Effects of Increased Offshore and Alaska Oil on Gas Prices

Before the near meltdown of the financial system, the big talk was the escalating price of oil. High gas prices have been putting the crunch on all of our wallets and purses, not only when we fill up the family vehicle, but also, well, for the price of everything. We can be sure that while the price of oil has subsided a little, the problem has not gone away.

As a remedy, Republican Presidential Candidate John McCain has started advocating more domestic drilling, particularly in the form of offshore drilling. Also, although McCain has traditionally been against it, his new running mate, Alaska Governor Sarah Palin, has been also for drilling in the Artic National Wildlife Refuge (ANWR).

To be sure, there are many arguments for and against opening up offshoring drilling (~18.7 billion barrels) or ANWR (~10.4 billion barrels). One of the arguments put forward by protagonists is that it will help reduce the price of gas at the pump. And that’s what we really care about, isn’t it?

Politifact has gathered together some salient views on the relationship of expanded drilling to price at the pump. Here’s the summary in a nutshell:

• Opening up drilling is a long-term plan, not a short-term solution. Although Gov. Palin claims only 5 years are needed to bring ANWR online, energy experts say 10 years is a more realistic estimate.
• The impact to gas prices at the pump would be marginal at best

Both the offshore continental shelf reserves and ANWR are only small contributions to the overall world reserves. So, their effect on price is small. A report by the Energy Information Administration estimates that oil from ANWR could “subtract anywhere from 41 cents to $1.44 per barrel of crude oil around 2025.” This could perhaps be doubled if both offshoring drilling and ANWR came online together. These will be a few percent changes in price, which translates to small change at the pump–a few pennies to perhaps 25 to 40 cents.

To make a good choice about whether to support such drilling, we have to consider the benefit (a small reduction at the pump in 10 years) versus the potential environmental impacts.