Oil Prices, Gas Prices and Domestic Production

1 / 8
 The prices that we are paying for oil and the products refined from oil, such as gasoline, are set on the world market.
2 / 8
Weekly retail price for premium unleaded gasoline, including taxes, January 1996 to October 2011.
3 / 8
The great revival of U.S. oil production has made the United States a leader in global oil production growth.
4 / 8
U.S. oil production and gasoline prices, percent change, year-over-year, 1990 to 2011.
5 / 8
Percentage of U.S. liquid fuel consumption imported 2005 to 2020.
6 / 8
U.S. oil production 2000 to 2010.
7 / 8
U.S. natural gas production 2000 to 2011.
8 / 8
International natural gas production 2008 to 2010.

“I wanted to speak for a few minutes about gasoline prices, which my colleague from Utah just talked about a few minutes ago. Also, about domestic oil and gas production and also about access to federally-owned oil and gas resources. These are issues that have been raised by numerous senators on this Transportation bill. They are issues of critical importance to our country’s economy, to national security and to resource management. And I’ve been increasingly concerned that the issues that we’re debating, and the facts that are being put out there are often not the true facts. There is widespread misunderstanding of what needs to be done to deal with this set of issues, in my opinion.  

“Let me start with the issue that’s most important to most Americans – and that is, the price of gasoline at the pump, and the price of oil. We need to understand clearly what is causing this, and we need to be direct with our constituents about what is causing this.

“Let me state this as clearly as I can – what I believe is really without dispute among experts. That is, we do not face cycles of high gasoline prices in the United States because of a lack of domestic production. We do not face these cycles of high gasoline prices because of lack of access to federal resources, or because of some environmental regulation that is getting in the way of us obtaining cheap gasoline.

“As was made clear in a hearing we had in the Senate Energy Committee in January, the prices that we are paying for oil and the products refined from oil, such as gasoline, are set on the world market. They are relatively insensitive to what happens here in the United States with regards to production.  Instead, the world price of oil and our gasoline prices are affected more by events beyond our control, such as instability in Libya last year or instability in Iran and concerns about oil supply in Iran this year.

“First, I’ve got two charts that I think clearly make this point very clearly.

“The first chart I believe is very instructive. This is entitled, ‘Weekly Retail Price for Premium Unleaded Gasoline, Including Taxes Paid.’ And, there are two lines on the chart. The top line contains the weekly retail prices in France, Italy, Belgium, Netherlands and the UK. You can see how those prices fluctuate. This is through January of last year. The comparable prices paid in the United States are reflected in this bottom line, and of course, this is because we pay much less in taxes than these other countries.  It’s a useful chart that makes a couple of important points. First, that the price patterns are remarkably similar in all countries. That is, the prices for gasoline in all these countries reflect the world price of oil. Second, while the patterns are similar, the U.S. price is significantly lower, because of the lower taxes that we pay in this country.

“The second chart shows U.S. domestic oil production and U.S. gasoline prices between 1990 and 2011. Here, the red line is the change in domestic production, year over year. The blue line is gasoline prices. And what’s striking about this chart is the lack of relationship between the two lines. Even with U.S. production increasing as it was at some points, oil prices were also increasing, and gas prices were also increasing.

“While domestic oil production plays an important role in the energy security and economy of our country, its contribution to the world oil balance is not sufficient to bring global oil prices down. And, for this reason, increased domestic production unfortunately will not bring down gasoline prices in our country.

“We also need to understand the status of domestic production. Here again, the facts are often misunderstood.  For example, we have heard the claim that the United States and the Obama Administration have turned away from producing the domestic oil and gas resources that we possess. The facts are very much to the contrary.

“At the hearing we had in January in the Energy Committee, James Burkhard, a Managing Director of IHS/Cambridge Energy Research Associates, described our situation in this country as the ‘great revival’ of U.S. oil production. He provided this next graph, which clearly demonstrates what we are experiencing in the United States.

“This graph shows the net change in production of petroleum liquids in the United States and in other major oil producers between 2008 and 2011. The U.S. increase is this very large column here on the left. We can see that our oil increase was far greater than that of any other country in the world. The United States is now the third largest oil producer in the world, after Russia and Saudi Arabia.

“Another chart on domestic oil production is also instructive. This shows total U.S. oil production between 2000 and 2011. It clearly demonstrates that current increases in oil production are reversing several years of decline in that production. We have not had to change any environmental laws or limit protections that apply to public lands in order to get these increases.

