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Gas Price Perfidy

The president wanted higher gas prices, not a boom in domestic production.

2:05 PM, Mar 3, 2012 • By MARIO LOYOLA
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Speaking at the University of Miami on February 23, Obama again revealed his remarkable gift for oratory. He denied any responsibility for the rising gas prices and instead took the credit for dramatically increased domestic oil production. This took real artifice. Even as a candidate Obama promised that his energy policies would reduce fossil fuels and “cost money.” Secretary of Energy David Chu famously explained, “Somehow we have to figure out how to boost the price of gasoline to the levels in Europe.”

Gas prices

Gasoline in Europe is consistently above $8 a gallon, so the administration still has a ways to go, but it is making a lot of progress. One need only compare the boom in domestic production on private and state-owned land to the vertiginous drop in oil production from federally-controlled sources.

The federal government controls about a third of the nation’s oil production, through federal onshore leases (mostly in the West, where it owns half the land) and leases to drill in outer continental shelf (OCS) starting 10 miles off the coast. The rest of America’s oil production is on state-owned land (including coastal areas) and on private lands subject to state regulation.

As a direct result of the president’s severe constriction of oil production under federal leases, domestic U.S. oil production will be nearly one million barrels per day lower this year than it would have been otherwise.

Meanwhile, production from newly available shale oil and oil sands on private and state-owned land has been booming—more than enough to make up for the steep decline in production under federal leases. That boom, combined with slackened demand since the start of the recession, has reduced America’s dependence on foreign oil to about half its daily consumption of 20 million barrels per day, down from 60 percent in 2005.

The two most important factors in the cost of gasoline are world oil prices (about 71 percent of the price of a gallon of gasoline) and taxes (about 48.8 cents per gallon). Many factors in turn affect the price of oil. Most prominent this year are turmoil in the Middle East, and rising Asian demand picking up the slack of anemic demand in North America. The National Petroleum Council lists several more: weather, inventories, exchange rates, spare production capacity, and problems with “access” to supply in North America.

Expectations of future supply are always a critical factor, and that is where administration policies are contributing most to higher prices. According to the Department of Energy, oil production under federal leases declined 11 percent in 2011, and will decline almost as much again this year. As recoverable reserves soar due to new technologies and rising demand, the volume of production deferred by current policies on federal leases will soon reach several million barrels per day.

Contrary to what it would now have you believe, choking off production under federal leases was quite clearly a priority of this administration from the start. When gas prices reached $4 per gallon in the summer of 2008, the Bush administration reached a bipartisan agreement to open virtually all of the OCS to oil production, ending a thirty-year moratorium. In its first weeks, the Obama administration shelved the plan. Last year, Obama announced a new five-year plan effectively closing all of America’s OCS until 2017, leaving only northern Alaska and the central and western Gulf of Mexico open to drilling.

Now the Obama administration claims that it has actually opened more of the OCS to exploration than before. But that is true only in the sense that he first closed off all of what he could close, then opened up a small fraction of that. But the net effect has been to close nearly all of the OCS that was open when he assumed office.

Even in the few areas of the OCS that remain open, the administration is seeking to strangle production. As a result of the various deep-water drilling moratoriums, a third of the Gulf’s deep-water drilling rigs have left for other shores, dissuaded by the regulatory uncertainty. As a result of the shallow-water “permitorium” even shallow-water drilling has slowed to a crawl. According to the Department of Energy, oil production from the Gulf of Mexico will drop by 700,000 barrels per day by the end of 2012, which further decreases in ensuing years. And as for America’s working families, the combination of moratoriums and “permitorium” are estimated to have cost 60,000 thousand jobs in 2010 alone.

On federal lands the story has been the same. Just as technological breakthroughs have paved the way for tapping into the vast oil reserves of the Rocky Mountain states, the administration cut the number of new leases by 50 percent in 2010 alone.

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