Drill Here. Drill Now. Pay Less?

 

 

If you're attending the Democratic National Convention, and you can get past the Stormtrooper-looking police in riot gear, and past the people selling Obama buttons for $3 a pop, and you can keep plugging along even after running across the guy riding his bicycle with a giant flag reading: "You are going to Hell", or the anti-abortion truck, emblazoned with gigantic "photos" of bloody, mutilated, aborted fetuses, then you might find an event offering some substance.

On Monday afternoon, for example, Pete Morton, Senior Resource Economist for The Wilderness Society, gave an interesting talk in the Big Tent. His thesis: Drilling more now will NOT lower oil or natural gas prices.

True, the energy industry (and a growing chorus of politicians) have been telling us that the more we drill in the U.S, the greater our "energy independence" will be. That will make our energy more secure, and the added production will help supply catch up with demand, thus lowering prices. Seems like common economic sense.

But for all kinds of reasons, it just doesn't work that way, Morton says. And he has a much more elegant solution to high energy prices.

When it comes to oil, the problem is war. It's as simple as that. Instability in the Middle East causes doubts and insecurities (and sometimes actual disruptions in production) which drives up the price of oil. Look at a historical chart of crude oil prices, and you'll see a spike every time something goes awry in the Middle East. The Iranians have a revolution: Oil prices climb. The U.S. goes to war with Iraq: Oil prices climb. Usually, once some sort of stability is reached, prices dip again.

In this case, though, there's another factor. For the first time since the Revolutionary War, the U.S. has borrowed money from overseas in order to finance a war. That's driven up the budget deficit, which has caused the dollar to decrease in value, which has resulted in higher oil prices. As a result, even after the "Surge" in Iraq, oil prices continued to surge without relief.

Oil, for the most part, is not what we're dealing with in today's energy boom in the Rocky Mountain West. Those drill rigs popping up everywhere are sucking up natural gas. Morton also spoke to the gas boom, hitting many of the same points as HCN's Boom! Boom! story from a few months back, and an earlier piece about the Bush administration's disingenuous efforts to show that inadequate amounts of federal lands are available for energy production.

When it comes to natural gas prices, says Morton, the price of oil is a significant variable -- so the same factors making oil expensive will also make natural gas expensive, regardless of how many holes are punched in the ground.

There's more. Used to be, many Coloradans actually had cheap natural gas. That's because so much of it was produced here, and producers had very few means to get it to other markets. In recent years, however, the pipeline capacity to transport methane from the gasfields of Colorado and Wyoming to points East -- where natural gas fetches a premium -- has increased significantly. As a result, prices have shot up even here on the edges of the drilling sweet spots. So, gas production has increased. And guess what? Prices haven't decreased. If those prices did start to fall, then the energy companies have a simple solution: Stop producing, and get prices back up again. It's easy to do here in the U.S. because the natural gas market is a closed one -- we import very little of the stuff (as opposed to oil).

So, instead of drilling more, says Morton, and instead of giving tax breaks to industry, the feds should give tax credits to homeowners who install more energy efficient windows or appliances and insulate their homes. That, he points out, would not only take "corporations out of your energy bill," but it would also provide a lower energy bill in the long term.

It's pretty heady stuff. And one might expect, with the Convention being held right here in the heart of gas country, some of our national politicians might start opening their eyes to the problems this swing state and its neighbors are facing (and the political uprising that has resulted). Thing is, it's a lot harder to listen to an economist, like Morton, than it is to get caught up in billboard slogans that appear amid the skyscrapers in downtown Denver (like the one that opens this blog post).

Instead, the Democrats are missing an opportunity to go after the Republicans on the War and the resulting high energy prices, not to mention the damage the fast pace of the current drilling boom has done to the Interior West, Morton says. Even as the candidates take the podium here in Denver, just a stone's throw from the densely-drilled fields and suburbs of Weld County, and not far from the new sweet spot of the Piceance Basin, they've thus far failed to mention true Western issues (even as they speak about how important winning the West is).

"That's why I'm not a Democrat or a Republican," says Morton. "That's why I'm an independent."