“This next chart shows the percentage of our liquid fuel consumption that is imported, including the projections that the Energy Information Administration has made out to 2020. The trend is very encouraging. In 2005, we imported almost 60 percent of the oil that we consume.  Now we import about 49 percent of the oil that we consume. The Energy Information Administration projects that these imports will continue to decline to around 38 percent by 2020. This is an enormous improvement that we would not have thought possible, even a few years ago.

“Now, let me say a few words about natural gas, that is also something that affects utility bills in this country and is very important to our economy. The good news continues as we look at natural gas. This graph shows U.S. natural gas production between 2000 and 2011. As we can see, there has been a dramatic increase in recent years. As we have heard from the International Energy Agency, headquartered in Paris, U.S. gas production grew by more than seven percent in 2011. Our natural gas reserves are such that the United States is expected to become an overall net exporter of natural gas in the next decade. The natural gas inventories are now at record highs, 20 percent above their level at the same time last year.

“In fact, there is so much natural gas being produced, frankly, some producers are shutting in production. They are waiting and hoping that prices improve before they actually sell the natural gas that they are able to produce today.

“This next chart contains production data for the world’s largest natural gas producers for the years 2008 through 2010. There are three bars here. The green bar is 2010 production – the most recent data available. And this chart shows that in 2009, the U.S. surpassed Russia and became literally the world’s leader in natural gas production. The green bar shows that the trend continued in 2010.

“Unlike oil, the price of natural gas price is not set on a world market. For natural gas, our enormous domestic resources and increasing production have a significant effect on the price that American consumers have to pay on their utility bills especially. Natural gas prices are at near-historic lows. This is important to consumers who depend on this fuel for electricity and heating, it’s good for manufacturers who depend on natural gas and it’s good for our economy overall.

“Further evidence of our extremely robust domestic oil and gas production is the fact that the number of oil and gas drilling rigs active in the United States exceeds that of most of the rest of the world. As of last week, there were 1981 rigs actively exploring for or developing oil and natural gas in the United States. The best comparable figure we have for rigs operating internationally is 1871. This does not include Russia or China. It is probably safe to say, though, that more oil and gas drilling is occurring here in the United States than in any other country in the world.

“Despite our relatively modest resource base for conventional petroleum, the industry in the United States has led the world in developing state of the art technology for oil and gas exploration and production – tapping both conventional formations and unconventional resources such as shale and tight sands.

“So to use a boxing metaphor, we are ‘punching above our weight’ in oil and gas production, thanks to the technology lead that our companies have developed. And it is a success story that our country should celebrate.

“Even in light of this good news on domestic production, we hear claims that the Obama Administration has withheld access to the oil and gas that is available on federal lands and the Outer Continental Shelf. So we in Congress are urged to mandate that virtually all federally-owned oil and gas resources be leased for development quickly, without regard to any impact that might have on other resources or economic interests and without any of the scientific analyses that are currently required.

“Again, however, the facts tell a different story. Secretary Salazar testified before our the Energy Committee on the 28th of February that oil production from the Federal Outer Continental Shelf has increased by 30 percent since 2008. It was at 589 million barrels in 2010. Annual oil production onshore on federal lands has increased by over 8 million barrels between 2008 and 2011 and is now over 111 million barrels of production.

“Industry has been given access to millions of acres, much of which they either have not chosen to lease or they have not put into production. In 2009, 53 million acres of the resource-rich Central and Western Gulf of Mexico were offered for lease. Industry chose to lease only 2.7 million out of that 53 million acres. In 2010, 37 million acres of the Gulf were offered. Only 2.4 million acres were actually leased in that year.

“In June 2012, three months from now, the Administration will offer another 38 million acres in the Central Gulf of Mexico for lease. The Interior Department estimates that these areas could produce 1 billion barrels of oil and 4 trillion cubic feet of natural gas. And the Administration has recently proposed a leasing plan for 2012 through 2017 that would make at least 75 percent of the undiscovered technically recoverable oil and gas resources on the Outer Continental Shelf available for lease.

“So even when the industry leases these resources it often does not move to produce oil or gas from these areas that they’ve leased. Onshore, out of 38 million acres currently under lease, the industry has about 12 million acres actually producing. Offshore, there are a total of 35 million acres under lease. Six million acres of that is actually in production. As of September 2011, industry held over 7000 permits to drill onshore that were not being used.

