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How to Convert the "Drill Here, Drill Now" Average Joes


I was inspired by Obama's snap on The Drilling today to write this blog to tell you how to talk to republicans with regards to drilling.

This Elections is quickly boiling down to a single issue: Energy! Energy for us in the way of food. Energy for our cars in the way of gasoline. Because of the rise in the cost of the latter we are paying more for the former. Now the Republican are screaming “DRILL HERE, DRILL NOW!!!” Americans everywhere are saying I wouldn't mind at all if they drilled in my back yard if it brought the cost of gasoline down. Democrats say it's a silly solution cite the environment, or some statistic that says it won't do any thing for blah number of years and then that's it.

We must talk to people and let them know why the Whole Drill Here Drill Now argument is Bullshit. Oh and let me make this a little harder for you. You have to talk to them on their terms. If you scream about the environment to most average joes (low info folks) they could give a rat's ass. Some of you have heard me talk about Arkansas Americans vs Coastal Americans. Well this issue (I've fundraised for the Heritage Foundation so I know a little bit about this) here is that many of them that know the environmental arguments but they chalk those up to “junk science.” They've got studies that back them up just like we have studies to back us up.


You have to talk money and and common sense. You see, they understand free market economics (well, at least they claim to, that's why so many of them vote republican). Many people don't understand that we, AMERICA, don't own the drills, the refineries, the blah blah blah, to making the oil industry work. They assume that when we drill in ANWR that the oil goes to our refineries and then goes to our gas tanks. Many of them don't understand that it doesn't quite work that way.


The way we've set up our system is a free market economy. We lease out the land (or ocean) to the oil company and give them the rights to be able to drill there. Once they pay the leasing fees whatever they drill they are free to sell in the free market. It's very akin to your own home and property. Most people believe that they own property, NOPE, the government leases the land to you. As long as you pay the taxes you may remain on the property, but (as many people are finding out) once you don't have the money for the property taxes then the house gets sold. You own the house and the rights to build on that land through the mortgage but you're paying the government to stay there. (I know some of the facts there are a little fuzzy and a lot more complicated, but the gist of it is what's important)


Now how does this relate to gas prices.


Well, after EXXON or BP or Shell or whatever giant Corporation owns the lease to the Oil Spot and sucks the black gold into a tanker they can sell it to whoever is going to give them the highest price. We have to bid on the oil that came from our own land err ocean. So we have to compete with China, India, Japan, the rest of the World for resources that came out of our own ground err water. Because China and India with their HUGE populations are now becoming industrialized their demands will soon match and exceed America's. That's why they'll bid the price up along with us because they need the resource as much as we do and they have more people. Along with the China suppressing the price at the pump in their country to give an ENCENTIVE to people to drive more (and buy more cars) and China and India's rapid highway expansion the more that is pumped the more they will take. Which is why we will only see a few cents savings over the next 10 years.

If you want to dig an extra special knife in their backs, then you can tell them it was the free market, save the oil company Republicans that helped make the laws the way they are. There was actually a vote a couple of years ago that would have made any oil that we drilled in ANWR available exclusively to America and The Republicans, John McCain included, voted it down. Company's First!

Then you can hit them with the fact that over 72% of the expected haul of oil is available to the oil companies to drill RIGHT NOW in 68million acres of land. The won't drill it.

That's when you'll get the neck jerk, WHAT? That doesn't make any sense. Why?

Because of cost. It costs money in order to build oil derricks and pay employees and to get permits and to blah blah blah. Why drill when you can get all the profits from owning the land and the POTENTIAL PROFITS and borrow against them to secure more capital. It's like having a piece of property that you got for cheap and borrowing against the equity without actually living there. If they drilled they have to pay money. The land rights gives them more money to secure capital to buy other companies and increase their profit margins.

So giving them more land to drill on won't give us more oil, it will give the oil companies more money they can Use to look better to wall street to increase their stock options. Not a drop more gas in our gas tanks. If the oil companies were serious about drilling they'd already be doing it.

