The People of America's Oil and Natural Gas Indusry

Energy Tomorrow Radio: Episode 92 - Ben Lieberman on Sky-High Gas Prices

Jane Van Ryan

Jane Van Ryan
Posted October 20, 2009

In this episode, Jane Van Ryan interviews the Heritage Foundation's Ben Lieberman, senior policy analyst on energy and the environment, on his recent paper, "Five Things Congress and the President Are Doing to Bring Back Sky-High Gas Prices."

Use the audio player below to listen to the conversation and follow along with the show notes. I hope you find the podcast informative.

Show Notes:

00:20 Although gasoline prices are higher now than they were at the beginning of the year, they still are much lower than they were last summer when gasoline hit a new record. Could they go up to record levels again? The Heritage Foundation has conducted studies that show they could rise significantly if Congress and the President succeed in enacting some new energy proposals.

01:09 The law of supply and demand is one law that Congress can't change; and if Congress is planning on imposing measures that would increase the regulations that make it harder to produce domestic energy, we would see lower supplies and higher prices. This is a deliberate attempt to raise energy prices because the impact of reduced domestic supplies on future prices is clear.

01:54 The cap-and-trade bills boil down to being an energy tax in disguise. What cap-and-trade does is essentially ration fossil energy, which includes oil and gasoline. So lower supplies would mean higher prices. Under this scheme, the amount of fossil energy we are allowed to use in this country would shrink over time, adding upward pressure to future gasoline prices, as well as coal-fire electricity and natural gas prices.

02:28 A lot of drilling for oil and natural gas in this country involves the process of hydraulic fracturing, which means injecting fluids under pressure into wells to help facilitate the flow of natural gas and oil. This is a very important process that is used in most new wells, and it has been done very safely for decades. Regardless of the strong safety record, there are proposals in the works to add further to the regulatory restrictions on hydraulic fracturing. That would make domestic drilling more expensive and we would see less of it, for both oil and natural gas.

03:30 Domestic drilling already has a host of environmental restrictions placed upon it. Rather than streamlining and approving upon those existing regulatory requirements, there is a bill in the U.S. House of Representatives to add on layers of red tape--which is exactly what is not needed. We don't need years of additional delays and reasons to place so much of America's oil and natural gas off-limits. We need to streamline those things. Piling on the red tape will result in less domestic production, and if history is any guide, less domestic production will lead to higher prices.

04:25 Oil and gas is already very heavily taxed in the United States. Studies show that the effective tax rates for the oil and natural gas industry are high as or higher than other industrial sectors. Simply increasing taxes and fees on domestic oil and gas production would discourage production at the margins. Some wells that would otherwise be profitable can be taxed so heavily that they would be unprofitable, and that oil and natural gas would stay in the red. We have to be careful about seeing the oil and natural gas industry as a source of additional tax revenues. By doing so, we may be discouraging future domestic supply.

05:33 One of the good things that happened with four dollars per gallon gasoline, the silver lining, is that the public got fed up and demanded that Washington remove some of the restrictions on domestic oil and natural gas drilling, especially offshore. The president and Congress repealed restrictions on offshore drilling. Unfortunately, the process of leasing these new areas falls on the new administration and so far its Department of the Interior has shown every indication of dragging its feet on allowing new leasing and opening up new areas to energy production. These restrictions are on top of the additional things that slow down the process of bringing new energy online. We should be taking advantage of this recession, this respite, of high demand for oil and natural gas to gear up for the increased demand we will see in the future, especially as the economy recovers. We're dragging our feet and not allowing new drilling to move forward.

06:53 We will need more energy in the future and if we don't allow that energy to come online expeditiously, that will just add upward pressure to future prices.

07:14 We should be making good use of the oil and natural gas industry that is here in the U.S., both onshore and offshore, with reasonable amount of restrictions and safety. In fact, those safeguards have a long track record of providing all the protections that we need from things like offshore spills. We should be moving forward with production, especially since all indications are that America's demand for energy will increase in the years ahead. Now is the time to start gearing up for meeting that future demand. We ought to be allowing more production in the U.S. onshore and offshore.

08:10 When it comes to alternatives we have to be realistic, especially about the time frame that it takes for truly viable alternatives--economically and technologically--to supplant petroleum, gasoline and diesel fuels. This is a long process that is going to take time, and in the mean time, we're going to need fossil fuels, including oil and petroleum products. We need to have a more smooth transition without rushing into alternatives, because the truth is alternatives are not yet ready.