$4 Gasbags

Wall Street Journal
Thursday, June 12, 2008

Anyone wondering why U.S. energy policy is so dysfunctional need only review Congress's recent antics. Members have debated ideas ranging from suing OPEC to the Senate's carbon tax-and-regulation monstrosity, to a windfall profits tax on oil companies, to new punishments for "price gouging" – everything except expanding domestic energy supplies.

Amid $135 oil, it ought to be an easy, bipartisan victory to lift the political restrictions on energy exploration and production. Record-high fuel costs are hitting consumers and business like a huge tax increase. Yet the U.S. remains one of the only countries in the world that chooses as a matter of policy to lock up its natural resources. The Chinese think we're insane and self-destructive, while the Saudis laugh all the way to the bank.

There are two separate moratoria on offshore drilling: One is a ban that Congress has attached to every budget since 1982, and the other is a 1990 executive order that President Bush has waived in only a few cases. Republicans made failing attempts to overcome both when they ran Congress, but current Democratic leaders and their green masters remain adamantly opposed. The new political opportunity amid record prices is to convince enough rank-and-file Democrats that they'll suffer at the polls if they don't break with this antiexploration ideology.

While energy "independence" is an impossible dream, there's no doubt the U.S. has vast undeveloped fossil-fuel deposits. A tiny corner of the Arctic National Wildlife Refuge contains an estimated 10.4 billion barrels of oil and would be the largest producing oil field in the Northern Hemisphere. Yet the Senate blocked that development as recently as last month. The Outer Continental Shelf is estimated to contain some 86 billion barrels of oil, plus 420 trillion cubic feet of natural gas. Yet of the shelf's 1.76 billion acres, 85% is off-limits and 97% is undeveloped.

Engineers recently perfected refining solid shale rock into diesel or gas, which may amount to the largest oil supply in the world – perhaps as much as 1.8 trillion barrels in the American West. That's enough to meet current U.S. oil demand for more than two centuries. Yet as late as 2007, Democrats attached a rider to the energy bill that prohibits leasing the federal interior lands that contain at least 80% of America's oil shale. The key vote was cast by liberal Senator Ken Salazar from Colorado, of all places.

These supply guesses are probably conservative, because the only way to know for sure is to drill exploratory wells. Yet most of Alaska and offshore are cut off even from modern seismic testing. Many areas haven't been examined since the 1960s, when exploration technology was far more primitive. This has led to the believe-it-or-not situation in which the Chinese are prepping to drill in Cuban waters less than 60 miles off the Florida coast. American companies are banned from drilling in American waters nearby.

Yes, we know, increased drilling is no energy cure-all; new projects take about a decade to come on line. Then again, more than a few experts say that new production could affect price as the market perceives a new U.S. seriousness to increase supplies. Part of today's futures speculation is based on the assumption that supplies will remain tight for years to come, even as Chinese and Indian demand surges.

Nor would merely repealing the exploration bans be enough. Between 2000 and 2007, the drilling of exploratory oil wells climbed 138%, but over the same period domestic crude oil production decreased 12.4% and fell to the lowest levels since 1947. Refineries for gasoline are stretched to the limit, but multiple regulatory barriers impede new construction or even expansions at existing facilities. Then there is the inevitable lawsuit downpour from the environmental lobby.

Democrats are going to have to grow up. The oil-rich areas they want to leave untouched are accessible with minimal environmental disturbance, thanks to modern technology. Hurricanes Katrina and Rita flattened terminals across the Gulf of Mexico but didn't cause a single oil spill. As for anticarbon theology, oil will be indispensable over the next half-century and probably longer, like it or not. Airplanes will never fly on woodchips, and you won't be able to charge your car with a windmill for some time, if ever.

Public anger over fuel prices could hardly come at a worse time for the GOP, since voters tend to blame a flagging economy on the party that occupies the White House. But the opportunity is to offer a reform alternative to Barack Obama and the high-price energy status quo he embraces. It looks like the public is increasingly ready for . . . change. In a May Gallup poll, 57% favored "allowing drilling in U.S. coastal and wilderness areas now off limits." Just 20% blamed the increase in gas prices on Big Oil, like Mr. Obama does.

Recent weeks have seen some GOP stirrings on Capitol Hill, but John McCain has so far refused to jettison his green posturings, such as his belief in carbon caps and his animus against offshore development. A good reason for a rethink would be $4 gas. At present, it is charitable to call Mr. McCain's energy ideas incoherent, and it may cost him the election.