As the Libyan government teetered on a long, painful endgame, oil prices surged as the 10th largest world oil supplier closed its ports. We may well see oil prices rise to $110-$120 per barrel. Gasoline at the pump would then rise to $4.00 a gallon. This inevitability will be disastrous to our commuting workforce and many businesses for which energy is a primary expense.
Producers Benefit as Prices Rise
Oil is a global market, and increased U.S. oil production might not make a huge dent in global oil prices. Nevertheless, more U.S. production would substantially benefit the U.S. economy. After all, gasoline prices in the Middle East are not appreciably cheaper than in the United States, but revenue from oil production fills government coffers and funds substantial government services or ample government graft (depending, in degree, on the particular country).
Similarly, gasoline prices in Alaska are comparable to gasoline prices in the lower 48, but residents receive hefty annual checks from the state government reflecting revenue from oil and natural gas production.
Poor political choices are the only impediment preventing all U.S. citizens from similarly benefiting from substantial energy revenues. For example, the Bakken geologic formation stretching from Montana across the Dakotas is perhaps the world’s largest oil find in the past half-century, rivaling the most extensive oil fields Saudi Arabia has to offer.
Similarly, the Marcellus shale fields in Pennsylvania and New York may be the largest in the world, and state residents can reap a tremendous financial windfall if those states do not cave in to deceptive claims of environmental activist and block shale gas production.
National Benefits of Price Hikes
We will probably never be entirely independent of nondomestic oil sources, but we can definitely insulate ourselves from the consequences of global unrest by developing our prodigious oil and natural gas resources. In addition, although Middle East unrest will continue to affect U.S. gasoline prices, we can benefit from price spikes—as Middle Eastern nations do—by enhanced U.S. oil and natural gas production.
The United States can learn from Canada and Mexico, which happen to be the two nations supplying the most imported oil to us. When global unrest drives up oil prices, Canadian and Mexican drivers pay more for gasoline, but increasing government revenue from oil and natural gas production fees, royalties, and taxes soften the blow for Canadian and Mexican consumers.
The more revenue our government obtains from oil and natural gas producers, the less it will have to collect from individual taxpayers.
In a world where the oil market is fungible and knows no international borders, we should stop striving for the false notion of energy independence. Instead, we should strive to be less vulnerable to international price swings by becoming leading producers, in addition to being leading consumers, of oil and natural gas.
The United States has greater energy resources than any nation in the world, yet we have foolishly decided to spurn this wealth. The perverse result is that we fear political and economic turmoil from events in Libya and elsewhere when we could reduce the impact of such concerns and help reduce our budget deficit by freeing up domestic energy production.
Jay Lehr, Ph.D. ([email protected]) is science director of The Heartland Institute.