Planet Gore

Jerry Taylor on the Ponnuru Plan

Most of the responses below to Ramesh’s idea for emptying and abolishing the Strategic Petroleum Reserve consider it a bad idea from a national-security perspective.
Aside from Greg adducing Huber and Mills, we haven’t gotten much feedback on the economics of the idea — save for this from Cato’s Jerry Taylor:

There’s no way to know for certain what a partial or even total release would do to oil prices. Prices would almost certainly decline relative to where they otherwise would have been, but how much of a decline and for how long is unknowable. But since the SPR makes no sense in the first place, we should sell it and close it irrespective of the price impact that might follow. Happily, the price impact would almost certainly be some shade of positive (for consumers anyway).

So in the short-term, Jerry’s on board with Ramesh, as you might expect. But Jerry’s not so sure drilling is a long-term fix for oil prices (remember, Jerry thinks gas is relatively cheap, anyway).

Adding 800,000 barrels a day (ANWR’s potential contribution) and 200,000 barrels a day (the Gulf’s likely contribution, according to the administration anyway) to a world crude-oil market that produces about 86 million barrels a day is to add only a smidge above 1 percent to world crude-oil supplies. The impact of this new oil would be to decrease world crude oil prices by something like 2-3 percent if past (long-term) elasticities are prologue. And that’s probably overstating things since, by the time this crude hits the market, global oil production will likely be around 100 million barrels a day. Now, that’s not a good argument against drilling (if we rule out “small” fields because production there won’t substantially reduce crude oil prices, then we would drill in only a few big fields and supply would evaporate), but it is reality.

But Jerry does offer a caveat:

Of course, there’s always a chance that by lifting the moratorium we’ll stumble into a monster field somewhere offshore that we are presently unaware of.

Some next-generation geological surveys of the OCS would help, Senator Obama.


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