“I’ve heard it stated that only 2 percent of the acres on the Outer Continental Shelf are currently leased, and that this is evidence of lack of access to the resources. In my view, this is a misleading way to think about the current situation. Just as oil is not found uniformly everywhere on land, but instead is concentrated where the geology is favorable, the very same thing is true offshore. The total acreage of the Outer Continental Shelf is huge — 1.7 billion acres. Much of it does not have oil and gas reserves that can be tapped economically.

“Oil and gas occurs in the greatest quantities in only a few areas, such as the Central and Western Gulf of Mexico. It is those productive regions in which the industry expresses interest and which are the primary areas where leasing either is occurring or that the Obama Administration plan would cover. The total 1.7 billion acres is not a useful metric without consideration of which of those acres actually have significant oil and gas resources that are economically recoverable.

“Much more relevant is the amount of the resources that are being made available. As I pointed out, Secretary Salazar has testified that the proposed five-year oil and gas leasing program that they put forward would make more than 75 percent of the Outer Continental Shelf resources available for development.

“The bottom line is that an increased amount of federal acres and resources onshore and offshore are being made available to industry. Production of federally-owned resources continues to increase. The increase in this production can be even greater if industry would lease, explore and produce on a greater percentage of the lands that are offered to them for lease – the lands that are believed to have some of the highest oil and gas resource potential.

“Before I close, let me return for a moment to the issue of gasoline prices. It is clear that we are increasing our domestic production significantly, but that gasoline prices continue to rise. So we need to look for other solutions. This does not mean we are powerless to help reduce the price of gasoline. We know what we need to do.

“If we want to reduce our vulnerability to world oil prices and to volatility of world oil prices, the most important thing we can do is to find ways to use less oil. One of our colleagues gave a good speech a few years ago in which he advocated that we ‘produce more and use less.’ Well, we are doing a pretty good job of producing more and we need to do a better job of using less.  

“We could do much better on the ‘use less’ part of the equation without affecting our quality of life. We can do that by being more efficient in our use of fuel and by diversifying our sources of transportation fuel away from oil.

“We have taken some first steps along this path, notably in the Energy Independence and Security Act of 2007. It passed the Senate with a strong bipartisan vote. That law required us to make our vehicles more efficient, and to shift toward relying more on renewable fuel. And it is working. Demand is down, biofuel use is up, consumers save money on fuel for their vehicles and our percentage of imported oil has dropped by over 10 percent.

“So how do we continue on this path toward reduced oil use and dependence? I think there are three areas we can focus on. First, we need to enable further expansion of our renewable fuel industry, which is currently facing infrastructure and financing constraints. Second, we need to move forward the timeline for market penetration of electric vehicles. Finally, we need to make sure that we use natural gas vehicles in as many applications as make sense, based on that technology.

“Every barrel of oil that we are able to displace in the transportation sector, and that we therefore do not need to consume, makes our economy stronger, obviously it helps our personal pocketbooks and makes us less vulnerable to the volatility of the current marketplace.

“This is not to say that we should not keep drilling and that the Obama Administration should not move forward with its plans to bring even more supplies into the market. We lead the world in innovative exploration and production technology, and it is helpful to our economy and our national security to increase domestic supply, and that’s exactly what’s happening.  

“But in the many debates that we will have in the future over issues related to gasoline prices, we need to recognize that the key issue very clearly is not lack of access to federally-owned oil and gas resources. Our public lands contain many resources and uses that Americans value, and we don’t need to sacrifice science or balanced protection of those other resources and economic interests in order to have robust domestic production.

“The long-term solution to the challenge of high and volatile oil prices is to continue to reduce our dependence on oil, period. This is a strategic vision that President George W. Bush, who previously had worked in the oil industry, clearly articulated in his State of the Union speech in 2006. We subsequently proved in Congress in 2007, the year after that State of the Union speech, that we have the ability to make significant changes in our energy consumption, and that it is possible to mobilize a bipartisan consensus to do that.

“The bipartisan path that the Senate embraced in 2007 is still the right approach today. As part of whatever approach we take to energy and transportation in the weeks and months ahead, we need to be honest with our constituents about what works, and we need to keep moving in that direction with that 2007 bill. We need to allow the facts, and not myths, to be our best guide.”