Baseball Crank
Covering the Front and Back Pages of the Newspaper
July 9, 2008
POLITICS: Winning The Battle on Drilling

Monday:

"There's clearly a dramatic shift across the ideological divide in America in favor of producing more energy here at home," Senate Minority Leader Mitch McConnell told reporters.

"I can't imagine that the majority (Democrats in Congress) is going to ignore that indefinitely," McConnell added.

He cited a poll released on July 1 by the Pew Research Center that found that 45 percent of respondents who identify themselves as "liberals" said they favor expanded energy exploration, mining, drilling, building more power plants. In February, the figure was just 22 percent.

Tuesday:

A top U.S. Democratic senator said in a newspaper interview published Wednesday that he would consider supporting opening up new areas for offshore oil and gas drilling.

"I'm open to drilling and responsible production," Senate Majority Whip Richard Durbin told The Wall Street Journal, adding that Senate Majority Leader Harry Reid could also support the move.

Your move next, Speaker Pelosi and Senator Obama.

Posted by Baseball Crank at 9:03 PM | Politics 2008 | Comments (37) | TrackBack (0)
Comments

Anyone who thinks that domestic drilling of oil will create more energy independence at home is a moron, plain and simple. I think T. Boone Pickens wrote it better in the WSJ than I could. And any of you who wants to refute me better realize that Pickens has forgotten more about the oil industry than all the speculators out there will know combined. And don't forget that it takes upwards of 10 years to make additional finds viable. We are already beyond any refining capacity. So calling for more drilling is like calling to release those few drops from the Strategic Reserve, which is meant for military and real domestic emergencies: A cynical and useless political ploy.

The move Obama should make? The same one he said about that stupid gas tax relief: NO.

Posted by: Daryl Rosenblatt at July 9, 2008 9:32 PM

Increased drilling is only a benefit of the oil companies - they have too much cash as it is, and this allows for using that capital in friendly areas rather than overseas, where they might actually have to pay reasonable fees. Let alone dealing with problems in nations that are going to struggle with increased fuel/food costs.

"Winning the battle on drilling" == "giving oil companies a chance to make better profit"

Not making life better for Americans. It's a shame Republicans can't be honest about this. Predictable, but a shame.

Posted by: Dave at July 9, 2008 10:20 PM

Daryl and Dave,
I fail to see how more energy resources is a bad thing. I fail to see how using more American resources won't lead to more energy independence. The future is still hydrocarbons as T. Boone Pickens fully well knows. Pickens still wants to make money. He wants subsidies and mandates that make his wind turbines economical and he wants to increase the value of natural gas so his natural gas investments will make more money.

Pickens is just in it for the money, he obviously isn't interested in energy independence because wind energy won't help with energy independence. Pickens doesn't like to mention that wind is only used to make electricity, but electric cars aren't on the road. And oil only produces about 2% of the electricity in the US. So wind energy isn't helpful to reducing dependence on foreign oil.

Wind power can't replace the natural gas used for electricity production and Pickens either knows that or he knows nothing about electricity. Wind is intermittent--you can't tell it when to blow. Because it is intermittent you have to use natural gas powered backup in case the wind stops and you still want electricity. Wind increases the reliance on natural gas, not reduces it as Pickens asserts. So Pickens plan doesn't help reduce dependence on foreign oil. If anything it increases dependence on oil natural gas since we will have to import more.

Lastly Dave, I'm sorry you like paying high prices for gasoline, but I don't. I'm all for allowing oil companies to have greater access to oil supplies because greater supplies will reduce the price. If you think this is a give away to oil companies, please start and oil company and bilk me and the rest of America. This is America and we like private enterprise like that.

The Republicans are being honest about increase oil development. It will help bring down the price of oil. It's simple economics.


Posted by: Daniel at July 10, 2008 1:27 AM

"I fail to see how more energy resources is a bad thing"
Didn't say it was a bad thing - but nice strawman. Always easier to address other things than what is said. What I've said, here and before, is that it won't make a difference, and it's more for the oil companies than Americans.
50 years of poor management and policies built around cheap oil needs more than drill. Especially since it won't shift the market enough.

