Where’s the sense of urgency? While President Obama is out trying to reboot his connection with Americans on Facebook, unhappy Americans are trying to cope with gasoline prices that in some locales top $5 per gallon. They want to know: What’s the president doing to help?
The White House has denied any responsibility for our ongoing vulnerability to imported energy or for having squashed domestic oil output -- pointing out that production rose last year. Indeed it did, but it could have risen faster had planned offshore development been allowed to proceed. It may even be that overall production will rise again this year, despite warnings to the contrary and despite a likely slump in offshore output. The increase will come from onshore, aided by ever-improving technology that can extract oil and natural gas from formerly impenetrable and unprofitable formations. That’s how the oil business works. When prices go up, marginal wells are brought onstream and output rises. In the past this response has been one of the self-correcting mechanisms that have helped level ups and downs in oil prices.
Unfortunately, another of those self-correcting mechanisms is that a jump in prices causes demand to drop. While conservation efforts and other positive measures contribute to that response (such as taking the train to work instead of driving), the downturn in demand also stems from lower overall economic activity. The relationship between oil prices and recessions in the U.S. (and sinking presidential approval ratings) has been well documented. At the moment, most forecasters are assuming that oil prices need to reach $140 per barrel before there is a measurable impact on the economy. But, that’s just a guess and in any case, at today’s price of $109, we are well on the way.
sobering $436 million loss in the
first quarter due to soaring fuel costs...
The impact of higher prices is already being felt. American Airlines reported a sobering $436 million loss in the first quarter due to soaring fuel costs, and the country’s fuel bill jumped $366 million in that period – to $1.8 billion.
What should President Obama do? For starters, he could recognize that soaring gasoline prices impose a hardship on millions of Americans. Then, he could signal that the White House is committed to an all-out effort to develop our own domestic resources. Industry critics are pushing for greater access to offshore oil drilling, which was effectively shut down in the wake of the Deepwater Horizon spill, claiming that regulators have made it all but impossible for companies to acquire necessary offshore drilling permits. Instead of pushing to ramp up permitting that complies with new safety standards, the administration went on the attack, accusing oil companies of sitting idle on oil leases. The industry has pushed back, claiming the White House got its facts wrong, and demanding renewed permitting.
In the wake of the six-month moratorium that followed the Deepwater Horizon spill, only ten permits have been issued to allow deepwater drilling in the Gulf of Mexico. There are 26 offshore rigs drilling today in the Gulf, down from 55 a year ago. Barry Russell, CEO of the Independent Petroleum Association of America, hit back at President Obama’s attacks. "Despite the rhetoric coming from the Obama Administration, the federal government continues to add new burdens to the federal oil and natural gas leasing and permitting process. Those new burdens overlay a process that has become laden with opportunities to delay or deny access and production of America's resources…”
They say all politics is local. Gasoline at $5 per gallon is local, for sure, hitting everyone’s pocketbook. As enthusiastic as Americans are about green energy, for the moment what they need is more black gold.