After years of neglect, US energy politics at last considers supply. The attention is skewed by the politics of a grueling election year. But skewed attention can be better than none.
Both major political parties, however, seem to construe oil and gas development as an instantaneous phenomenon that can be switched on and off at will. A reminder is in order that development involves a long sequence of contingent decisions and activities, all subject to a range of risks and the vicissitude of economics, politics, and corporate strategy.
Neither party would be discussing petroleum development if oil prices were low. They take up the subject only in response to pressure generated by the pain of high oil prices. They don’t want to appear as powerless with prices as they really are. In fact, the market may be outrunning their promises, having lowered crude oil and product prices impressively in the past couple of weeks in what may or may not be a trend.
Grope for relief
Not every proposal emerging from the political grope for price relief lacks merit. President Bush has lifted presidential moratoriums from oil and gas leasing of the Outer Continental Shelf and challenged Congress to do likewise. Sen. John McCain, the Arizonan sure to be the Republican presidential candidate, has abandoned his opposition to OCS leasing. With this issue, Republicans seem to have found a way to show a testy electorate that they’re doing something about gasoline prices.
Of course they’re not really lowering gasoline prices—today’s prices at any rate. At best, the OCS gestures might moderate futures prices for a while by assuring anxious traders about the potential for new supply. But OCS leasing relates to future oil and gas development and, therefore, prices years from now.
Increased OCS leasing certainly is in order and should have occurred long ago. OCS leasing is essential to new oil and gas production, which serves national interests by enhancing domestic energy supply and stimulating economic activity through the development of native resources. But no one should expect it to lower gasoline prices until whatever production results comes on stream, if then. That will be long after election day.
Democrats, by contrast, say they’ll lower gasoline prices immediately by restricting commodity trading and pressuring holders of existing OCS leases to rush drilling and development. They want to avoid anything, such as OCS leasing, that would anger their environmentalist wing. Their desperate alternatives to OCS leasing would restrict the operation of markets and limit future supply. The effect on prices would be the opposite of what the Democrats suppose.
Both parties need to acknowledge the limits of their influence over markets. That step alone would represent progress in the making of US energy policy. Another helpful move would be to recognize that oil prices didn’t surge because someone controlling supply suddenly decided they should. They increased for reasons not at all mysterious—reasons that include policy errors that shouldn’t be repeated.
The biggest reason for prices to have risen during the past several years is that demand grew faster than supply. In the US, oil prices were so low for at least 15 years that sport utility vehicles and enormous pickup trucks filled highways while few in government heeded calls for attention to future supply. Refineries became ever more difficult to build and expand. And the costs of making gasoline and diesel fuel soared in response to a series of new environmental standards, some of them unnecessarily strict.
Blame irrelevant
Now, of course, there’s no domestic production in places where there might otherwise be because wells can’t be drilled on nonexistent or egregiously restrictive leases. And officials wonder why US refining capacity isn’t greater.
Blame is irrelevant to current conditions. The US energy predicament developed over many years and partly reflects events, such as rising consumption elsewhere, outside the reach of US policy. What the fervor of politics obscures is that no politician has an immediate cure for painful oil prices, which are always addressed most effectively with preventive measures that ensure future supply.
