Is it time to consider nationalizing the US oil industry?
May 31, 2011
While there may be emotional appeal to chants of “Drill baby Drill” and “American oil for Americans” the reality is that oil taken from beneath American soil simply does not belong to America. It belongs to the oil companies that drilled it and not to Americans. It’s not that way in most of the world where oil is a national industry controlled by the government.
This is a critical difference because in those countries the production and distribution of oil is under the control of the government and not private oil companies. As absurd as it may seem, in the US there are no restrictions to prevent BP from selling all of the oil it gets from American drilling to China.
Those who argue that America would benefit from more drilling in US territories because it is “our oil” and we would keep it should understand the only way for their argument to make any sense is if the US were to nationalize the oil industry. In that case the oil would be ours and we could decide where it was ultimately used. Nationalizing the oil industry would also put America on an equal footing with the majority of other countries who already control their own oil resources.
Let’s also be clear on one other point about increasing drilling in US lands. It won’t lower the price of gasoline at the pump.
- Oil is fungible and is sold in the global market. A barrel of oil from Texas is indistinguishable from a barrel from Saudi Arabia.
- The US contributes 11% to the global market.
- Since the US contributes a small amount to the global total, the ability to directly influence the price by increasing production is limited.
The bottom line is that the price of gasoline in the US is not significantly impacted by how much oil we drill. It’s simple math.
From 2006 to 2010 the US increased annual oil production on average of 4%. This would mean that in 2011 the US production would increase to 10184 or 11.1% of global production. Although nearly impossible to achieve, let’s assume that we were able to quadruple the percent increase from 4% to 16%. This would result in 11192 produced which would be an additional 1008 over the average 4% increase. By quadrupling our annual increase we would have increased global production by only 1.16%. On the global market that determines the price of gas in the US this would have a negligible impact on supply and therefore a minimal impact on the price of gasoline.
If we really wanted to impact gas prices by increasing supply then it would make much more sense to increase worldwide production in areas where production costs were not as high as they are in the US. But wouldn’t that put the US in a vulnerable state and threaten national security if we depended on other countries for our oil? Isn’t it important for us to develop our own oil resources for our own use and energy independence?
The only way to begin to answer these questions and to address our energy problem is to shed the façade of emotion that prevents us from seeing the problem as it really exists. It may be difficult for some not to wave the flag when a politician proclaims that drilling in America is our way to achieve energy national security. The issue is not about waving the flag and feeling proud; it is about understanding the basis of the problem and then coldly and unemotionally calculating how to resolve it. The reality is that approach tends not to get voters very excited and tends to be a poor strategy to getting oneself elected to public office.