Robert Murphy

If we extrapolate from today’s production rates on federal land and waters, we can estimate that the 68 million acres of leased but currently inactive federal land and waters could produce an additional 4.8 million barrels of oil and 44.7 billion cubic feet of natural gas each day.

And there you have it, folks.  Not only are the oil companies evil, but they’re also unbelievably stupid.  Let’s do some quick calculations to find out just how much money these Congressional titans of industry believe the oil companies are leaving on the table.  At a price per barrel of about $140, and 4.8 million bbls/day times 363 days per year (I’m allowing Big Oil Christmas and Labor Day vacations), then that is over $243 billion (with a B) in extra annual revenues that they are ignoring.

It’s true, my figure calculated above wouldn’t all be profit; it presumably would take a lot of extra wage and other payments to move that amount of oil.  Still, $243 billion in extra sales per year seems like it’s worth looking into.

Obviously, the true situation is that not every acre of federal land has the same amount of oil or natural gas beneath it.  Oil companies don’t know beforehand where the profitable finds will be, so they lease large amounts of land and then explore.  At any snapshot in time, of course there will be a sizable fraction of leased land that is not in development.  (In fact, the way those statistics are calculated, even if the oil company is building a well on leased land, at that point it is still classified as “not producing.”)

Critics of the Bush Administration’s approach to foreign policy often remind hawkish policy makers that they must understand the mind of the enemy if there is any hope in winning a war.  Rather than simply seeing mindless evil, war planners should instead try to understand the motives of those they oppose.

By the very same token, I urge leftist critics of Big Oil to put aside their hatred for a moment and actually learn how the industry works.  If policies are enacted with no understanding of the oil market, gasoline prices will rise even further, and we’ll be treated to yet another round of the blame game.

Robert Murphy

Robert Murphy has a Ph.D. in economics and is the author of The Politically Incorrect Guide to Capitalism (Regnery 2007).

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