I have a piece in today’s Wall Street Journal on the topic of high gasoline prices. My conclusion is that Congress, not "Big Oil," bears most of the responsibility, because the former has made it impossible for U.S. producers of crude oil to tap significant domestic reserves of oil and gas, and it has foreclosed economically viable alternative sources of energy in favor of unfeasible alternatives such as wind and solar.
The fact is that world oil supply has been curtailed by the cartel-like behavior of foreign national oil companies, which control nearly 80% of world petroleum reserves. Faced with little competition in the production of crude oil, the members of this cartel benefit from keeping the commodity in the ground, confident that increasing demand will make it more valuable in the future. Despite its pious denunciations of the behavior of U.S. investor-owned oil companies (IOCs), Congress by its actions over the years has ensured the economic viability of the national oil company cartel.
It has done so by preventing the exploitation by IOCs of reserves available in nonpark federal lands in the West, Alaska and under the waters off our coasts. These areas hold an estimated 635 trillion cubic feet of recoverable natural gas – enough to meet the needs of the 60 million American homes fueled by natural gas for over a century. They also hold an estimated 112 billion barrels of recoverable oil – enough to produce gasoline for 60 million cars and fuel oil for 25 million homes for 60 years.
I argue that announcing that these areas will be exploited will have the same effect as Ronald Reagan’s deregulation of domestic crude oil prices at the beginning of his first term. At the time, thanks to the decision by the Organization of Petroleum Exporting Countries (OPEC) to curtail output, the price of oil was at a level that in real terms is only now being matched. Domestic price controls ensured that the OPEC cartel would face little or no competition in the production of oil.
Reagan’s deregulation of crude oil prices created incentives for domestic producers to invest in exploration and to increase production. The threat of increased output by non-OPEC producers destroyed the discipline among OPEC members necessary to restrict production to maintain high prices. Facing the likelihood that an increase in supply would lead to lower future prices, OPEC producers increased output in the hopes of maximizing profits before prices fell. The cascading effect caused oil prices to tumble.
The piece has gotten me an invitation to appear on CNBC this afternoon, some time around 2:50.