Sunday, August 03, 2008

American Oil Won’t Lower Prices

Some count on the ignorance of the average person, but when the average American’s brain is turned on, he tends to show intelligence and even wisdom. We've been listening to a ridiculous argument for the past several weeks. It's time to clear this up and turn on our brains. So here goes . . .

Drilling for oil in ANWAR and offshore will not lower energy prices

Providing new oil drilling leases in the Alaska wildlife refuge (ANWAR) and offshore will lower oil prices in America . . . or will it?

Let’s do the math. Supply and demand tells us that prices will fall due to significant change in demand or supply. To keep the math simple and conservative, we’ll assume no more increase in demand (not likely) and no problems developing oil fields, like hurricanes and wars (not likely).

Oil is a worldwide commodity market. Commodity prices are based on world markets, not national markets. Oil produced in America does not go just into the American market, but into the worldwide market. Although some want us to believe oil produced in America can be separated from the rest of the world, it can’t.

So, we need to deal with oil prices on a worldwide basis. Experts predict ANWAR holds about 10 billion barrels of oil and offshore there is about 18 billion barrels. World oil reverses top 1,300 billion barrels.

If America taps ANWAR and the entire American offshore, that would amount to just over two percent of the world oil reserves. Oil prices should go down less than three percent. If the price for oil is $120 per barrel, the price of a barrel would lessen by $2.58 per barrel. The price for Petrol, if going for $4.00 per gallon would go down by only nine cents.

Lowering petrol prices by nine cents certainly will not solve our energy problems.

It’s really a world energy market

Speaking of energy, American oil production is not just part of the world oil market, it’s part of the world energy market. The world energy market consists of oil, coal, natural gas, nuclear, wind, hydro, etc.

Oil makes up about 35 percent of the energy market. The entire world energy market equates to 3,700 billion barrels of oil. Our 28 billion barrels of oil would be less than one percent of the world energy market.

The oil in ANWAR and offshore would have no real effect on the world energy market.

So, why do the oil companies want these leases?

Producing oil does not increase an oil company’s value; assets do. Ownership of these very valuable leases increases an oil company’s bottom line much more than production does. And, remember, the goal of any company is not producing product, but profits. Offshore oil drilling is a sham. It’s really about ownership of assets, not production.

How do we use supply and demand to actually reduce our energy costs?

The United States uses about 25 percent of the world’s energy. If we lower our use by fifty percent (We can do this. We’re Americans, damn it. (See note 1, below.)) we would reduce the world energy demand by over twelve percent.

If the United States were to get twenty percent of our energy demand from renewable sources we would increase the world’s supply of energy by five percent.

A decrease in demand of twelve percent and an increase in supply of five percent would lower energy prices by 17 percent: a good start.

How we use energy is also critical

T. Bone Pickens is right. Please see

Note 1: The highest demand for energy in the United States is from buildings; in particular, air conditioning; not automobiles.


YogaforCynics said...

Must as I hate to agree with T. Boone "Swift Boat" Pickens....

This crap about ANWAR and offshore reminds me of the Sam Kinison line about coverage of the Ethiopian famine "why doesn't the cameraman give the kid a sandwich?" In the long run, this destructive drilling will do little more for the oveall problem than that proverbial sandwich.

GreyTheory said...

Ya gotta admit Kinison was funny f**king guy tho. btw ... I wrote the Pickens Memo.

Anonymous said...


It would strengthen your argument to include the energy independence angle.

Love the piece; you have a new fan.