John McCain’s Energy Policy

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As you may have seen on television, John McCain has said repeatedly that his energy policy is an “all of the above” program that includes “drill here, drill now” for off-shore oil.  McCain has not acknowledged that there is a huge area of the Gulf of Mexico already available and authorized for off-shore oil exploration, and oil companies have shown little interest despite high oil prices.

The Arizona Daily Sun reported today that on Tuesday, August 19, 2008, the Department of the Interior auction received 423 bids (totaling $487 million) from 47 companies to drill for oil and gas on selected (mostly deep water) tracts within1.8 million acres in the Gulf of Mexico, representing about 10% of the area in the western Gulf of Mexico authorized for oil exploration.  However, the bids were for only 319 tracts out of 3412 tracts that the federal government made available for lease.  More than 90% of the available area received no bids at all.  http://www.azstarnet.com/sn/news/253845.php

In March, the Interior Department held the first lease sale for an area of the eastern Gulf that Congress authorized for drilling in 2006. In the auction five months ago, companies bid $64.7 million to drill 36 tracts. Apparently, uncertainty surrounding how much oil and gas is actually there made companies reluctant to spend millions on exploration. A year ago, 40 companies bid on 282 tracts, out of 3000 tracts available for lease in the western Gulf of Mexico. 

Here is what the Wall Street Journal had to say:  “The preliminary results of the lease sale underscore the problems politicians [John McCain, et. al.] face in arguing for more domestic production to ease high energy prices:  Making more land available doesn’t necessarily mean it will be drilled.  Also, most of Tuesday’s offers – 237 – were for 10-year terms, an extended timetable that will have little impact on gasoline prices now.”  [Wall Street Journal print edition, page A2, August 20, 2008]

Economists and other oil analysts have noted that the decline in oil prices (from around $145 per barrel six weeks ago to around $122 per barrel now) is mostly due to the decline of demand for oil, as people drive less and use less oil for other purposes.  Republican supply-side economics have failed to affect oil prices in any significant way.

Democrats (Senator Obama and Speaker Pelosi, among others) have indicated that they want a broad energy policy, and an expansion of areas available for off-shore oil and gas exploration might be included in broad energy legislation if that will facilitate its passage.  However, Senator McCain should be honest and acknowledge that expanding areas available for off-shore exploration is not going to reduce gasoline or home heating oil prices in the next two or three years.

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