Bush’s chief economist schools Bush and GOP: Domestic drilling wont lower gas prices

USFieldCrudeProd2000-2010 New

Domestic oil production is soaring, but so are global prices (see “Drill, baby, drill fails: Oil prices jump in spite of sharp increase in U.S. production under Obama”).  It should be obvious that yet more drilling can’t have any significant impact on oil prices “” particularly since the U.S. Energy Information Administration has been making that precise point for years now (see “EIA: Full offshore drilling will not lower gasoline prices at all in 2020 and only 3 cents in 2030!“).

Even President Bush’s former chief economist understands this, even if his former boss doesn’t.  ThinkProgress has the story and video in this repost.

President George W. Bush stepped away from the ranch yesterday to “opine on the issues of the day” with ABC’s George Stephanopoulos. First up, a lesson on Texas tea. Bush suggested Americans try to “understand how supply and demand works” and realize that offshore drilling is key solution to rising gas prices. “If you restrict supplies of crude, the price of oil is going to go up and it affects gasoline,” he said.

But, in what is becoming an unfortunate pattern for the ex-president, his own former administration official disagrees. Doug Holtz-Eakin, the White House’s Chief Economist under Bush, joined MSNBC’s Chris Matthews Tuesday to discuss the problem of rising gas prices. When asked whether the conservative “dig, drill” mantra would actually lead to lower gas prices, Holtz-Eakin “” who was also the cheif economic adviser for Sen. John McCain’s (R-AZ) 2008 presidential campaign “” offered a simple answer: “no“:

MATTHEWS: If we were taking apart the ANWR and drilling everywhere, would the price of gas be much different? In the world market, since this all fungible, if we were doing all that here in the United States, would the price of gas be much different? I’m just asking that question.

HOLTZ-EAKIN: No, he can’t change the price very much. So, I mean, he’s trying to do things””

MATTHEWS: But the conservatives are saying all you have to do is pump like””all you got to do is drill like””Pawlenty said, just got at this, dig, dig, and dig, drill, drill, and drill, and somehow the price of the gas is going to down on the world market. You’re saying that’s not true?

HOLTZ-EAKIN: Well, I mean, you can’t change the oil price very much with the U.S. exploration. It certainly can’t change it quickly. We know that. And I think Republicans have been honest about that.

Watch it:

Holtz-Eakin is correct that increased oil and gas drilling won’t lower gas prices because the amount of extra oil produced is minuscule compared to consumption. Indeed, any extra oil the U.S. managed to produce would be quickly offset by a cut in OPEC production. “This drill drill drill thing is tired,” said the Oil Price Information Service’s chief oil analyst Tom Kloza. “It’s a simplistic way of looking for a solution that doesn’t exist.” The idea that “Republicans have been honest about that”, however, leaves something (like veracity) to be desired.

Holtz-Eakin also told Matthews that, though he didn’t believe it’d affect gas prices, he would get rid of the billions in subsidies for Big Oil. “You’ve got to have a tax reform at the levels of the playing field. We know that,” he added. But given the number of Republicans that remain opposed to that, it seems he must be using the royal “we.”

A ThinkProgress repost.

11 Responses to Bush’s chief economist schools Bush and GOP: Domestic drilling wont lower gas prices

  1. Michael Tucker says:

    The old supply-demand argument does not always work with oil and right now we have supply. Cushing, OK is full but prices are still high. So high gas prices are not because of short supply. Chris is right, the price is set on the world market but oil is also priced in US dollars and the US has been printing a lot of money. So fear and uncertainty with investors due to unrest in many Arab and African nations, continued demand from India and China, and the continued devaluation of the dollar has brought us $4 a gallon gas.

    Oh, when Republicans say things like: “we need tax reform that levels the playing field” they mean that if you want to talk about ending oil subsidies then Republicans want to also insist on ending subsidies for wind and solar; as if a wind company can reasonably be compared with a company like Exxon.

  2. Lore says:

    The high price is a combination of a low U.S. dollar, geopolitical fears, shortages in world supply of light sweet crude, and a rush of liquidity towards the commodity trade in ETFs and Indexes.

