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Will More Drilling Increase U.S. Energy Security?

Discussants: David S. Abraham, International Affairs Fellow in Japan, Sponsored by Hitachi, Ltd. 2010-2011, and Iain Murray, Senior Fellow in Energy, Science, and Technology, Competitive Enterprise Institute
Updated: September 30, 2008

Editor's Note: This will be the last debate in CFR.org's online debate series. A new, more interactive feature called CFR Forum launched September 29, 2008.

With historically high oil prices leaving U.S. lawmakers looking for a policy fix, more drilling has become a mantra for many conservatives on Capitol Hill, including Republican presidential candidate Sen. John McCain (R-AZ). A debate continues about whether opening more offshore areas to drilling and in the Arctic Wildlife National Preserve will have an impact on fuel prices in the near term. Yet even if it doesn't, some experts argue that increasing U.S. oil production will vastly improve U.S. energy security. David S. Abraham, an investment analyst who formerly oversaw oil and gas revenues for the White House Office of Management and Budget, and Iain Murray, senior fellow for energy at the Competitive Enterprise Institute, debate the degree to which more drilling would improve U.S. energy security.

Weigh in on this debate by emailing the editors at letters@cfr.org. To view other online debates click here.


Iain Murray

Most Recent

September 30, 2008

Iain Murray

Mr. Abraham's Parthian shot in this debate is a precise example of why I feared it would disappear in ever decreasing circles. I have stressed repeatedly that "drill, baby, drill" is a slogan, not a comprehensive energy security policy, yet Mr. Abraham insists on treating it as such. A comprehensive policy must include increased investment in infrastructure, alternative sources of electricity to meet the demand for electric cars that will help ensure that we do not need any more than 8 million barrels per day by 2030, and so on. Yet increased domestic oil drilling must form a part of such a comprehensive policy, to help reduce the effects of hostile governments cutting off supply and to provide increased resilience to price volatility caused by natural disasters. The rest of the world recognizes this, with even the European Union energy commissioner backing drilling in the Arctic.

Eliminating such an important source of energy security from the comprehensive policy is what is truly short-sighted. What would Mr. Abraham have us do instead? Wind power, as suggested by T Boone Pickens, is the least reliable of all energy sources, so cannot be described as secure by any meaningful definition. Natural gas is a plausible alternative, although automotive CNG [compressed natural gas] technology is nowhere near ready to replace gasoline, and most of the nation's natural gas reserves are subject to the same restrictions as oil. We could be having this same debate about natural gas exploration and drilling. Biofuels are subject to the volatility of the weather-a severe drought or significant floods like we saw this year in a nation powered mainly by biofuels would indeed cause an energy crisis. The only secure alternatives to oil (for a vastly increased electric car fleet) are nuclear and coal-powered electricity, which are opposed by environmentalists; their history of objecting to new power plants and transmission lines suggests that there is little security in that plan either.

As for the assertion that the United States needs to demonstrate leadership in alternative technologies, it has. By the usual metrics of dollars spent and technologies deployed, the United States is a global leader in alternative energies and will remain so.

Talking of environmentalism, having previously excluded the general economic benefits of drilling from any definition of energy security, Mr. Abraham now redefines it to include the risk of environmental degradation. Yet, as a recent study by the American Enterprise Institute makes clear, the massive economic benefits that accrue from domestic drilling-some $1 trillion from the Outer Continental Shelf and $668 billion from ANWR alone-could and should easily help pay for substantial environmental improvement. Increased economic activity and environmental improvement actually go together, as the literature demonstrates.

In fact, I wonder whether Mr. Abraham's main point isn't about actual energy security but about "our lifestyle of consumption." He worries about the "perilous example" of putting the economy ahead of the environment. Yet putting the environment "ahead" of the economy, as Mr. Abraham seemingly wants to do, is actually a recipe for continuing environmental degradation. I am concerned about neither abstract concept, but about human welfare. By recognizing the contribution affordable energy makes to human welfare, we can see why China and Europe would want us to show leadership on real, affordable energy sources while at the same time encouraging future energy sources, rather than concentrating on one at the expense of the other. Domestic drilling is essential.

