Americans favor drilling in ANWR
The Pew Research Center poll finds:
More adults in the United States want to allow oil and gas drilling in the Arctic National Wildlife Refuge in Alaska, according to a poll by the Pew Research Center for the People and the Press. 50 per cent of respondents favour the idea, while 43 per cent are opposed. . . .
On Jun. 18, Bush once again voiced support for oil exploration in Alaska, saying, "We should expand American oil production by permitting exploration in the Arctic National Wildlife Refuge, or ANWR. When ANWR was created in 1980, Congress specifically reserved a portion for energy development. In 1995, Congress passed legislation allowing oil production in this small fraction of ANWR’s 19 million acres. With a drilling footprint of less than 2,000 acres—less than one-tenth of one per cent of this distant Alaskan terrain—America could produce an estimated 10 billion barrels of oil. That is roughly the equivalent of two decades of imported oil from Saudi Arabia. Yet my predecessor vetoed this bill."
Labels: Energy
posted by John Lott at 4:54 PM
4 Comments:
What about our grandkids and great-grandkids? If we use up the ANWR crude now, what are they going to do for gasoline? Didn't everyone see the label on the ANWR: "Do not open until 2050"?
This is basic economics. If people think that the price of oil will be very high in the future relative to today (say because we will run out and there are no alternatives), it will pay for people to wait to take the oil out of the ground. As long as oil producers want to make money, they are going to do their best trying to guess what the price is going to be in the future and to act accordingly.
The bottom line is if the policy that you are advocating makes sense, you won't have to force people to wait.
Oil executives aren't going to wait to take crude oil out of the ground until 2050 in order to get a higher price. They are all going to be dead by then. They need to make their money today. What happens in 2050 is simply not their concern. It's basic economics.
From a real options framework, convenience yields have a big effect on when it's optimal to pull oil (or any other resource) out of the ground. Such models would predict less development of new resources with a futures market in contango (as oil has been, unusually, for a while).
If actual decisions of companies to exploit new resources are at all close to what the models would predict (which may not be the case), then one might expect less than desirable expansion of supply so long as the contango remains. From a model perspective, one way out of that is to add expropriation risk. If there is some chance that the resource may be expropriated at an unknown time, then it can pay to pull out the resource now, as opposed to waiting for the price to be even higher.
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