U.S. oil production and the price of gasoline

The price of a gallon of gasoline is approaching record-high levels in the U.S.  Some politicians and businessmen argue that the U.S. needs to increase its production of oil to counter this trend, by increasing offshore drilling or extracting tar sands, or by other means.

Recently Senator Jeff Bingaman (D-NM), chairman of the Senate Energy Committee addressed this question:

“Let me state this as clearly as I can – what I believe is really without dispute among experts.  That is, we do not face cycles of high gasoline prices in the United States because of a lack of domestic production.  We do not face these cycles of high gasoline prices because of lack of access to federal resources, or because of some environmental regulation that is getting in the way of us obtaining cheap gasoline.

“As was made clear in a hearing we had in the Senate Energy Committee in January, the prices that we are paying for oil and the products refined from oil, such as gasoline, are set on the world market.  They are relatively insensitive to what happens here in the United States with regards to production.   Instead, the world price of oil and our gasoline prices are affected more by events beyond our control, such as instability in Libya last year or instability in Iran and concerns about oil supply in Iran this year.

The top chart shows that price variations over the past fifteen years are similar in all these countries (though lower in the U.S. because of lower taxes).   His next chart shows that the price of gas in the U.S. is independent of U.S. oil production:

“While domestic oil production plays an important role in the energy security and economy of our country, its contribution to the world oil balance is not sufficient to bring global oil prices down.   And, for this reason, increased domestic production unfortunately will not bring down gasoline prices in our country."

Two additional charts show that U.S. oil production and the production of natural gas have risen in the past four years.  Some other salient observations:

“Unlike oil, the price of natural gas price is not set on a world market.  For natural gas, our enormous domestic resources and increasing production have a significant effect on the price that American consumers have to pay on their utility bills especially.  Natural gas prices are at near-historic lows.  This is important to consumers who depend on this fuel for electricity and heating, it’s good for manufacturers who depend on natural gas and it’s good for our economy overall. ..

“I’ve heard it stated that only 2 percent of the acres on the Outer Continental Shelf are currently leased, and that this is evidence of lack of access to the resources.  In my view, this is a misleading way to think about the current situation.  Just as oil is not found uniformly everywhere on land, but instead is concentrated where the geology is favorable, the very same thing is true offshore.  The total acreage of the Outer Continental Shelf is huge -- 1.7 billion acres.   Much of it does not have oil and gas reserves that can be tapped economically...

“The long-term solution to the challenge of high and volatile oil prices is to continue to reduce our dependence on oil, period.  This is a strategic vision that President George W. Bush, who previously had worked in the oil industry, clearly articulated in his State of the Union speech in 2006."

More at the link, via Grist and The Dish.