"I fail to see how using more American resources won't lead to more energy independence."
Refineries buy oil the cheapest they can, crack it, and sell it off. American resources don't matter - $70 oil off the coast of Florida will be bought after $20 oil off of Venezuela, and after $45 tar sands from Canada.
The upstream and downstream activities are separated in the large oil companies - if Exxon contracts selling that Florida shelf oil to Germany for more than it can sell it to a refinery in LA, it's going to do it. Being how strong the Euro has been (and likely will be), Germany could bid 100EU and have it be priced at 150USD - if you see the dollar sinking over the years, you'd go for the German contract.
We cannot achieve "more" energy independence by drilling - independence is not a sliding scale. Market demands will still go to the cheapest oil.

"Lastly Dave, I'm sorry you like paying high prices for gasoline, but I don't."
I love strawmen too. Now, you can kick puppies all you want, but I say no way.

"I'm all for allowing oil companies to have greater access to oil supplies because greater supplies will reduce the price. "
There is not a supply problem right now, and greater supplies will not necessarily reduce price.
The standard Supply-Demand axis everyone knows is a long term view, and doesn't take into account what we're going through now - part bubble, part declining dollar.
Greater known supplies will definitely reduce volatility - it will not definitely reduce price. This is an important distinction.

In addition, go and look up a few things about oil - Proved, Probable and Possible. The fact that our proved reserves could double, and not make more than a 2% difference worldwide (no one believes exploration will give us that much). Even if daily (national) production was to go up by 20%, it would be less than 1% worldwide. Not enough supply to shift the market by more than 10%.

"If you think this is a give away to oil companies, please start and oil company and bilk me and the rest of America."
I just want honesty.
My plans to buy some cheap land in ND and Texas fell through a couple of years ago, sadly(yay bubble). Those were actually private, instead of suckling off the public though.

As to Pickens - he wants Wind to replace NG as a major part of the electrical generation, and NG to replace oil. NG compressors, if subsidized (free for all gas stations, 90% off for homes) could allow this. And make more of a dent in oil consumption, and price, than any drilling. Not even saying good, but I wouldn't be surprised if he includes this.

http://www.eia.doe.gov/oiaf/servicerpt/anwr/introduction.html
Take ANWR - 75c per barrel, and few people believe coastal (or national) drilling would equal this amount.

"It will help bring down the price of oil. It's simple economics. "
It won't substantially, and it is so much more than simple economics.

Posted by: Dave at July 10, 2008 5:36 AM

US politicians are carrying the water for oil companies?
Color me shocked!

Posted by: Berto at July 10, 2008 8:05 AM

Claims that more supply will not effect price just don't hold water. You can argue the magnitude of the impact or the timeline, sure. And I agree that more oil supply is not in and of itself the only answer. But more domestic supply is a no-brainer under these circumstances, and we'd be better off today if we'd done this 10 years ago.

It's also about closing the current-account deficit on oil - we consume more than we produce, which means a serious outflow of capital. Trade deficits ordinarily don't worry me that much, but in the oil market that means a major flow of capital to a bunch of places we would rather not subsidize. Reducing that deficit is a good independent of the overall effect on world price.

Posted by: The Crank at July 10, 2008 9:17 AM

For those of you complaining about the oil companies, recall that it was the Democrats who supported tax breaks for Citgo. I'd rather see money in the hands of American companies with American employees and shareholders than in the hands of Hugo Chavez. Funny how the people who shriek about 'outsourcing' are still so hostile to seeing domestic business prosper.

Posted by: The Crank at July 10, 2008 9:23 AM

All other things being equal, greater supply of oil will keep prices from rising as quickly. The facts are, however, that it will be many years before a drop of oil from any of these areas reaches a gas pump. (Sorry, Daniel, get used to much hogher gas prices.) In the meantime, increased demand from China and elsewhere will easily out-strip any benefit from drilling.

Still, like Sen. Durbin, if it can be done responsibly and the oil companies are fully responsible for any damage they cause, off-shore drilling can be a piece (albeit small) of the response.

To be relatively independent, we need to develop new sources of energy (including nukes) and, equally importantly, to increase conservation and savings. Behavioral changes are necessary and they are brought about only by price shock (e.g., the Arab oil embargoes of the 70s leading to development of more fuel efficient cars).