    We’ve added about a million barrels a day in output since 2005 in the U.S. and that still hasn’t reduced the price because we need 20 million plus a day to operate today and oil is traded world wide. Drilling every last place we can find in this country would only add around 500,000 barrels a day to supply over the next decade due to existing supplies being subjected to heavy depletion rates.

  3. MiMo says:

    It is true that drilling more won’t affect prices much – but isn’t it missing the point?

    500,000 barrels extra per day of US production would mean at current prices 20+ billion dollars a year that would not go to OPEC countries -and that would stay in the US.

    It is not exactly pocket change.

  4. Chad says:

    Mimo: The oil companies would spend something like $10 billion minimum to get that oil, and the residual net of $10 billion would be lost by the swarm of exernalities associated with the oil that is off-limits…usually for good reason.

  5. Lore says:

    Quote: MiMo “500,000 barrels extra per day of US production would mean at current prices 20+ billion dollars a year that would not go to OPEC countries -and that would stay in the US.”

    Except by the time we added that much we would actually need a few more million on top of that to keep the expanding economy growing. Furthermore, it would only be transitory as what remains would never keep up with depletion. Not to mention, the price of extracting new sources from more difficult areas comes at a much higher cost.

  6. Warren says:

    The supply-demand model simply doesn’t apply because the oil market is controlled by an oligopoly, namely OPEC. Thus, increasing supply (especially considering the U.S. has so little of the world’s oil) is simply not as useful in the long run as switching to alternative sources of energy.

  7. Scott says:

    Yes, switching to alternative energy sources is much better than chasing a price that will never be stable anyway. The price of oil is always one storm or explosion or accident or diplomatic incident away from wild changes. Wouldn’t industry prefer reliably stable energy prices?

  8. Mulga Mumblebrain says:

    The trade in oil in US dollars is about the last leg of USdollar reserve status. Saddam signed his death warrant when he began to refuse US dollars, and Gaddafi had been ‘welcomed back’ by the West, until it transpired that he preferred non-Western, particularly Chinese, partners, and was urging the African Union to introduce an African currency for African trade. He had to go, so the West sets a rabble of Wahhabist al-Qaeda types, emigres, many long in Western intelligence employ and various other malcontents loose, dubbed them the ‘Libyan people’ and the terror and destruction rains down from on high on yet another Arab state rich in hydrocarbons. This will be the pattern until the bitter end, which isn’t very far off.

  9. Barry says:

    Anyone notice how much domestic oil production fell under George W. Bush? Wow. 16% plummet on his watch. What a commie. I want to see his birth certificate.

  10. Roger Blanchard says:

    Lore #2,

    In terms of what I identify as total liquid hydrocarbons, U.S. production has increased about 1.3 mb/d from 2005 to 2010 according to US DOE/EIA data. Much of that increase involves increased production of ethanol and liquified natural gas, both of which have much lower energy densities than crude oil so I see the increase as a bit deceptive. In terms of crude oil + condensate, U.S. production has increased from 5.1 to 5.5 mb/d from 2005 to 2010.

    Increased U.S. production occurred in 2009 and 2010 mainly due to production increases in the deepwater Gulf of Mexico and the Bakken Shale region of North Dakota. I am confident in stating that deepwater GOM production peaked in 2010. The following link to a commentary I wrote provides some explanation:

    Based upon my modelling of Bakken Shale production, it could peak as soon as 2015 but could be as late as 2020 depending upon how quickly they increase production in coming years.

    Irrespective of what areas we open for oil production in the U.S. in the future, I expect crude + condensate production to be less, and probably considerable less, in 2020 compared to 2010.

    Roger Blanchard
    Sault Ste. Marie, MI

  11. MiMo says:

    Chad #3: if oil companies spend 10 billion extracting oil in the US those 10 billion will go to US workers / US companies / US landowners / US government (Federal and local). A net gain for the US economy compared to extracting that same oil somewhere else.