Acadiana Business

More domestic drilling has little effect on prices

by Leslie Turk

Be wary of any politician who tells you his policy for more domestic drilling will bring energy prices down. Both Mitt Romney and Barack Obama are vowing to reverse the U.S.'s dependence on foreign oil. But a story posted today on FuelFix, an energy news and analysis site anchored by business reporters at the Houston Chronicle and other Hearst newspapers, stresses that regardless of who is in the White House for the next four years, the U.S. will be producing much more of its own energy.

FuelFix notes that the U.S. is already on a trajectory to derive much of its oil and all of its natural gas from within its own borders, thanks in large part to hydraulic fracking. It stresses, however, that abundant domestic supplies don't guarantee a drop in the cost of energy:
Oil prices are set on a world market, subject to a complex mix of factors outside the United States' control. And even if net U.S. or North American oil imports plummeted to zero, the United States would still be connected to that global market.

Michael Levi, a senior fellow for energy and the environment at the Council on Foreign Relations, argues that the notion of real energy independence requires more than just "impressive arithmetic": It isn't just adding up total imports and exports to get to zero.

"So long as you are part of a global oil market, your economy remains vulnerable to unrest in that market even if you are buying oil from yourself," Levi said.

For instance, OPEC countries could cut their production to offset any spikes in U.S. oil a scenario even bullish analysts anticipate.

"There will be times when OPEC may respond and cut production and that will temporarily pop up the price again," said analyst John Freeman, managing director of Raymond James & Associates.
Read more here.