Posted by: Magrooder at July 10, 2008 11:25 AM

This is a non-starter issue and ignores the real issue with the current jumps in the price of oil which have little to do with supply and demand. There are currently 1,000s of leases on millions of acres off-shore of America that are already approved for drilling. If the oil companies wanted to drill for oil domestically they have more than enough opportunity to do so as things stand right now. Dave has already outlined the oil issue more thoroughly and explained why oil does not function like other products in terms of simple Ec 101 principles. There are other issues related to speculation in the marketplace and how that functions that have had far more to do with the astronomic increases in oil over the past year or so.

As Dave said, if you think domestic drilling approvals (again, there are plenty in place already that go unused) are the key to reducing the cost of oil you are completely bamboozled and should get a reality check.

Posted by: jim at July 10, 2008 11:33 AM

Wow, Jim, I did not know that anybody actually believed the load of crap the Dems have been pushing about those leases. (Leave aside the fact that in many cases those are leases for sites where the government won't let them drill). Oil drilling is like new drug development: you need to take a lot of shots to get one hit. Naturally, nobody drills every possible hole at once - there's a whole process of exploration and approval-seeking to decide which ones are actually more likely to pay off.

Speculation is actually one reason why we should see some immediate benefit from approving greater productive capacity. Oil futures are in a bit of a bubble, as people expect the price to rise forever. If Congress approves more domestic production, that may take years to get new barrels to the pump, but it affects futures markets immediately since it alters the expected future supply.

I don't see a practical plan for conservation that doesn't have its own huge costs to the economy, unlike increased domestic production. I agree that increased demand, esp. from China (which stokes demand by having the government absorb price increases and keeps the pump price artificially low - oh, the benefits of socialism!) is a far larger factor than US domestic production or conservation is likely to be. I love McCain's support for nuclear, but nuclear doesn't affect cars, which are the main driver of demand.

I've been coming around to the view that the real big-ticket answer is to compete with oil by moving to flex-fuel cars that run on methanol. McCain seems to be backing that option...I have a longer post brewing at some point on his and Obama's energy policies.

Posted by: The Crank at July 10, 2008 11:44 AM

Let's give someone $300 million if they invent a more efficient automobile battery. That's just as sound an idea as anything else he has to offer. Just because it's a complete political gimmick, a non-starter, another "maverick" idea and utter hooey doesn't matter, does it?

Re-read Dave's entry on oil and drilling. There are people in the field that know what the real deal with domestic drilling is about and it ain't lower gas prices. The more the government insists at throwing money at oil companies the less likely we are to effectively move out of the "bind" we find ourselves in. Of course, relatively speaking, we still have some of the cheapest gas prices in the world.

If you're fat you can try all the gimmicks or you can eat less and exercise. It's an analogy.

Posted by: jim at July 10, 2008 12:17 PM

First, I do apologize for the moron crack. You are entitled to a difference of opinion, no matter how misguided

McCain's $300 million prize shows just how short sighted he is. Can you imagine the income from the person or company that actually develops such a battery? $300 million is chump change; $3 billion is too. The prize is that large, and he doesn't see that.

The list of power available to people has changed economies for millenia. There is a reason that two of the most important inventions in history are the moldboard plow and the oxen collar. Probably the top two, the stirrup three and the wheel maybe four. In two centuries we've gone from water/wind to steam (well a two chambered boiler burning first wood then coal), so coal, to oil to whatever is next. Oil packs a reasonably efficient punch for the weight, which is why it's used. However, the amount we can get and still economically expand is no longer viable.

Even if we go nuclear, we are still limited to the Uranium available, and since so much is from Russia, it's not a source I trust. Domestically, or even from a planetary standpoint, wind and solar, hydrogen and maybe fusion, should that ever come, are the areas that the next phase will be. So depending on new oil sources as a band aid is no answer. The patient isn't bleeding, it's hemorraging, and major surgery is indicated. The hydrocarbon energy era, which has lasted for 300 years or so, is now over.

Posted by: Daryl Rosenblatt at July 10, 2008 12:57 PM

I think almost everyone agrees that more drilling won't actually produce any more oil in the next few years, and even when it does the impact might not be all that substantial. But I still think it's better to drill than not to. The high price of gas is mostly based on speculation, and speculation is based on anticipated future supply and demand. Anything that increases projected future supply has to help at least a little bit.