The other thing that you'll have to let the people know is that Oil is a finite resource. Once it's gone that's it. This is like putting a band-aid on a broken arm or giving a junky a new heroine dealer. We have an opportunity to fix the problem permanently now or we can wait until we have NO CHOICE and it'll be much more expensive. 30 years ago Brazil took the plunge and now they don't take in any foreign oil. They had to go through a rough patch and we will to but this is an opportunity to make life better for our kids and grand kids. Once our Energy is based on renewables, then we won't have to worry about whether or the price of gas will be affected by a strike against Iran.

Close them with an analogy. It's like the little oil light has been going off in the car. The driver knows they need to get an oil change but they ignore it. The car starts running a little ragged so they drop in a quart of oil and don't change the filters. It runs better for a little while but then it starts back running rough. So they add more oil but it doesn't do much so they keep driving. Now it's been months and their driving along on the highway and the car Stops DEAD. They lift the hood and it's smoking. The engine has ceased. Two thousand bucks for towing and a new engine. All of that could have been avoided with a 20 oil change. America has been driving around with that same oil light flashing since the Carter administration. We can either drop in another can of oil and hope the engine doesn't blow or we can take the bite change the way we've been doing things and never have to worry about this problem again.


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If you want to tell people about the oil business, you should learn about it first. Increasing supply anywhere lowers prices everywhere, so we all benefit regardless of where the oil is sold. That's how global commodities work, prices are set by global supply and demand. Your conspiracy theories about not producing leases is also flawed. Companies lose leases if they do not produce after a certain time. They do not own the land. Those 'idle' leases are usually in permitting, planning, or exploration, they are seldom truly idle.

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Companies lose leases if they do not produce after a certain time.

Do they? Not according to this:

http://resourcescommittee.house.gov/images/Documents/hr6251.pdf

Technically, perhaps they are supposed to, but that is not what is happening in practice. The leases just keep getting renewed. There was a great hew and cry from the oil companies and their minions in Congress when HR6251 proposed a "use it or lose it" rule similar to what the coal companies have to abide by.

So why is gas in Venezuela 20 cents a gallon or whatever ridiculous price it is? Because the government owns the oil and sells some of it on the open market and "gives" some of it to it's citizens.

Because it's a communist dictatorship, that's why. The gov't subsidizes the price of gas locally with the revenue from exporting oil and from taxes. Overall their economy is in shambles, with shortages of everything and more private property confiscated by Chavez every day.

This does not really help the "drill now" argument.

That's essentially what I said.

Bulldog,
1) Has the supply/demand equation changed so much in the last last three years that it has caused oil prices to triple? If you say that there is a lot of demand from India and China, do you think that in 10 years the oil we pump off our shores would even come close to matching the increase in that demand?

2) Re the leases, this assumes that the oil companies don't have our lawmakers in their back pockets. The oil companies will get to set the terms, and our Congress will accept them in order to not lose their campaign contributions.

3) You ignored the post's central assertion: that most people in the US assume that the oil we pump offshore will serve the US market, and no one is mentioning that it will just be added to global supply, while demand will continue to skyrocket.

Any increase in supply of a commodity reduces the worldwide price of that commodity. So regardless of where the oil is sold, it reduces our price. That's how the markets work.

Regarding supply/demand, there is definitely increasing demand from China/India, and some price increase is from that, some is from geo/political fears - attack Iran, Nigeria troubles, also hurricane damage possibilities, etc. Some increased demand is from purely investment reasons, like the real estate bubble or the dot com bubble.

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Any increase in supply of a commodity reduces the worldwide price of that commodity.

Not if the demand is increasing at an even faster rate.

Uh, guess what Bulldog...

The truth is that high prices are good for us (collectively), better for our children, and best if even higher.

Tax rebates to those affected is an honest response.

Too bad being honest and being elected are such polar opposites.

To say that drilling solves nothing for ten years is both true and unconvincing. Americans can think about future "good" and hence support drilling now. Face it, this is a good Republican issue. Best to co-opt it as Obama has already begun to do with his limited modified drilling refinement.

Great post - thank you!


Nationalize the oil companies.

Great post. By the time the oil hits the global market, the demand will have increased to a point to more than offset the increase in supply.

