling, and continued its policy of slow permitting in the Gulf of Mexico.  That does not sound like support for energy independence.  

In fact, just about the only thing that the Interior Department has accomplished this year, other than to say "no" to fossil fuels, has been to order fast-tracking of mid-Atlantic wind farms off the East Coast.  And those wind farms, it turns out, may never be built without Solyndra-like loan guarantees and subsidies.  No one outside the Obama administration seems to think that mid-Atlantic wind farms are economically viable.  If they did, they would be lining up to purchase leases instead of canceling projects, as NRG Energy did recently with the Bluewater Wind project off the Delaware coast.

Yet this president persists in thinking that the U.S. can meet 80% of its energy needs from wind and solar by 2035.  Or at least he persists in saying so. 

All the evidence points to the fact that America needs to increase its domestic supply of oil and gas, and soon.  The left distorts the facts by suggesting that because the nation is exporting refined products, America has plenty of oil.  That line is just the latest in a series of specious arguments: "we can't drill our way out of energy dependence" (actually, we can) or "oil companies aren't drilling all the leases they have, so they don't need more" (fact: drilling has a multi-year lead time and a large number of prospects don't pan out, so there will always be undrilled leases at any one time).

Another variation of the anti-drilling the argument is the idea that "more U.S. drilling won't lower gas prices, because the oil price is set on the world market."  That argument flies in the face of a hundred years of history, during which the forces of supply and demand have largely set the price of a barrel of oil.  The idea that additional production of 9 million bpd -- or even 2 million bpd -- would not lower prices is sheer environmentalist fantasy.  If supply and demand did not determine price, the Arab oil embargo of 1973-74 would have had no effect on prices.  In fact, the oil price surged from $12 a barrel in 1972 to over $100 a barrel (in today's dollars) before the crisis ended in 1982.  It ended because higher prices spurred new exploration and production.

The left always resorts to distortions and outright lies whenever it is unable to win an argument on the merits.  In this case, the merits of increased domestic drilling are clear.  The United States will continue to rely on oil and gas for much of its energy well into the 21st century.  At present we are producing only 49% of the petroleum we need.  Unless we wish to remain dependent on increasingly unreliable sources, we would do well to get behind an aggressive domestic drilling program.

Jeffrey Folks is the author of many books and article on American culture including Heartland of the Imagination (2011).