Posted by: Jerry at July 10, 2008 12:58 PM

The battery thing is even more ludicrous since IT WAS ALREADY TRIED. Failed. Battery technology is a dead end and anyone who knows the slightest bit about energy development/engineering knows that. It's helpful that the public, in general, does not so you can announce such a bogus plan.

Posted by: jim at July 10, 2008 1:44 PM

Since, as Jerry notes, there seems little dispute that opening up areas for drilling now won't have an impact for years, it will have a vanishingly small impact on futures contracts for the foreseeable future. An even greater uncertainty is actually the extent of reserves the oil companies have now. No one knows. Given commodity price fluctuations, there will always be "speculation."

And, yes, widespread efficiency improvements and conservation measures will be costly. But pretending there is some magic bullet off the shore of Florida will cost far more in the opportunities lost in the meantime.

Posted by: Magrooder at July 10, 2008 1:55 PM

http://www.technologyreview.com/read_article.aspx?ch=specialsections&sc=biofuels&id=19128&a=

I think the answer is more along these lines. I read in a different article that they predicted production at a rate of about $4.50 per gallon. Not cheap, but the cost will not increase drastically (In fact, it should decrease as the technology gets better), and it sucks more carbon out of the air than it puts back.

Gasoline at less than $4 a gallon is an extinct beast. Americans have proven that we will still buy it t any price, so why would the price ever drop?

Posted by: Zufall at July 10, 2008 4:25 PM

"Gasoline at less than $4 a gallon is an extinct beast. Americans have proven that we will still buy it t any price, so why would the price ever drop?"

Right, there is no top, like real estate, no? Re US gasoline demand has dropped to its lowest level in 5 years, same pattern forming in the EU. China is reducing their subsidies as well, this will impact their consumption. Increasing supply is never a bad thing, drill deep, drill often. Kinda funny, we are the only country on earth not attempting to increase domestic supply. Clearly Bush is on to something.

Posted by: abe at July 10, 2008 5:19 PM

"Clearly Bush is on to something." It is not wise to take hallucinogens before posting.

Posted by: Magrooder at July 10, 2008 5:26 PM

Frankly, a lot of the Democrats' approach to energy can only be explained by that attitude, Magrooder - if Bush supports something, they must find a reason to oppose it.

Posted by: The Crank at July 10, 2008 5:28 PM

I'd take the bus to work, but the decrease in gasoline demand would be so small, it wouldn't really matter. So I drive my car to work.

Taking the bus would help fight global warming, too, but again the effect would be so negligible, and it would take so many years for the cooling to start, I'm just going to continue to drive my car.

Posted by: Democrat Logic at July 10, 2008 5:39 PM

Of all the blatant panders this campaign season, my favorite after the McCain/Clinton summer gas tax suspension is McCain's claim that lifting the ban on offshore drilling will create immediate, short term price relief at the pump. It sounds like even bright conservatives such as Crank have sipped the kool aid on that. Or are they just bluffing the point because of the recent public surveys favoring offshore drilling? Either way, its a wholly false claim.

Posted by: seth soothsayer at July 10, 2008 6:18 PM

You may recall that Obama also supported a gas tax holiday in Illinois, to the point of joking (I hope he was joking) that they should put a picture of his face on the gas pumps to tell people that he was responsible for lower gas prices.

He seems to have moved off that position, though.

Posted by: The Crank at July 10, 2008 6:24 PM

Allow me to assist, Crank.

"...if Bush supports something, it's probably for the benefit of the few (connected corporations and the rich) rather than for the benefit of the citizens."


Watch it "Democrat Logic" at 5:39, or soon you'll be taking on the NRA member about certain types of guns.

Posted by: Berto at July 10, 2008 8:02 PM

Crank, the "you just oppose Bush" response is just too easy. I do oppose, strongly, most of his policies, but not because he proposes them.

For example, his push for a climate change agreement among the largest emitting nations is the right way to go; the UN process is totally dysfunctional.

He has been one of the worst Presidents we've had.

