With predictions of $5 gasoline this summer, that “drill, baby, drill” chant is coming back, urging more production of “American oil” to slash the price.
Trouble is, it won’t work -- and not for the reasons you hear most about.
It’s true wells can’t be put into production soon enough to matter to next month’s, or even next year’s, price of gasoline. Putting new wells in service takes years. And it’s true that our resources aren’t large enough, even if we drill from sea to shining sea, to eliminate all our imports from hostile countries.
But the biggest reason drilling “our” oil won’t make a difference is: It’s not “ours.”
It’s “ours” only as long as it is in the ground underneath public lands, like the outer continental shelf. But we have no national oil company. Unlike, say, Mexico, Venezuela or Brazil, we do not have a company whose duty is to supply our nation first. The only way “our” oil comes out of the ground is when we sell that oil to an oil company via a lease.
Once that company pumps the oil to the surface, it is no longer “ours.” Instead, it goes into the global oil market, and the company sells it to the highest bidder.
For a century, that hasn’t been a problem. We have been the big kahuna of oil consumption, and so our demand largely set the world market price. If we wanted more gasoline to drive further in heavier, less efficient vehicles, we got it because we’d pay the price. If U.S. consumers decided to conserve, the world price dropped.
That’s gone on for so long, we don’t notice that oil drilled here does not have to be sold here. The only way to get “our” oil is to buy it back from the Exxons of the world, at the world price.
And that world is changing, as people around the globe strive for better living standards and thereby use more oil. That means more demand from places like China, which only began importing oil 19 years ago. Gradually, the price of oil is being set less by the U.S. market and more by a diversified global market.
That was visible in the world recession, when oil prices didn’t fall in concert with the U.S. economy, and rose ahead of its recovery. Even while demand was lower here – a situation that would have meant dropping world prices less than a decade ago – oil was going up because economies like China continued to grow.
Who benefits from “drill, baby, drill?” The big oil companies.
National oil companies are in control of the big new oil discoveries around the world, and the private companies can get in on the action only as minority partners – often wanted only until the domestic company can get its hands on advanced drilling technology. See the TNK-BP dust-up in Siberia, for instance.
The biggest untapped reserves that private oil companies can get their hands on are on the U.S. outer continental shelf, like the Gulf of Mexico.
More off-shore drilling will most certainly mean more business, and more profits, for oil companies. But with growing global oil demand, it no longer means more supply or lower prices for U.S. consumers.
“Drill, baby, drill” masks that stark reality: other than the emergency supplies in the Strategic Petroleum Reserve, “we” have no oil. Americans have created a market system that assumes we are and will always be the richest folks on earth, able to buy whatever we want, regardless of anyone else’s needs. Once those conditions are no longer true, we have no Plan B – just a lot of oil in the ground, and no way to keep it here once it’s pumped above ground.
“Drill baby drill” will make oil companies wealthier – but it won’t guarantee Americans cheap oil, or any oil at all.
Shill, baby, shill.