Nicolas D. Loris, a Policy Analyst in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation, dismantles the political spin and lays out the facts that too many politicians are taking out of context, including the president, whose Feb. 23 speech at the University of Miamia was littered with half-truths and myths.
"While the President said that there is no quick fix to high gas prices and the nation cannot drill its way out of the problem, he creates a false dichotomy that suggests that micromanaging the solution from Washington by subsidizing uneconomical technologies and sources of energy would work," Loris writes. "This approach would do little to provide America with new, reliable, and economical sources of energy and in fact would cause more harm than good to the consumer and taxpayer."
The following are the top five myths being circulated about the current gas crisis:
1. Oil Production is the Highest It's Been in Eight Years
While this is true, it has nothing to do with anything the Obama Administration did.
"Increased oil and gas production in the U.S. is a great development, but this is a result of increased production on private lands in North Dakota, Texas, and Alaska," Loris reports.
"On federal lands and offshore, the story is much grimmer. Production on federal lands and offshore could have yielded more output, increasing supply and therefore putting downward pressure on oil prices. Poor administrative decisions—such as refusing to open areas to exploration and production, cancelling or delaying lease sales, and the offshore drilling moratorium and subsequent 'permitorium'—significantly reduced oil production, destroying jobs and reducing economic activity in the process."
One of the best examples of how increased oil production keeps unemployment low is in the state of North Dakota where production is booming and unemployment is the lowest in the nation at just 3.3 percent.
2. Oil Production Takes Too Long and Won't Impact the Market for at Least a Decade
"This has been the mantra of the anti-drilling crowd for years, and the longer politicians listen to the message, the longer the nation’s oil resources will remain undeveloped," Loris writes.
"If access to areas that are currently off limits is increased, it will take time to explore and extract that oil. But that does not change the fact that the nation needs it today and also in the future. Furthermore, some of this oil can reach the market in much less than a decade if the permitting process is streamlined and the Keystone XL pipeline—which could bring up to 830,000 barrels of oil per day from Canada to the Gulf Coast refineries—is built."
3. Oil is Not Enough because American only has two percent of the world's oil reserves.
This argument is the one most frequently used by the president to push for more federal investment in alternative forms of energy, but this number is being used deceptively. Loris quotes the Institute for Energy Research (IER) which says the amount of oil that is technically recoverable in the U.S. is not a mere 20 billion barrels, but more than 1.4 trillion barrels with the largest deposits offshore in portions of Alaska and in shale in the Rocky Mountains.
"When combined with resources from Canada and Mexico, total recoverable oil in North America exceeds 1.7 trillion barrels, or more than the world has used since the first oil well was drilled over 150 years ago in Titusville, Pennsylvania," the IER reports.
To put this in context, Saudi Arabia has about 260 billion barrels of oil in proved reserves.
4. Oil is not enough. The country needs an "all of the above" approach in order to reduce its dependency on oil.
The president used this line in his 2012 State of the Union Speech, but Loris reminds that the search for alternatives such as biofuels, electric vehicles, natural gas vehicles and subsidies for alternative fuel have done little more than "waste taxpayer dollars, misallocate labor and capital, and create a dependence on government that promotes crony capitalism."
Instead, a market-based strategy should be the only all-of-the-above approach that we use.
"It allows all energy sources to compete, drives innovation, and results in the best possible supply and pricing. Sadly, all-of-the-above is often just an excuse to subsidize uneconomical and politically preferred technologies and energy sources, which leads to a 'pigs-at-the-trough' strategy."
He adds: "The world petroleum market is a multi-trillion-dollar one; whatever technology can capture a portion of that market will not need help from taxpayers."
5. Speculators are responsible for raising the price of gas.
"Finger-pointing at speculators and investigating prices at the pump ignore the real cause of rising gas prices: supply and demand," Loris explains. "Oil futures markets can affect prices at the pump by changing the amount of gasoline delivered to gas stations. If producers anticipate higher prices in the future, they might take some oil off the market today and wait to sell it later. This may be happening to some degree (although there has been little historical evidence of this), especially given Iranian threats to cut off supply to European markets, but it would cause only a marginal short-run increase in prices, because at some point businesses have to unload the inventories they accumulate."
America already knows what works to effectively combat high gas prices, Loris says: " . . . allowing the market to work by opening access to the country’s own oil and gas reserves, reducing onerous regulations, and allowing producers and consumers to respond to energy prices without Washington’s interference."
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