Supply and demand, and ANWR

June 10, 2008 | By | Reply More

Every barrel of oil taken out of our planet has a cost associated with its extraction. This cost-per-barrel varies for different oil fields and also varies over time for a given oil field, which means some barrels are costlier to extract than others. When the market price for a given barrel of oil exceeds its extraction cost, that barrel becomes profitable to extract from the ground and sell. Naturally, as the price of oil increases, barrels that were profitable to extract at a previous lower price will remain profitable (in fact, will become more profitable), while other barrels that were previously unprofitable to extract at a lower price will become profitable. Thus, a higher market price for oil will increase the number of barrels that are profitable to extract, and oil companies will extract these barrels and sell them. Indeed, in some cases, entire oil fields have been shut down because the profitable barrels have already been extracted, and the additional barrels that remain in the ground are merely waiting for the day when a higher market price (or improved technology) will make those barrels profitable. All of this is basic economics and probably obvious to you.

So, why do I mention it? Because I have been hearing Bush and some Republican members of Congress this week once again calling for approval to allow oil companies to drill for oil in the Arctic National Wildlife Refuge (ANWR). While it is true that oil in ANWR might (or might not) be profitable to extract at the current market price for oil, it is also true that known oil resources, in existing and fallow oil fields, have now become profitable due to the higher market price for oil. Extraction of this oil can thus commence, whether or not oil companies are allowed to drill in ANWR. Thus, the argument that higher market prices should justify drilling in ANWR is essentially invalid: high oil prices will make more known oil resources profitable, so there is no real need to drill in ANWR. The Bushites and their Big Oil pals know this, but are merely trying to exploit consumer frustration at the pump to ruin yet another wildlife area for the sake of short-term oil company profits.


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About the Author ()

Grumpypilgrim is a writer and management consultant living in Madison, WI. He has several scientific degrees, including a recent master’s degree from MIT. He has also held several professional career positions, none of which has been in a field in which he ever took a university course. Grumps is an avid cyclist and, for many years now, has traveled more annual miles by bicycle than by car…and he wishes more people (for the health of both themselves and our planet) would do the same. Grumps is an enthusiastic advocate of life-long learning, healthy living and political awareness. He is single, and provides a loving home for abused and abandoned bicycles. Grumpy’s email: grumpypilgrim(AT)@gmail(DOT).com [Erich’s note: Grumpy asked that his email be encrypted this way to deter spam. If you want to write to him, drop out the parentheticals in the above address].

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