Surprisingly, gasoline prices were front and center in last night’s Presidential debate –surprisingly, because gasoline prices would seem to be one of those issues that are largely out of a President’s hand. The single largest variable that influences gasoline prices is the price of crude oil and it is hard for the United States to influence the global oil market, especially right now given the extensive instability in the Middle East.
But as both President Obama and Governor Romney laid out their views on gasoline prices, I was struck by the fact that the President could have done a better job explaining what he has done to try to keep gasoline prices low.
The president has fortified corporate average automobile fuel efficiency standards (CAFÉ) for the U.S. vehicle fleet. He cannot take credit for the original passage of tighter standards in 2007. Nancy Pelosi and President Bush get the nod for that. But President Obama supported the state of California in its push to strengthen the initial targets and recently the Obama Administration accelerated the time lines for higher efficiency standards to 54.5 miles per gallon by 2025. The new standard should over time shed between 4 to 6 million barrels a day of oil demand over the next decade or two. Governor Romney is on the record opposing CAFÉ standards which he characterizes as overzealous regulation of “the government telling the companies what they must make.” Score card: One point for President Obama, had he explained it properly.
President Obama has also been more willing than his predecessor to use the U.S. strategic petroleum reserve (SPR) to influence shortages of light sweet crude oil in the international market during the events of the Arab Spring. Without this policy, Americans would likely have paid more at the pump from the unrest in the Middle East. Had the President not bowed to criticism when Iranian oil and tanker insurance sanctions were being tightened last July and had opted to make a second release of the SPR, it might similarly have helped consumers at the pump. Generally speaking, Republicans have been against using the SPR, calling all the events that are disrupting international oil markets not enough of an emergency. So again, I give the President the points on the SPR question and not his opponents.
Rising domestic production can help bring down the international price of oil and thereby promote lower U.S. gasoline prices. Both the President and Governor Romney made that point in last night’s debate and both promised rising U.S. production. For the current rise in U.S. production, the points really go to neither candidate but to the oil and gas industry for being so creative as to develop the new technologies to make production from shale viable.
Governor Romney said the President was blocking oil production by reducing leasing and permitting. President Obama made the point that U.S. production has been rising on his watch and blamed the oil industry for the leasing mess. I give some points to Governor Romney but he could have been clearer explaining how the President slowed production. The blocking of Keystone XL pipeline from Canada to the U.S. Gulf coast, a highly politicized move by the administration, is probably the most striking recent barrier to oil development. Pipeline delays not only made it difficult for North Dakota crude oil to reach U.S. Gulf coast refiners and thereby to lower oil prices beyond the U.S. midcontinent by bringing more supply competition to the international sweet crude market, but also such delays create uncertainty that slows upstream oil exploration investment, reducing future production.
In fairness to President Obama, one reason drilling and federal leasing in the U.S. Gulf of Mexico is down is due to the Macondo accident. Had the industry been better prepared with a real and effective spill response, a moratorium in the Gulf of Mexico wouldn’t have been necessary. In terms of onshore federal lands, oil company advocates say it takes longer to get a permit on federal, as opposed to state, lands. But again, if there were no incidents of illegal dumping of chemically laden process water in rural yards and streams and other kinds of unexpected ground water contamination, there would have been less of a public outcry against fracking. Without the problems, tighter permitting rules for federal lands, and the delays they have caused, would not have been necessary.
Last spring, the Obama administration passed new rules to bolster oversight on public lands for oil and gas drilling using fracking technology. The hope was that states would be able to use the federal standards as a guide to constructive regulation. Only a small fraction of shale wells have been drilling so far on federal lands (as opposed to state and private lands).
Proper regulations and federal oversight protects the oil industry from being its own worst enemy. An orderly system for mandating and approving spill contingency plans and implementing safety inspections ensures that drilling can be done with lower risk. If poor industry operations endanger ecosystems and threaten human health, even more production will ultimately be curtailed. And, damage from accidents or poor operations are not only bad for the public interest, it is bad for shareholders. Ask anyone holding BP shares in 2010. Had a federal overseer prevented BP from drilling the fateful Macondo project until it had an effective plan for a blowout, holders of BP stock would have been far better off.
Image: Fuel Prices via Shutterstock