Seeker Blog

On military matters Mackubin Thomas Owens is a usually reliable source. On the economics of oil I don’t think he has it quite right. He is arguing that a big part of the current high oil price is that Congress has blocked domestic exploration and development by “U.S. investor-owned oil companies (IOCs)”. I like that characterization of the investor-owned companies — distinct from the national oil companies.

On the other hand, supply has been curtailed by the cartel-like behavior of foreign national oil companies, which control nearly 80% of world petroleum reserves. Faced with little competition in the production of crude oil, the members of this cartel benefit from keeping the commodity in the ground, confident that increasing demand will make it more valuable in the future. Despite its pious denunciations of the behavior of U.S. investor-owned oil companies (IOCs), Congress by its actions over the years has ensured the economic viability of the national oil company cartel.

It has done so by preventing the exploitation by IOCs of reserves available in nonpark federal lands in the West, Alaska and under the waters off our coasts. These areas hold an estimated 635 trillion cubic feet of recoverable natural gas – enough to meet the needs of the 60 million American homes fueled by natural gas for over a century. They also hold an estimated 112 billion barrels of recoverable oil – enough to produce gasoline for 60 million cars and fuel oil for 25 million homes for 60 years.

… Even the announcement that Congress was opening the way for domestic production would lead to downward pressure on oil prices.

I’m not a student of the pros and cons around such as ANWAR development. The problem with the Owens argument is scale and timing in a global oil market. Yes, increased domestic supply will result in a lower equilibrium price. How much lower depends on how much and when. The when of new production from currently blocked areas is at least in the second decade after the “opening”. The “how much” is “not much” relative to non-US global production - now or twenty years from now. The main effect of the opening would be to offset the decline of existing US production.