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More U.S. Oil Drilling Won't Lower Gas Prices, Experts Say

First Posted: 05/06/11 11:46 AM ET Updated: 07/06/11 06:12 AM ET

Oil Drilling
More U.S. offshore oil drilling won't drive down the price at the pump.

WASHINGTON -- Republicans used the politically potent argument about the cost of gas Thursday to pass a bill expanding offshore oil and gas exploration. But analysts say there's a major flaw in their case: More drilling will barely budge prices.

The Restarting American Offshore Leasing Now Act, which passed 266 to 144 with 33 Democrats buying into the scheme, orders the Department of the Interior to move quickly to offer three leases to drill in the Gulf of Mexico and one off the coast of Virginia. The bill demands that the leases be executed by next year.

But the legislation won't reduce the price at the pump, experts said. Nor would a vastly more ambitious effort have much impact.

"It's not going to change the price of oil overnight, and it's probably not going to have a huge impact on the price of oil ever," said Mike Lynch of Strategic Energy and Economic Research, Inc. referring not just to those four leases, but to expanding all U.S. drilling.

Yet House Republicans -- backed by nearly three dozen Democrats -- held out their push for exploitation of the four tracts as a panacea for the weak economy and high gas prices.

"Republicans are standing with the American people, who want us to increase the supply of American energy that will lower costs, reduce our dependence on foreign oil, and create jobs here in America," House Speaker John Boehner (R-Ohio) proudly declared. "And I’m certain –- with $4 per gallon gas -– the American people will remember who listened to them, and who didn’t."

"I think high gas prices and high energy costs are crushing jobs and are just unnecessary," Rep. Glenn Thompson (R-Pa.) told The Huffington Post. "When we have access to domestic resources, gas prices go down. That’s what happened in 2008 when Bush opened up the outer-continental shelf."

Rep. Doc Hastings (R-Wash.), the bill's lead sponsor, made the same argument Wednesday.

"If we send a signal to the markets that we’re going to go after the resources that we have in this country," he told bloggers on a conference call, "I think that will have a positive impact on driving the price of gasoline down. As a matter of fact, that happened in 2008."

But people who study oil markets for a living say they are wrong.

"I would really doubt that that [2008 price drop] would have been because we committed to more drilling," said Phyllis Martin, an analyst with the U.S. Energy Information Administration (EIA), which just released its detailed, annual outlook on energy supply and prices.

"It was most likely the recession," Martin explained. "When demand cuts back, the production cuts back and the prices fall."

As for opening four new drilling leases, that's not even a drop in the bucket.

Analyst Lynch said that, if the nation took an extremely vigorous stance on oil exploitation -- and relaxed restrictions on the Gulf and drilled in the Arctic National Wildlife Refuge in Alaska and off the coast of California, where America's most easily accessible offshore oil is located -- it still would not have much of an impact.

"With the exception of the deep Gulf, where there are restrictions, people are drilling as fast as they can," said Lynch, who regards himself as a moderate Republican. He is bearish on oil prices and believes the cost of crude will drop soon, regardless of an government policies.

"You might, under really optimistic scenarios, over five or six years, add 2 million barrels a day of production," said Lynch, who favors more drilling, even if he rejects the politicians' arguments. "On a global scale, it's significant. But we would still be big importers -- we would still be dependent on foreign oil."

And prices would not move much because of it, the analysts explained. Oil is traded on a world market, and the United States does not have enough petroleum to increase the global supply, which would reduce demand -- and thus the price -- for fuel.

"In 2009, the U.S. produced about 7 percent of what was produced in the entire world, so increasing the oil production in the U.S. is not going to make much of a difference in world markets and world prices," said the EIA's Martin. "It just gets lost. It's not that much."

And boosting drilling in the outer continental shelf?

"What comes out of the OCS is about 1 percent of the world total, and that's not enough to affect world prices," Martin said, even noting that she believes there are even more untapped reserves than officials can estimate at the moment.

Republicans are right about some things, the experts agreed. More drilling would mean more jobs and more tax revenue, if the industry's subsidies and tax breaks were revoked. It could also reduce oil imports -- even if gas prices wouldn't drop.

More offshore drilling, in fact, would be a huge boon for the oil and gas companies that could do it.

"It would be a lot of money for a lot people, but it's not going to make us energy independent," said Lynch, the analyst.

The oil and gas industry has poured $8.8 million into the campaigns of the drilling bill's lead sponsors.

Lynch wouldn't rule out the idea of the United States becoming energy independent, someday, but rated the odds as slim.

"On a scale of Osama bin Laden going to church with Pat Robertson -- it's close to that," he said.

What would bring down prices? In the short term, much broader market forces, such as those that prompted Thursday's huge oil sell-off.

Since the United States remains the largest consumer of petroleum, greater efficiency at home will help in the longer term. Lynch noted that President Barack Obama's past campaign suggestion for Americans to keep their tires properly inflated actually had merit.

"It sounds stupid, but he was right," said Lynch, noting only half-jokingly that it might have paid during the recession to employ all the out-of-work lawyers as tire pressure readers at gas stations.

The biggest factor that would drive down gas prices, though, would be more drilling around the world.

"If you said, 'let's take the equipment and send it to Iraq, and build pipelines,' that's going to flood the market. The easiest oil is in Iraq," Lynch said. He added that other rich supplies could be tapped "in a number of other places like Colombia or Argentina or Brazil."

And what would happen to world prices if America went all out on drilling?

"It would not make the Saudi king stay up at night worrying about his revenue," said Lynch.

Sam Stein contributed to this report.

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