Posted by: Magrooder at July 10, 2008 9:54 PM

One of the things that goes largely unsaid in this campaign (intentionally, of course) is that Obama and a lot of the more environmentally-minded Democrats view higher gas prices as a positive thing - an agent of change that will make people alter their behavior. None of them are so dumb as to fail to realize that isn't something you can say while running for office. But I do believe it's a subtext to their thinking.

Posted by: Jerry at July 10, 2008 11:07 PM

"Right, there is no top, like real estate, no? Re US gasoline demand has dropped to its lowest level in 5 years, same pattern forming in the EU. "

Don't confuse decreasing demand with a price ceiling. VMT went level in late 2006, and has started to drop since 2007 - decreasing demand was obvious once you started to watch that, and yet price still walked up. Not including the Baby Boomers not driving as much as they've gone into retirement, slowing down the 1% growth.
An extra 200k people out of work since last year would put a ding in consumption - if they stopped using their 4gal a day - let alone people who don't have that much stability either, or discretionary income.
This means that determining a current ceiling is near impossible in a weak economy with (still) loose money supply. However much of the current price that is bubble lasts till turnaround, that's what to look at. Combined with how many people shift closer to their jobs, or are able to afford better MPG cars.

Gas is inelastic, and if the price went up to $5 or $6, there would still be tens of millions who would only have a choice between losing their job, and paying up(car or location). Until they could afford the price difference in buying a more efficient car, or moving closer, or getting a new job. If MPG was 35MPG instead of 20(real numbers), and there was an extensive public transit system - much less impact. Especially if sprawl was avoided.

Wow - people who pushed those things for the past 20 years would look like visionaries. Miracle men. Of course, I'm sure they would be called enemies of free markets, and supported policies that hurt America (even though they would help now).

Posted by: Dave at July 11, 2008 3:50 AM

"One of the things that goes largely unsaid in this campaign (intentionally, of course) is that Obama and a lot of the more environmentally-minded Democrats view higher gas prices as a positive thing"
I can't remember the post, but Crank has a Redstate roundtable that included someone who said the same thing, but using a gas tax as the same. I think the reasoning was different.
Positive thing in itself no - surrendering billions overseas and to corporations in order to change the world for their mindset? Depends on ends-means and all that, which is more individual than party.

Our economy should not be subject to the whims of a cartel that can choose to actively work against us for policies that are generally good(see support of Israel, 1973+), and drilling will not end this. Our wars have made us fewer friends, and more people who can see us as vulnerable with a reason to poke us. The coming... err... possible strikes against Iran aggravates this. This is my view, but I have no problem with those who share it from a purely environmental point of view. It dovetails, and I share some of those views.
The Republicans should view this as well - but as Crank's post illustrates, 'Winning' is drilling - not 'winning' on conservation, or speculation, or the weak dollar. And drilling is the weakest of the three legged stool, and most likely to mean less to the average person if the increased price we are seeing is half bubble.

"Claims that more supply will not effect price just don't hold water."
It's not about not moving price - it's how much - $2 gas? $3.50? $4(holding). I have no problem with people who say that it may help to hold - very much those that hint at $2 gas by drilling. Math, common sense, knowledge of how markets work. All of those bother me.
And as for 10 years going back? As you can see from the snark above, aggressive conservation methods over 10+ years would mean more than aggressive drilling. Not to oil companies though. Hey, it's not like we have a half dozen oil execs in near-top positions in government. (Mmmmm, conspiracies, they are so delicious).

"It's also about closing the current-account deficit on oil - we consume more than we produce, which means a serious outflow of capital. Trade deficits ordinarily don't worry me that much, but in the oil market that means a major flow of capital to a bunch of places we would rather not subsidize. Reducing that deficit is a good independent of the overall effect on world price."
Yes, very much so - but this does not come out. Could you imagine a politician coming out and saying
"Drilling may drive price down, but may not - really, it's a guess as to if it will, by $1 or $60, in either the short term or long term(5+ y). That oil that is pumped is likely to be consumed here, but it may not be. However, if that oil is shipped overseas, it would improve the strength of the dollar, which should help for overall oil prices, but honestly it's just too much to judge by more than coin flip right now. And if it's not, it means we may have to buy less from Shell's operation overseas".
That there is honesty - I expect it from my trading friends, or people who understand how financial markets works. When a politician comes out and says it, I'll perk up. Until then, I'll look at it as a hybrid of pandering+giveaway+lack of understanding.

