Wednesday, August 20, 2008

The Price of Gas and Drilling at Home

Let me start by saying that I was never one of the people that believed that saying “lets start drilling more in America right now” would lower the cost of gas immediately. I’m smart enough to realize that it takes time for new drilling projects to put oil into the system. This has been the main argument from the democrats against increased domestic drilling. What I do find really interesting though is that since President Bush removed the executive ban on domestic drilling on July 14th the cost of oil actually has dramatically decreased in price. You don’t believe me? On July 11th, the Friday before Bush removed the ban, the price of a barrel of crude oil was $147.25. Today that cost is $114.78. And just to get back to the cost of gasoline, here are the prices for those dates too. On July 14th the national average for a gallon of gasoline was $4.11. On August 18th it was $3.74.

Don’t get me wrong. I’m not trying to say that President Bush’s action was solely responsible for the 22% drop in the cost of oil and the 10% drop in the cost of gas. At the same time though I think it would be a mistake to think that it didn’t play into it at all.

Of course this is an election year, so I think we should also take a quick look at where the candidates fall in regards to this. John McCain supported lifting the ban, and thinks we should continue to drill more at home, in addition to incentivizing research and development of renewable energy sources. Democrat Barack Obama opposed the lifting of the ban. Although it appears that Obama’s position on the issue may be changing.


Josh Baltzell said...

I got it!

Since a president can lower prices just by adjusting laws then every year right before summer I propose he lifts a new ban, but we don't actually do any more drilling.

Problem solved.

Honestly I am not sure how I feel about allowing drilling to happen basically anywhere (Do we have any bans left if we allow close to shore drilling and drilling in the Arctic Wildlife Reserve?)

Let's say that a person is addicted to cocaine just to get his work done. But prices are so high now that he can barely afford to buy his coke anymore. Should we make more coke?

Maybe if cocaine was too expensive he would switch to coffee.

Josh Pollard said...

apparently you missed that part where i said "...I’m not trying to say that President Bush’s action was solely responsible for..."

your argument about cocaine vs coffee isn't relevant. coffee is already exponentially cheaper than cocaine.

Josh Baltzell said...

Okay, how about this. The guy is addicted to cocaine and he switches to prescription pain pills? Wait, that's not good. Okay, how about he is addicted to huffing paint, but paint prices get high so he switches to sniffing glue? Wait. Maybe he sniffs oil. What does this have to do with oil again? Maybe...

Wait again! scratch that last section.

It's not exponentially cheaper than Starbuck's.

Josh Baltzell said...

Is there a place we should not drill?

Anonymous said...

Yeah, I'm not going to try and be quite as unbiased.

So, you were right to point out that Bush wasn't "solely" responsible for the decline. You do imply that he definitely influenced the trend. The truth is, his actions may have or may not have. My personal opinion, which seems much more likely, is that it was solely due to OPEC lowering the prices due to decreased demand world wide: the most basic of economic motivations.

Obama's position, if I'm not mistaken, did start off as a gut reaction "no" to off shore drilling. I believe he has since said that it should be limited and done in an environmentally friendly way.

Personally, I don't think it's possible that drilling for oil could be environmentally friendly in any way. I don't think there should be a gasoline powered car built after 2010. I know this won't be popular, but I'm actually glad the price of gas has gotten so high. Don't get me wrong, paying $100 to fill up my truck hurts. I still think the price of gas should be much higher. I believe all of the prices of things should take into account the full cost of their consumption. Cigarettes should be taxed enough to pay for all of the future medical bills due to their consumption, businesses should be taxed for the education their employees have received (property tax doesn't make sense), cars taxed to pay for roads, gas taxed to pay for the damage...

Oh yeah, the damage caused by the consumption of gas can't be accounted for monetarily. So, I guess we should ignore the unpaid costs; be completely irresponsible, cut all taxes on gas and drill to get as much as we can. After all, the only thing we should worry about is how much cash makes that weekly exodus from our wallets, right?

It seems the typical Republican response to ignore the responsibilities of humanity-scale issues. Health care, environment, education...

What happened to "by the people for the people?" Republican politics seem to me to be "by the individual for the individual."

Alright, off my soapbox...

Josh Pollard said...

This comment is in response to Paul, who I don't think I know. First off, thanks for the well thought-out and well articulated response.

I think its obvious that you and I disagree on a lot of things. But I do think there are more things than you might suspect that we do agree on. Maybe I'll get to those after I respond to everything you said.

Actually, I think the first thing we agree on is that neither of us know for sure what cause the price of oil to go down so much. I don't think it could solely be OPEC because we don't get all of our oil from OPEC. Actually, we get most of it form Canada.

