Thursday, August 14, 2008

Expand Drilling? Fine, Put it on the Table.

The Republicans think they have a winner in their support of more domestic drilling. Like many non-Republicans, my initial instinct is that it's only a winner for the GOP base. The upward price pressure is much more demand-driven than supply-driven, the delay from legislative action to gas at the pumps will cause the relief to be too little/too late, and the growing acceptance of the reality of global warming has made environmental concerns more of a priority in voters minds than it was when the drilling restrictions were put into place, etc. And like many, I have actively opposed expanded drilling in environmentally sensitive areas, maintaining that the risk/reward ratio is just too high.

In recent days, however, some Senate Democrats have been working on a bi-partisan compromise that would allow some expansion of off-shore drilling. And while leadership on both sides has given this compromise outline a cool reception, even more recently both Barack Obama and Nancy Pelosi have indicated that expanded drilling is at least on the table. So although I think the demagoguery going on in D.C. right now is pretty silly, and although I tend to be among those who get quite upset when Dem leadership abandons positions that supposedly represented principles, I'm finding myself willing to support a compromise measure. Because as I worked it out in my head, the principle is the same, it's the facts that have changed. And even if the public doesn't understand the facts, they do understand that they have changed.

The risk/reward ratio is changing, and will continue to change. The environmental risk isn't getting much smaller, but risk can be minimized in the terms of the compromise. The reward of drilling is getting greater. Not for the planet, and not for end-users of petroleum products. The relatively small increase in world oil supply will do little to soften long term upward pressure on gas prices. The reward will come in the form of oil companies selling U.S. oil on the international market for buttloads of cash. And although the bulk of that cash may stay in the hands of oil interests, and much of it may not even stay in the U.S., some will. And that bit that will get bigger as world prices go up. And that bit will get bigger if the compromise sets up an investment and tax structure to discourage the cash from going abroad. What it is important to realize, then, is that unless green energy takes over the world far more rapidly than anyone predicts, the U.S will do more domestic drilling. If oil hits $400 per barrel, the environmental risk will be essentially similar, but the financial reward will be 3-4 times greater. If it is theoretically possible for the risk/reward ratio to ever be small enough to allow drilling, the odds are overwhelming that we will eventually see it become so. If you don't think it's even theoretically possible, then you're more extreme than you probably even realize.

So, what will maximize the benefit of that drilling? If we produce the oil, and don't use a single drop of what we produce. If our hydrogen-powered tankers are shipping $400 barrels of oil to China, for which they are paying hundreds of dollars per barrel in capped emissions allowances.

So I'm not willing to support expanded domestic drilling to reduce oil prices. That, as a strategy, is misguided and ineffective. A compromise that permits drilling, but puts us in a better position to prefer higher oil prices to lower oil prices, that I can do.

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