On Monday afternoon, President Bush lifted an executive ban on offshore drilling in the United States. (A ban, btw, that his father put into place.) The move, however, was mostly symbolic. Congress also has a ban on offshore drilling, and in order for the ban to be completely lifted, lawmakers have to get on board. Democrats, and even some Republicans (especially those from coastal states) don’t seem too keen on the idea.
The news hasn’t done much in terms of affecting stock prices for Big Oil companies (Exxon – XOM – is down; Chevron – CVX – is up), nor has it done much in terms of affecting crude oil prices. Indeed, even if Congress decides to move in lock step with President Bush, a big impact probably still won’t be seen.
Offshore drilling wouldn’t really change much in the energy landscape. Most economic and energy experts agree that lifting the ban would do little to impact current gas prices. Maybe nothing at all. Oil exploration and drilling takes time, so immediate results are not expected. Even the White House concedes that offshore drilling would do next to nothing in terms of immediately easing gas prices. Although their rhetoric is that it might help eventually.
The main purpose of the announcement is so that President Bush can help Republicans in Congress and John McCain blame the Democrats in Congress and Barack Obama for high gas prices. "Look," they can say to everyone "we’ve done our part. We’ve tried. It’s someone else’s fault that your gas prices are high." A little pause will ensue while they see the eyes of the voters start shifting. "Wait, wait. Stop looking at Big Oil. We meant the Democrats! The Democrats are standing between us and cheap gas prices! Don’t vote for them!"
Another problem with the idea of more domestic oil helping with gas prices, now and in the future, is that Big Oil now has a pretty good idea of what the market will bear. One of the fundamental rules of making money is to charge what people will pay. We’ve proven that we are willing to pay quite a bit for gas. Indications are that we’re willing to pay a little bit more. It doesn’t matter how much oil is pumped out of offshore wells. Big Oil will charge what we’re willing to pay, and not a dime less.
It’s true that some easing in gas prices might eventually occur with offshore drilling. But it is equally likely that some easing in gas prices might eventually occur if we start now to develop alternative energy sources. Innovations like the solar powered Prius from Toyota (TM) and the hydrogen fuel cell car from Honda (HMC). Developing these kinds of technologies, and the infrastructure they need, should be our focus. They will lead to more efficient cost for energy use per mile driven and are cleaner as well.
Just about everyone (including Big Oil’s biggest ally, the White House) agrees that offshore drilling won’t help gas prices much in the short-term. But preparing for the future doesn’t mean looking to the fossil fuels of the past century. Truly preparing for the future means developing the technologies we have today so that we can use renewable energy in the 21st Century.
Disclosure: I own stock in none of the companies above.
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