Let me end by agreeing with Mr. Abraham on his final point. Policy is not an end in itself. That certainly applies to those who myopically refuse to accept the fundamental role of domestic drilling in a comprehensive energy security policy.


David Abraham

September 29, 2008

David Abraham

We are in agreement that the United States needs oil and should take steps to reduce our reliance on fossil fuels. However, Mr. Murray narrowly defines energy security as dependence on certain countries for imports. That definition is incomplete. Threats to our energy security abound, from natural disasters and domestic terrorist attacks, to inefficient infrastructure and reliance on fuel sources that add to environmental degradation. Moreover, the international marketplace determines supply and demand, so even if we reduce our dependence on oil from the Middle East, a supply disruption in that region affects the quantity of U.S. imports. In fact, disruption in output anywhere-an attack on a pipeline in the Niger Delta to a hurricane in the Gulf-affects oil supplies everywhere.

In his last posting, Mr. Murray also points to Energy Department analysis that shows our need for oil will increase under current assumptions. He believes drilling in new areas hedges our energy security against terrorist risk, pointing to an oil industry-funded study which shows the United States may have up to 116 billion barrels. Most of it, however, is already available, even offshore. We must change current assumptions by using regulations and tax policy to create incentives and provide government assistance for greener and more sustainable alternatives. Since we can't meet the country's growing need from domestic sources, we will become less secure by relying on foreign sources for substantial portions of our supplies, regardless of our drilling stance.

The Unites States needs to take the lead, or at least be one of the lead nations, in searching for energy alternatives. Our lifestyle of consumption is now creating a race for traditional resources; one we cannot win. Over five-million new petrol-powered cars hit the road in China last year, more than four million to new owners. And with India offering a $2,500 car that would likely fail emission standards here, India is not far behind. These countries are modeling their consumption patterns after the United States. Although we must access available resources, allowing exploration in environmentally sensitive areas, such as ANWR, shows poor global leadership. It indicates that the economy takes precedent over the environment, a perilous example to a country in which our Olympic athletes wore masks as a precaution against dangerous air quality.

Here's the rub: continued exploration is necessary, but it does little to solve our energy security problem. "Drill baby drill" is a myopic and counter-productive rallying call that focuses solely on a policy prescription, like cutting taxes, without outlining any type of vision of an end state. Moreover, in Congress, where policy positions are often more important than crafting actual solutions, many lawmakers see access to areas for additional drilling as a victory in itself; therefore delaying the impetus to make harder decisions that involve sacrifice and that truly improve U.S. energy security.


Iain Murray

September 26, 2008

Iain Murray

Mr. Abraham treads some well-trodden ground in responding to my points. Rather than disappearing in ever decreasing circles, let's focus instead on what we seem to agree on-that we do not know how much oil America has and that America will continue to need large amounts of oil for some time to come. I think the debate will be best served if we try to quantify that latter number and ask what that tells us about the first point, and how it relates to energy security. All the information that follows, except where noted, comes from the Energy Information Administration (EIA).

America currently imports about 13 million barrels per day of oil, and produces about 5 million barrels per day domestically. In turn, we use about 18 million barrels of petroleum products each day, of which about 9 million barrels per day is gasoline. Now, assuming the sort of heroic adoption of new motor vehicle technologies that I am wildly optimistic about, the EIA estimates that we will still need about 8 million barrels of gasoline per day even as far away as 2030 (although we should be travelling much further on it). So we will continue to need large amounts of oil even after 2018, which is when Mr. Abraham admits new drilling will come on line.

Now, as it happens most of our oil imports are secure. Our two biggest suppliers of oil are Canada and Mexico, who supply about a third of all our imports together. Canada alone supplies more than we get from the Persian Gulf in total. Other friendly nations like my native Great Britain supply substantial amounts of oil too. So it does not make sense to characterize all our oil imports as a whole as a source of insecurity as people like T. Boone Pickens or John McCain have. That is why I am glad that this debate is not about the red herring of "energy independence."

