Drilling for Oil: A Dry Hole

Sarah Palin and John McCain got attention for their call for drilling for more oil, and Barrack Obama is following suit. But drill-for-more-oil is an energy policy like searching under the couch cushions for spare change is a fiscal policy. It is exciting when you find something, but it doesn't buy you much.

First, if what we are trying to do is protect against future supply disruptions in a world where oil is in shorter supply than it is now, doesn't it make sense for us to keep our oil, rather than pump it out and sell it or use it? If we pump it out, it is gone. Chevron and Shell are not likely to spend the money to drill wells, only to leave the oil in the ground - they will sell it or use it in their own refineries. So if we drill now and use the oil, if things get really tight in the future, we will be even more vulnerable to supply disruptions because we will have already used up our reserves.

Second, drilling here does not necessarily mean that we get the oil here. We do not have a state-run oil company that will keep the oil and its refined products here. The big oil companies sell oil on a global market, meaning that if China or Germany is willing to pay more for oil, that is where the oil will go. Just drilling here does not guarantee us any more oil.

Third, there is little economic benefit to California of drilling here. There are a few, but they are small. Some Californians, but not many, may be employed in drilling for oil. To the extent the oil is refined here and the refined products sold here, California will collect some taxes, but again, not much. If the drilling is done on state-owned land, California may get some lease revenues. California has no oil severance tax, meaning that we do not collect any money for the hundreds of thousands of barrels of oil that are pulled out of California every day. Zero.

Fourth, the costs of oil production to California are high. California gets significant income from tourism and from fisheries. Offshore drilling is a significant threat to both of these. Drilling platforms and the occasional oil spill will harm tourism, and oil spills and other pollution from drilling activities will harm valuable and already-threatened fisheries.

Drilling for oil in California, particularly offshore, simply makes no sense.