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Even Fossil Fuel-Friendly EIA Says Massive Expansion of Offshore Drilling Won't Lower Gas Prices

The cold, hard facts on why "Drill, baby, drill" is a canard, and why increasing our cars' fuel efficiency is a much better way to lower gas prices.

With the price of gas up at $3.86 per gallon, opportunistic politicians are again making the stubborn case that this administration's drilling policies are responsible for rising gas prices—or that Obama hasn't done enough to lower the price of gas. They are wrong.

The price of gasoline has absolutely nothing to do with our current politics, and expanding our domestic production of oil will have only a tiny impact on prices, and not for a couple of decades.

Here's the proof.

I dug into the Energy Information Agency's "Annual Energy Outlook" for 2011, released yesterday. The EIA is generally fairly well-regarded as non-partisan accounting agency that's dedicated to "independent statistics and analyses" about energy. If anything, the EIA is known for being overly generous and biased towards the fossil fuel industry. They're predictions for the availability of oil , for instance, have always been too high, and for the price of oil, too low. That the EIA projects such small price-per-gallon returns under even the most ambitious offshore drilling scenario is telling.

I used the agency's projections for what would happen in various energy "side cases" to find out how offshore drilling could affect the price of oil.

First, I looked at what would happen if there were, essentially, no new offshore drilling versus what would happen if there were a massive expansion of offshore drilling. In the chart below, "Reference" refers to the cost of a gallon of gasoline under "business as usual" projections. "OCS access" shows the projections if there were no more offshore drilling leases sold. In other words, this projection assumes that drilling would continue on current leases and available tracts in the western Gulf of Mexico, but doesn't allow for the sale of new leases anywhere else. "High OCS resource" represents a significant expansion of offshore drilling, or a tripling of the offshore production from the "business as usual" reference case. If the "Drill Here, Drill Now" contingent were to get their way, and every offshore region they suggest were opened, this "High OCS" projection reflects their best case scenario for lowering gas prices.

Now take a look.(We're working on a simpler, prettier, easier-to-comprehend graphic about this data right now, but for now here are the graphs I created playing around with the EIA tool. It's hard to make out the details, so I'll pull out some of the more relevant numbers below. You can also click on each image for a slightly larger version, and you can click here to see a spreadsheet with all the data. )

Expanding offshore drilling versus shutting it down

If it looks like there's just one line there, that's because the three lines are virtually right on top of each other. Whether we dramatically expand offshore drilling or stop selling offshore drilling leases entirely, there will be essentially no impact on the price of gasoline until 2020. If we look out as far as 2030, the difference would only be $0.05—$3.59 per gallon as opposed to $3.64 per gallon. The idea that offshore drilling would significantly ease the pain of high gas prices is a canard.

Then, just for fun, I looked at another scenario: how improving the fuel efficiency of American cars would impact gas prices. In this chart, "Reference" and "High OCS resource" definitions are same as above. "6% LDV fuel economy growth" means that cars would become 6 percent more fuel efficient every year from 2017-2025 (which is by no means an impossible challenge for Detroit), and hold constant after that. The "3%" scenario is a less ambitious version of the same. Here's where things get really interesting.

Expanding offshore drilling versus increasing automotive fuel efficiency

By 2030, if we increase fuel efficiency in cars 6 percent every year for just eight years starting in 2017, per gallon gas prices would be $3.44 per gallon. Compare that to the $3.59 per gallon price that we'd get under the massive expansion of offshore drilling. That 6 percent scenario wasn't pulled out of thin air—it's a legitimate proposal being debated in D.C. that would yield a fleet-wide standard of 60+ miles per gallon by 2025. (See Even the less ambitious 3 percent increase in gas mileage would bring about cheaper gas ($3.51 per gallon) than maxing out our offshore oil reserves.

In short: increasing the gas mileage of American cars is a far better way to cut gas prices than drilling.

If you think about it, this all makes some intuitive sense. The U.S. consumes roughly one-quarter of the world's oil, but holds only 2 percent of the world's oil reserves. So, a far more effective way to reduce gas prices is to address domestic demand than supply. In other words: make vehicles more fuel efficient, and increase energy efficiency incentives.

Our level of oil production as a percentage of global supply is always going to be too small a percentage to have a big impact on prices.Check out our offshore drilling transparency to see just how little of the global oil reserves are located off our coasts.

"This drill drill drill thing is tired," said Tom Kloza, the chief oil analyst for Oil Price Information Service, which calculates gas prices for AAA, hardly a champion of environmental causes. "It's a simplistic way of looking for a solution that doesn't exist."

Anyone who tells you we can drill our way to lower gas prices in the short term is just plain wrong. It is simply not true.

Photo (cc) from Flickr user eschipul

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