As we are talking about security, we should therefore instead look at unfriendly or unstable nations whose supply might be disrupted by design or by virtue of their instability. I would therefore suggest that only the imports from Saudi Arabia, Venezuela, and Russia could be termed as a source of energy insecurity. By my calculation from EIA figures, those countries supply us with about 3 million barrels per day. That is the size of the energy security problem as it relates to oil-about one sixth of our total oil use.

Now, could domestic drilling help alleviate that problem? According to the American Petroleum Institute, federal lands and waters have the realistic potential to hold about 116 billion barrels of oil, a figure that needs to be verified by exploration currently banned. In other words, there's a good chance that federal lands and waters could alleviate that energy security problem for about a century, assuming no further technological development beyond the ones I have already described. It is clear that we need to start exploration now to bring these resources online to meet our medium-long term oil energy needs.

Ramping up energy production in any of the other areas Mr. Abraham talks about, and converting the nation's transportation system accordingly would take at least ten years, so the argument about timing is irrelevant. In the short-term there are other things we can do, some not immediately apparent; reform of the Air Traffic Control system, for example, could lower U.S. oil demand by 0.4 million barrels per day-about the same as our imports from Russia. In the end, however, in an uncertain world and with foreseeable technology, any reasonable definition of energy security has to include exploring for and drilling for those 116 billion barrels currently off-limits by law.


David Abraham

September 25, 2008

David Abraham

Mr. Murray raises some thought-provoking, albeit misguided and short-sighted points. More importantly, he fails to show how drilling will enhance U.S. energy security.

First, drilling in new areas will not produce enough oil to make us secure. His analogy-we can't drill our way out of our oil shortage is like saying one cannot feed a person out of hunger-assumes we have abundant oil resources. But the U.S. doesn't. Additional drilling for the U.S. is more analogous to giving a starving man a cracker: it does little to improve his dire situation. He then attacks industry and government sources suggesting they understate the country's share of global reserves. But for the U.S. to have a greater share of global resources, they must only underestimate total global resources. This seems unlikely. Even if we took his premise that U.S. resources are 50 percent more than most reputable sources, we would only have 3 percent of global reserves-that still makes little difference to our energy security. I am not suggesting that we shouldn't accurately assess the country's resources or consider opening certain new areas for exploration, but extracting those reserves won't make us more secure.

Second, drilling will not produce results quickly enough to increase energy security. Mr. Murray's right: "we will need significant amounts of oil for the next decade." But drilling does not affect immediate supply. According to the Energy Department, even if we allowed production in restricted areas, only 200,000 barrels a day would reach the market, but only after ten years. By then our energy demand would have grown by 5 million barrels a day. Even in his wildly optimistic scenarios, our reliance on foreign oil is set to increase while our energy security decreases.

Third, the price of oil has little bearing on U.S. energy security. Mr. Murray states that oil prices are set at the margin and any drilling will bring them down. But so are all commodities and many other goods. That's irrelevant. Our security hinges on the resilience of oil markets, especially in a crisis, not on whether we can reduce the price at the pump by $0.25.

Fourth, Mr. Murray argues that drilling brings about economic benefits, as if GDP growth made a country more energy secure. If it did, nations like China would have the energy security equivalent of Fort Knox; but it doesn't. He adds that expanding the oil industry would create more high paying jobs. So would the legalization of the drug trade. Neither, however, makes the country energy secure. Developing incentives for and funding research in alternative technology, however, would be more productive in enhancing security. It would also spur jobs in the high-tech industry - certainly a field with high paying jobs.

Finally, our reliance on oil contributes to a worsening global environment. Drilling scars the landscape as anyone who has been to Pinedale, Wyoming or Baku, Azerbaijan can attest. In fact, environmental damage is the reason coastal states receive billions from the federal government for oil and gas drilling in federal waters. Such environmental concerns must be considered. As Mr. Murray points out ignorance is not a good basis for energy policy. He's right. But neither are stasis and short-sighted solutions to meet long-term energy security concerns.


