Offshore oil won’t reduce prices

April 07, 2010

There has been much discussion about offshore oil drilling as a means to reduce our dependence on foreign oil. What is often ignored is the fact that offshore oil will be almost certainly be more expensive than the foreign oil we are currently buying. In a free market economy, who is going to buy more expensive oil just because it is domestic? Do we do that now with cheap plastic toys? No, we buy them from China and other countries where they can be made cheaper.

The oil wells in the Middle East have been operating for decades with equipment that was paid for long ago. Offshore oil still has to be studied for the best drilling locations, test drills performed, and the expensive capital investments made to build the oil rigs. These up-front exploration and capital costs will have to be absorbed into the price of the oil whenever it starts flowing, which will be years from now. It is highly unlikely this oil will compete on price with oil from our current, foreign suppliers.

What would encourage companies to buy domestic oil at a higher price? Government regulation that requires it? That would hardly be a popular solution. Renewable energies like wind and solar are better for our society than fossil fuel energy, but because they cost more, there is a lot of resistance to promoting their use on a broad scale. Interestingly, many of the opponents of renewable energy who oppose it on the basis of its higher costs happen to be proponents of offshore drilling. Are these proponents willing to pay more for offshore oil? Would they want government mandating a source of oil that costs more and ignores the free market?

If, regardless of cost, offshore oil is going to be pursued as a way to wean ourselves of foreign oil, it should not be the only measure we take. A comprehensive strategy should be implemented that would also include energy efficiency, something else many offshore drilling proponents oppose, as well as promoting the use of alternative fuel vehicles, such as electric cars and fleets that run on natural gas, which besides being domestic and readily available, is also cheaper and cleaner than gasoline.

Jeff Blankman, Owings Mills

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