Back when the Clean Cut Kid was still in business, Chad used to make this curious argument: it makes no sense to drill for oil in ANWR because the oil won't be available for at least ten years. Congressional Democrats are now making the same argument. I replied to them as I did to Chad: if we had begun ten years ago, we'd have the oil now, wouldn't we? If we begin now, we'll have the oil in ten years, when we will probably still need it, won't we?
One of my favorite economists, Robert Samuelson, has this at RealClearPolitics:
It may surprise Americans to discover that the United States is the third-largest oil producer, behind Saudi Arabia and Russia. We could be producing more, but Congress has put large areas of potential supply off-limits. These include the Atlantic and Pacific coasts and parts of Alaska and the Gulf of Mexico. By government estimates, these areas may contain 25-30 billion barrels of oil (against about 30 billion of proven U.S. reserves today) and 80 trillion cubic feet or more of natural gas (compared with about 200 tcf of proven reserves).
What keeps these areas closed are exaggerated environmental fears, strong prejudice against oil companies and sheer stupidity. Americans favor both "energy independence" and cheap fuel. They deplore imports -- who wants to pay foreigners? -- but oppose more production in the United States. Got it?
My colleague, Professor Schaff, raises the prospect of "peak oil," the idea that we are have reached the point that the world oil supply can no longer grow with demand, and that the happy days are behind us. The argument that we have reached that point is made in a New York Times article:
“According to normal economic theory, and the history of oil, rising prices have two major effects,” said Fatih Birol, the chief economist at the International Energy Agency, which advises industrialized countries. “They reduce demand and they induce oil supplies. Not this time.”
A key reason that supply is not rising to meet demand is that producers outside of the OPEC cartel — countries like Russia, Mexico and Norway — have been showing troubling signs of sluggishness. Unlike the Organization of the Petroleum Exporting Countries, whose explicit goal is to regulate supply to keep prices up, the other countries are the free traders of the international market, with every incentive to produce flat-out at a time of high prices.
But for a variety of reasons, like sharply higher drilling costs and nationalistic policies that restrict foreign investments, these countries are finding it difficult, if not impossible, to increase output. They seem stuck at about 50 million barrels of oil a day, or 60 percent of the world’s oil supplies, with few prospects for growth.
I am skeptical. So far, rising prices haven't forced Americans or countries with "nationalistic policies that restrict foreign investments" to change their behavior. But the kicker is that the Democrats in Congress are still opposing policies that would increase domestic production. When oil prices do reach that level, one of two things will happen: the Democrats will suddenly decide that they were in favor of new drilling and more refineries all along, or they will be swept out of Congress.
I think that the supply of oil, like that of everything else, will keep rising to meet demand. But there will be short term bottlenecks, like the energy crisis of the seventies. We can spare ourselves a lot of agony by taking steps now to bring more oil into production in the future.
For those who are worried about the effect of this on the environment, I say this: only wealthy nations have ever cared about the environment, or, what is the same thing, could afford to protect it. If oil really seems to be running out before we get an alternative energy source, no one is going to give a rat's ass about sea levels and beach front property.
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