Iain Murray

September 24, 2008

Iain Murray

It should not need to be said that "Drill, baby, drill" is a slogan, not a comprehensive energy policy. Yet the fact remains that exploration of the nation's potential oil and gas resources must form part of any comprehensive energy policy. The fact is that most of the U.S. lands and offshore assets have been off-limits to even exploration for so long that we simply do not know how much oil we have. The much-touted figure of just 2 percent of proven global reserves is very much a bottom limit. We almost certainly have a lot more than that, but we don't know precisely how much. Until we allow exploration, we cannot judge exactly what effect drilling would have, and we certainly cannot say how much additional consumption it would afford us. We are the only country in the world to constrain ourselves like this; ignorance is not a good basis for public policy decisions.

As for the argument that opening production in offshore areas would have an "insignificant effect," once again its basis is shaky. The price of oil is set at the margin. A small change in supply or demand can produce large price swings. Yet there are many other arguments as to why domestic drilling would be beneficial to national security. These include much lower trade deficits, huge numbers of high-paying jobs (the oil industry is the highest-paid profession in the United States), and more secure supply that cannot be turned off at the whim of a dictator -surely an essential part of the very definition of energy security. An additional 500 million barrels of domestic production annually at one hundred dollars a barrel represents a lot of additional GDP: $50 billion. Moreover, that figure is extremely conservative, given the ignorance we have already examined.

Then there is the argument that we cannot drill our way out of the problem. I have always felt that this is like saying one cannot earn one's way out of poverty or feed a person out of hunger. Of course oil cannot supply all of the nation's energy needs. Yet the same argument applies to every other energy source that is advanced as an alternative.

This is not to say that oil is here to stay in the long-term. Given the way electric car technology is going, I suspect that a majority of cars sold in this country by the end of the next decade could be electric-powered, yet providing the same performance and size that American consumers want. In the meantime, we will need significant amounts of oil for the next decade at least. If there are domestic resources available, less vulnerable to natural or man-made disasters, then it is prudent to utilize them now. First, however, we need to know what they are. Drilling test wells is essential for that.


David Abraham

September 24, 2008

David Abraham

The slogan "Drill, baby, drill" on the presidential campaign trail serves as a rallying cry to remove a congressional moratorium on drilling in certain federal areas. It makes great political theater, but belittles our country's energy security problems by propagating the myth that we can drill our way toward oil independence and by focusing security policy on the simplistic supply and demand paradigm of one energy resource, oil. In fact, opening new areas to drilling will do little to address our fundamental energy and national security needs: to protect energy infrastructure, to diversify our energy resource base, to improve international relations, and to conserve. For the United States to have energy security we must create a reliable, sustainable energy network that recognizes the interdependence of the global energy market, rather than narrowly focusing on the production of more oil.

Allowing exploration in currently restricted areas has the potential to buy months or at most a few years of consumption on aggregate. However, doing so will provide little long-term security and delays the inevitable, that the United States needs to develop a more sustainable, comprehensive energy network. With less than approximately 2 percent of global oil reserves, the United States will never drill its way to enhanced security, no matter where we drill.

Moreover, the Department of Energy reports that opening production in all offshore areas will have an "insignificant" effect on oil price as price is determined by the global market. If such a small amount won't effect price, it surely won't improve our national security.

Drilling distracts the nation from taking meaningful steps to create a diversified, secure energy infrastructure, especially for a transportation system that is less reliant on oil. Companies that have the option to expand in newly opened areas, may find it more profitable to drill than to invest in protecting the supply chain from natural or man-made disasters or upgrading refining capacity, which are more important steps to increase national energy security.

We can follow the lead of other countries. For example, after the Arab oil crisis in 1973, Japan made a strategic decision to wean itself from reliance on oil by striving for energy efficiency, promoting national gas and improving its mass transportation system. It now imports less oil than it did in the 1970s while the US has increased its reliance on imported oil from 30 percent to over 60 percent over the same time period. Although much less endowed with resources than the US, Japan did not improve its energy security by focusing on ways to produce more oil and neither will we.

 

 

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