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i think the quickest way to end the "drill here, drill now" argument, is to run an ad that shows oil rigs in suburban backyards as the toxic smoke and spills cripples the neighborhood as well as $7/gal gasoline..."this is the future that sen. mccain wants...drill here, drill now? where will this lead? barack obama realizes that we cannot drill our way out of this crisis. we need to focus on energy alternatives, tax breaks to help families make it through the hard times, and to take on big oil."

Toxic smoke? From an oil well? Have you ever seen one? This idiotic idea that we can't drill our way out of an oil shortage is the stupidest idea since global warming. Of course you can drill you way out of a shortage, at least in the short term. Why is it that drilling is dismissed because it will take 10 years to produce, but 'alternative energy' which doesn't even exist yet is the preferred solution. How long would it take to produce, install, and build the required infrastructure for wind/solar, and how will that run our cars?

Tkae the O-compromise assesment, but make sure infused with rule/regulation that will uphold enviromental standards and regard for issues inherent in such "drilling"...And fools think that such supply will have impact on the now cost , are fools that lack comprehension abiity , and if given due consideration, most could realize we ain't gonna' drill our gas troupbles/crisis away anytime soon let alone in the future as the develo0ping world will be in the market for that "fuel" and willing to pay (lol, China can merely call in those debt notes to DEMAND whatever share they want...)

A good post and recommended, though I do have some comments/questions:

1)I still think limited drilling on existing land, not newly leased land, is somewhat fine. I think there needs to be a sort of gradual phase-in rather than just no drilling whatsoever. How can Obama put enough pressure on companies to be sure that new technologies become mainstream in a timely fashion? If it takes 10 years for the oil to flow, will we have enough alternative energy in that time so that we won’t be kicking ourselves then for not drilling now? After all, another common Republican rebuttal is “well, if we had drilled during the 90s we’d have some oil by now”. Of course, things would still be bad now, but maybe not as bad.

2)Of course, demand likely will outweigh supply in the coming years thanks to China and India. But drilling now will help at least somewhat right? How much would American oil prices be affected by the overall global supply and our country’s supply? I feel like we can keep a significant amount of our stuff and sell the rest on the open market…though I don’t know how much this would help because of just how much oil we use.

A couple of facts re: oil exploration. It is always a gamble. Drilling does not mean you will find oil. So all of this drilling may yield not much.

Also you cannot explore, drill, pipe new areas in a matter of weeks. The offshore leases are said to be 7-10 years out before they impact oil prices. I say that's way too long to wait - and this is something even Arkansas Americans can get their heads around. In this way, Paris's oil policy has it exactly backwards. The drilling is a concrete step but it isn't going to solve or bridge anything.

Also, most of the "Good Stuff" has been drilled for already in the Continental US area. Thinking that we can drill our way to $1.50 a gallon is ignorant. See T. Bone Pickens' ad. He now qualifies as a tree-hugger I guess. The only way we get there is through a world-wide recession or by sharply reducing demand by supplanting some of the oil with other energy sources. Welcome to Obama's world.

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Why doesn't anyone mention the lack of refineries? Since the existing ones are operating at capacity (or are they) how will more oil that needs to be refined help?


There is a real good site with all the energy information you need at:

www.eia.doe.gov

A good tactic is to ask what another well drilled does without a way to transport it to market?

There are wells near the alaska pipelines untapped, but where is the refinery capacity? The above website shows how much slack capacity exists by area.

You need tankers or pipelines and refineries and the oil companies are not going to build here when they have virgin markets in india and china and the price of oil in indinesia is 25% above the US market.

Rational Oil companies will drill and pump near the markets and where the supply line is shortest to maximize the usage of tankers. Logistics tells you that a well twice as close to the refinery ships 4x the oil per tanker (because of the round trip). They won't drill in Alaska this is a proxy issue. They want LSC from the Gulf and a short run to California markets.

Oh yeah, don't let the Drill Now crowd even use the phrase "supply and demand" monopolists restrict supply to maximize revenue.

McConnell's "Economics" has a question on every exam set that asks "CP what action does a Monopolist due in reaction to (an increase, a decrease, a change) in demand. The correct answers are: "Take no action" (as monopolists set the supply and they have already set supply to maximize revenue) or "They will adjust the supply in the market to maximize revenue".

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