Tuesday, August 08, 2006

Oil's Well That Ends Well

When I left government service to join Fred Smith's free market merry pranksters at the Competitive Enterprise Institute, my first assignment was an analysis of the costs and benefits of opening up the Arctic National Wildlife Refuge for oil exploration and development.

The benefits were obvious then. The costs were either overblown or fictitious. That was 1989. ANWR is still closed.

This morning I wake up to the news that BP Amoco is taking Prudhoe Bay offline in the wake of a small spill and concern about corroding pipeline. The shutdown takes 400,000 barrels per day out of production. The markets respond with a 3% price rise in a matter of hours. Energy is already talking about tapping the Strategic Petroleum Reserve.

Now I'm not complaining about the market reaction. That's what markets are supposed to do, and when an event is such a surprise that it can't be priced into the market gradually, then spikes are the natural result.

What I can't reconcile with today's events are the arguments we've been fed over the past 17 years that opening ANWR would have no meaningful effect on supply or price. We've been told, over and over, that ANWR would only produce six months supply at current consumption levels, or reduce our reliance on imports by a few percent.

Yet the lower limit projection for ANWR production is 650,000 barrels per day, more than 50% higher than today's Prudhoe Bay disruption. The mean projection is about twice that. And we're supposed to believe, simultaneously, that when Prudhoe Bay shuts down the effect is so extreme that we need to tap the SPR, and if ANWR were online our energy markets would be unchanged?

2 comments:

Tom Van Dyke said...

Kathy Hutchins gloriously returns to us (after a personal leave of absence) with ace precision, incision and derision.

Yay!

The idea of the United States opening its Arctic National Caribou and Mosquito Refuge to the exploitation of its oil has been pooh-poohed as a greedy grab of nature that would amount to only a single-digit percentage gain in national energy production.

A gain that would offset the present closing of the pipeline from the Prudhoe Bay fields which is causing so much market trouble, as it turns out.

Huh. Single digits add up. Often, they're the swing thing.

Meanwhile, we expect folks in the Third World to live alongside oil wells while we Americans are unwilling to esthetically inconvenience our larger mammals, not to mention our parasites.

Something's a little off. Maybe it's Third World People vs. Mosquitoes. I'm just not feeling this whole thing.

Tlaloc said...

"The costs were either overblown or fictitious."

Forgive us if the word of the CEI on the matter isn't exactly awe inspiring.

The costs are things that don't have dollar signs in front of them. For most of us that isn't the same as saying it has no value.

Most of us aren't economists after all.