As to Obama's current position (which it sounds like we agree is changing) I'm not completely sure where it is today. The last I heard he would hold his nose and vote for a bill that included off-shore drilling if it included other things towards green energy.

The next two big paragraphs are where you'll find the bulk of the things we disagree on. I don't think I want to get into whether drilling for oil can be done in an environmentally friendly way. I think there are ranges to that, and both extremes are ridiculous. So I'll move on to the issue that I'd really like to talk about here with you, and which will most likely end up being a future blog post of mine.

I believe you when you say that you wish gas cost a lot more. There are many people on the far left side of the democrat party that feel that way. I think your intention behind that is to drive the American public, and auto makers, toward green cars. That is a great reason, and a fantastic end goal. Cars that emit zero carbon that can be fueled by renewable resources is something that I absolutely want.

Where we really disagree is how to go about doing that. It sounds like you believe that taxation is the right way to spur this change. I believe that we should offer economic incentives to spur the exact same change. It really is a core difference in the way conservatives and liberals look at things. Liberals want to tax (ie punish) bad behavior while conservatives want to reward and incentivize good behavior. You dont want to people to use a lot of gas, so you propose huge gas taxes. I want to people to buy fuel effecient and eco-friendly cars, so I support tax incentives for buying them.

At the end of your comment you talk about how republican policy is irresponsible and uncaring. On the contrary though. I think that to increase gas taxes hurts one group far more than the others, and that group is the poor. The poor are the people who in 2010, when you propose we dont build anymore gasoline powered cars, will still be driving around cars from the early part of this decade that have bad fuel economy. And because the gasoline taxes (and all of the other taxes you propose) continue to suck money out of their wallets they wont be able to afford the awesome new electric cars.

Instead, if we offer incentives to businesses to produce green technology then more companies will do it, which will then bring down the prices. If we also offer incentives to consumers to buy this new green technology, then more people, including poorer people, will be able to actually afford it.

So after all that you might still be wondering what agree on. The biggest thing we agree on is that we need to move towards renewable resources, and quickly. John McCain believes that too, far more than Bush has.

Josh Pollard said...

josh baltzell,

the main problem with your argument is that people dont really NEED cocaine, or starbucks, or any of that other crap.

What we do need is oil. Its unfortunate, but true. So while we move in the direction of renewable resources we still have to have oil. I think it makes a lot of sense to make that oil ourselves, instead of sending $70 billion a year to other countries.

Anonymous said...

So, I can see some of your points. However, there are some issues in there that I'd like to address.

First, yes, Canada and Mexico are 2 of our 3 major oil suppliers (1&3), Saudi Arabia being 2. However, pricing is mostly determined by the three major exchanges (in NY, London and Singapore). These, like all "future" prices are determined by people making "educated" guesses. These are strongly influenced by the actions of OPEC, whether or not they actually make a difference. In this case, about that time frame OPEC decided (publicly) to increase production.
Whether or not they did, this coupled with the decrease in demand....

The second is the "punishment" vs "reward" theory. You mention democrats "punish" people with taxes. I think that you assume, as others do, that any tax imposition is punishment rather than an "accounting." If trying to make people accountable for their actions, for the damage they do, is "punishment," then yes, I say punish them. We do have a legal system for certain damages people cause (and associated "taxes," or fines), to keep them accountable, but I think we're better off taxing in this case (actually, I feel the same way about drugs and prostitution, make them legal, but tax them enough to account for the damage, but I digress). You also mention that this tax would punish the poor, as they would not be able to afford the gas. However, the truly poor rarely have cars and commute primarily by bike, bus or some other form of public transportation. In essence, a tax would increase the number of people forced to commute in a green way (and get rid of the cost of cars, gas, insurance, etc); how is that a bad thing?

Addressing the incentive idea: the only people benefiting from an incentive are those that can afford to purchase the items for which the incentive exists. The rich save more money. The poor won't be buying the new cars. In essence this just increases the gap as the rich will simply save on switching over to something that will save them money; the cars themselves should be "incentive" enough.

The two groups that I do believe in giving "incentives" to are 1) educational institutions researching advances in technology and 2) corporate research groups, given the work and subsequent results are shared. The latter might not seem feasible, but it is. It's done in the private sector all the time. As for sharing the results: If we are giving incentives, it seems everyone contributing (all of us tax payers paying that tax on gas which would make up the difference) should reap the rewards.

Yes, McCain is "greener" than Bush; is that an accomplishment?

To chime in on the other part of the thread: do we really need oil, or have we become dependent on it, as some people have become dependent on cocaine or coffee?