Rep. Michele Bachmann (R-Minn.) is creating a track record of saying things that leave folks scratching their heads. Her latest claim, that if she is elected president, the country will see gas prices fall below $2 a gallon, is one of the head-scratchiest things she has ever said. The comment earns this distinction because it ignores reality, market forces, math and the role that the commander in chief plays in setting gas prices in the U.S. Let’s start with the president’s role.
The president and gas
In March, Brent Batten wrote an interesting analysis of politicians who try to blame whomever occupies the White House for high gas prices. “In reality, supply and demand are the driving factors in the price of gasoline and any other commodity exchanged on the open market,” wrote Batten.
In his aptly titled 2006 column, “Say It With Me: Supply and Demand,” Washington Post columnist Charles Krauthammer pointed out that economics — not the president — dictate the price at the pump. “Demand is up. China has come from nowhere to pass Japan as the number No. 2 oil consumer in the world. China and India — between them home to eight times the U.S. population — are industrializing and gobbling huge amounts of energy,” Krauthammer began. He then outlined the other side of the equation: “Supply is down. Start with supply disruptions in Nigeria, decreased production in Iraq, and the continuing loss of 5 percent of our national refining capacity because of damage from hurricanes Katrina and Rita.”
Okay, so let’s assume these two columnists are relatively on target with their analysis that market forces, not the president of the United States, are behind the price of gasoline. If this is indeed the case, then a President Bachmann would be left with two simple choices for bringing down the price of gasoline: she could increase supply or lower demand.
Let’s first look into this idea of increasing supply. Bachmann has a history of opposing environmental regulations that have kept some areas of America’s oil supply off-limits for development. There are three general areas where the government could increase supply: 1) offshore drilling, 2) onshore drilling and 3) the Arctic National Wildlife Refuge in Alaska (ANWR). Let’s start with ANWR, since Bachmann has a history of favoring development there.
In 1998, the U.S. Geological Survey estimated that between 5.7 and 16 billion barrels of technically recoverable crude oil and natural gas liquids lie in the coastal plain area of ANWR. That same estimate revealed that about 10.4 billion barrels of crude is recoverable. This study lead the Energy Information Administration to conclude that, “The total production from ANWR would be between 0.4 and 1.2 percent of total world oil consumption in 2030. Consequently, ANWR oil production is not projected to have a large impact on world oil prices.” That same report concluded that, “The opening of ANWR is projected to have its largest oil price reduction impacts as follows: a reduction in low-sulfur, light crude oil prices of $0.41 per barrel (2006 dollars) in 2026 for the low oil resource case, $0.75 per barrel in 2025 for the mean oil resource case, and $1.44 per barrel in 2027 for the high oil resource case, relative to the reference case.”
Let’s remember three more things based on these conclusions. The first is that there are 42 gallons in a barrel, meaning that the price reduction at the pump after adding the ANWR oil into the global market would be minimal. The second consideration is that oil is traded on a global market and the Organization of Petroleum Exporting Countries (OPEC) could completely nullify any impact of ANWR oil on the market, according to the same EIA report referenced above. “Assuming that world oil markets continue to work as they do today, the Organization of Petroleum Exporting Countries (OPEC) could neutralize any potential price impact of ANWR oil production by reducing its oil exports by an equal amount." The third thing to consider in this situation is that these costs do not include the costs of constructing new pipelines and refineries to turn these vast amounts of oil into gasoline.
As for the onshore and offshore reserves, lets take a look the latest numbers from the Department of the Interior (DOI). If we put the Strategic Petroleum Reserve aside, the DOI estimates that the total volume of undiscovered, but technically recoverable petroleum resources, is 134 billion barrels. This number includes the 16 billion barrels from ANWR as well as shale oil, which to date has never been a significant part of the United States’ oil portfolio. Using the logic from the EIA report on ANWR, this means a potential of $12.06 dollars could conceivably be shaved off the total barrel cost of crude oil by 2027. This, in theory, could mean a market reduction in the price of gasoline per gallon of about 15 cents on the high side. Once again this number does not include the investment it would take to build the infrastructure, refineries and technology for shale that would be required to bring this all to fruition. It also does not include any considerations about those pesky market forces and the OPEC countries' reaction to this. It should also be pointed out that even if Bachmann were to win in 2012 and be reelected in 2016, the reduced barrel rate wouldn’t come into play until a full seven years after her presidency ended.
There is another side of the equation we should be considering. This is a much simpler side to analyze. Even with a lull during the present recession, oil demand is projected to increase more than 21 percent from 2007 levels by 2030 according to another EIA analysis. This is largely due to the growth of China, India and the entire Oceanic region. This demand side also far out-paces the potential production increases the United States could put fourth if it implemented a “drill-everywhere policy,” as Bachmann has promoted. Of course demand could be curbed by a massive focus on conserving resources. While this could happen in theory, Bachmann hasn’t been the biggest supporter of such initiatives. The Minnesota representative has a lengthy record of opposing energy conservation when it comes to giving tax credits to renewable energy developers. Bachmann has opposed providing incentives that would lower energy usage in the United States while increasing energy efficiency.
So Michelle Bachmann thinks she can enact policies as president that will directly lower our prices at the pump. If she does so, it will be an amazing feat that will somehow include policies that are completely different than her lengthy record in Congress would suggest. It will also include a policy change that defies the facts and laws of supply and demand. But she seems convinced.
Maybe she knows something we don’t.
Also on MNN: Michele Bachmann's environmental record