"Democrats who supported tax breaks for Citgo"
Citgo is a refiner only - not a driller. The same applied to Valero, only with a public ownership rather than national(hey - remember "foreign power and FISA"?).
'Tax breaks for Citgo' DNE 'Tax breaks for refiners who do not drill'. Venn diagrams, they are friends to everyone, used by few - hated by people who want to slur and cherrypick.

Posted by: Dav at July 11, 2008 4:57 AM

Wow. Lot of partisanship clouding the vision here.

How 'bout this radical idea? We permit off-shore drilling and we encourage exploration of, and investment in, alternative sources of energy. The first option costs the government nothing and the second, relative to most federal programs, isn't terribly pricey.

What's the problem with a broad-based approach, grounded both in the reality that we have present day energy needs and that the future demands flexibility and change?

Posted by: Mike at July 11, 2008 6:30 AM

Makes too much sense, Mike. And besides, it's not divisive enough.

Sorry, Bub.

Posted by: spongeworthy at July 11, 2008 10:25 AM

Adding forward supply doesn't do too much to fix a supply/demand imbalance today. But Democrats are arguing that speculators are responsible for the price swings. You can argue that forward supply won't fix a price shock today or you can argue that speculators are driving the price but you cannot argue both.

Unless your audience is ignorant of markets.

Posted by: spongeworthy at July 11, 2008 10:43 AM

Spongey,

"Democrats are arguing that speculators are responsible for the price swings"? Have you read the string?

Here is an excerpt from none other than the Crank himself:

"Speculation is actually one reason why we should see some immediate benefit from approving greater productive capacity. Oil futures are in a bit of a bubble, as people expect the price to rise forever. If Congress approves more domestic production, that may take years to get new barrels to the pump, but it affects futures markets immediately since it alters the expected future supply."

Posted by: Magrooder at July 11, 2008 2:11 PM

Mag, you're making my point for me. You people are claiming the forward supply won't affect prices because there's a supply/demand imbalance. In the same breath you claim the swings are due to speculation. As Crank notes and you seem now to agree, forward supply will shake the specualtors from their trees.

You need to pick one argument because you cannot have both.

I am not surprised that you are having trouble with this.

Posted by: spongeworthy at July 11, 2008 4:11 PM

Mag, I don't agree with either of those points. I was merely pointing out to you that your reflexive finger-pointing at Democrats was factually disproved by the very string in which we are writing.

Posted by: Magrooder at July 11, 2008 4:50 PM

The Crank,
That's not a load of crap the Dems have been pushing about land leases. it's the truth. perhaps you are confusing it with the security you've been told you'll receive if the govt. invades your privacy (ask them to prove it sometime, just for laughs).
Having more land leases (including ANWR and off the coasts of FL and CA) is about a better bottom line (more land, higher value of their stock).
If they drill for oil, they may find enough to effect supply. But that will drive the costs (and their profits down). Please direct me to the shareholders and board-members of oil companies who want less profit. (Let me know how long you need to put this extensive list together).

The fact you don't see this obviousness may explain why you back a Presidential candidate who self-admittedly knows nothing about economics.

Posted by: Berto at July 12, 2008 6:00 PM

Holy effing Jeebus but that was dumb. I am dumber for having read it.

Posted by: spongeworthy at July 14, 2008 10:53 AM

spongeworthy,
Read this, then you'll really feel dumb.

A record 1.6 million barrels a day in U.S. refined petroleum products were exported during the first four months of this year, up 33 percent from 1.2 million barrels a day over the same period in 2007. Shipments this February topped 1.8 million barrels a day for the first time during any month, according to final numbers from the Energy Department.

Private corporations care about their bottom line, period. They don't care about the peon citizens and their whining about being poor. And that's the beauty about capitalism. Pretty, huh?

Posted by: Berto at July 14, 2008 7:22 PM

Berto, the beauty of the free market system is that unlike government, its effectiveness does not depend on the goodwill of the participants.

Posted by: The Crank at July 14, 2008 7:41 PM
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