Here’s why a ‘drill, baby, drill’ U.S. energy policy won’t work — right now
“Drill, baby, drill!”
It’s been the mantra of proponents for expanding America’s use of domestic petroleum to counter the increasing volatility that comes from our dependence upon foreign oil. And, I’m strongly in that camp.
I believe using our own oil resources is vital not only to our national security interests, but also to our economy. And, I’m not alone in that sentiment. But, as it stands right now, “Drill, baby, drill” won’t help. Not yet.
We have to address the issue of refining capacity first. And it’s no small task to tackle.
According to the Energy Information Administration, the number of operable refineries in the United States has been reduced by more than 50 percent (there were 302 refineries in 1982, today there are 143). Granted, improvements in efficiency have resulted in almost no reduction in refining capacity (17.9 million barrels per day in 1982, compared to 17.4 million bpd), but oil demand in the U.S. has risen to nearly 21 million bpd.
But, that also means existing refining facilities in the U.S. have been operating at or very nearly full capacity for more than a decade. To make “Drill, baby, drill” work, we need to have more refining capacity in the contiguous 48.
The last refinery build in the U.S. was started up in 1976. Why? Because refineries are: 1) difficult to get approved due to strict EPA oversight and government red tape, 2) difficult to get built due to the guaranteed knee-jerk opposition that is lobbied by environmentalist groups, 3) expensive to build for all of the aforementioned reasons and 4) not very profitable due mainly to Reason 3.
Case in point: Arizona Clean Fuels, which was approved for a new refining facility in 1998. Getting a permit to build the refinery took seven years.
Since then, the company has had to move the proposed location of the refinery twice because of environmental restrictions and land disputes. The projected price tag for the company’s refinery is $3.7 billion.
The average per-barrel profit for a refinery is estimated to be $16.87 this year (the six-year average is about $6 per barrel, though). At 150,000 barrels per day — even at today’s profits — the refinery would need to operate for more than eight years just to pay off its construction costs at current interest rates.
At the six-year average, it could take more than 40 years.
Of course, those aren’t the only factors contributing to the lack of new refineries in the U.S. It’s a tad more complicated, largely because we were operating at a refining surplus — we refined more oil than we consumed — until the past 10-15 years, during which almost all of our refinery closures occurred.
Some have argued these closures were calculated by oil interests who wanted to drive up the price of petroleum. And, I can’t say it’s not outside the realm of reason to consider it.
Mind you, refining capacity doesn’t have the biggest impact on the price of gasoline, even if it is a contributor.
But, if we hope to flood the market with millions of barrels of American oil — which science has now proven is there, ripe for the taking — we need to have the refining capacity to convert that oil into gasoline.
Combined, expanded oil harvesting and expanded oil refining would dramatically improve the price of gasoline. That impact would trickle through almost every facet of the U.S. economy alone, but also consider the high-paying jobs that would be created by both moves.
“Comprehensive domestic energy policy” is a tired phrase these days, but that’s exactly what the U.S. needs right now. And, if I was running for President, it would be a central piece of my platform.
But, U.S. energy policy shouldn’t be tied to a single energy source. It also should include provisions for the expansion of “green” energies, such as hydroelectric, wind — which is important to Newton, but in my mind would be vital whether I lived in the heart of the wind industry in Iowa or not — and biofuels, which also is important in Iowa.
It should also include provisions for expanded nuclear power — which isn’t nearly as dangerous as some folks would have you believe — as well as clean-coal, and expanded natural gas use.
If you’re reading this, thank a teacher. If you’re reading this in English, thank a soldier, sailor, airman or Marine.
Bob Eschliman is editor of the Daily News. He may be reached at (641) 792-3121, ext. 423, or beschliman@newtondailynews.com via email.
