As I type this post, the President is proposing once again drilling in ANWR, noting the “enormous” benefits.    I’d like to just note the analysis his Administration’s DoE just published last month.
From Analysis of Crude Oil Production in the
Arctic National Wildlife Refuge, published May 2008:
The opening of the ANWR 1002 Area to oil and natural gas development is projected to increase domestic crude oil production starting in 2018. In the mean ANWR oil resource case, additional oil production resulting from the opening of ANWR reaches 780,000 barrels per day in 2027 and then declines to 710,000 barrels per day in 2030. In the low and high ANWR oil resource cases, additional oil production resulting from the opening of ANWR peaks in 2028 at 510,000 and 1.45 million barrels per day, respectively. Between 2018 and 2030, cumulative additional oil production is 2.6 billion barrels for the mean oil resource case, while the low and high resource cases project a cumulative additional oil production of 1.9 and 4.3 billion barrels, respectively.
Crude oil imports are projected to decline by about one barrel for every barrel of ANWR oil production. Opening ANWR results in the lowest oil import dependency levels during the 2022 through 2026 time frame, when oil import dependency falls to the minimum values of 46 and 49 percent for the high and low oil resource cases, respectively. During that timeframe, the mean resource case and AEO2008 reference case project an average oil import dependency of 48 and 51 percent, respectively. Because ANWR oil production is declining after 2028, U.S. oil dependency rises to 51 percent in 2030 in the mean resource case, compared to 54 percent in the AEO2008 reference case. The high and low resource cases project a 2030 oil import dependency of 48 percent and 52 percent, respectively.
Additional oil production resulting from the opening of ANWR improves the U.S. balance of trade. Cumulative expenditures on foreign crude oil and liquid fuels between 2018 and 2030 are reduced by $202 billion dollars (2006 dollars) in the mean oil resource case and reduced by $135 and $327 billion dollars in the low and high oil resource cases, respectively.
Additional oil production resulting from the opening of ANWR would be only a small portion of total world oil production, and would likely be offset in part by somewhat lower production outside the United States. The opening of ANWR is projected to have its largest oil price reduction impacts as follows: a reduction in low-sulfur, light crude oil prices of $0.41 per barrel (2006 dollars) in 2026 for the low oil resource case, $0.75 per barrel in 2025 for the mean oil resource case, and $1.44 per barrel in 2027 for the high oil resource case, relative to the reference case. [Emphasis added – MDC]
The message of the report is in large part summarized by these two graphs:
Source: Energy Information Administration, Analysis of Crude Oil Production in the
Arctic National Wildlife Refuge, May 2008.
So, I think these calculations put into context what drilling can do. For your reference, below is the nominal and real (2006 prices) price per barrel of West Texas Intermediate.
Figure 1: Nominal (red) and real (blue) price per barrel of WTI. Real calculated using CPI-All. Source: St. Louis Fed FREDII, and author’s calculations.
It’s true that increased supply, ceteris paribus, should decrease prices. How much is as relevant as which direction prices would move (and, of course, as reader Buzzcut admonishes us, the opportunity costs as well, to which I would add that externalities should be taken into account).
Note the offshore drilling component of the President’s proposal is congruent with McCain’s. Fortunately, a holiday for the gasoline tax, which works in the wrong direction for reducing energy dependence, has dropped off the table. One has to be thankful for small blessings.