Use competition to fi­nally de­feat the OPEC car­tel

The Washington Times Weekly - - Commentary -

Squeez­ing the noz­zle han­dle, star­ing at the ever-ris­ing price of gas, hard­work­ing Amer­i­can fam­i­lies are won­der­ing when the in­creases will stop. De­spite tem­po­rary dips in prices, the trend to­ward $5 seems al­most un­stop­pable. Is that a bad thing? It could be good news for Amer­ica’s fu­ture en­ergy in­de­pen­dence.

Ris­ing oil prices give us the op­por­tu­nity to break the back of the Or­ga­ni­za­tion of Pe­tro­leum Pro­duc­ing Coun­tries (OPEC), whose stran­gle­hold on our nation’s oil sup­ply and in­flu­ence on the price we pay has been an un­for­tu­nate fact of life since 1960.

OPEC has held to­gether longer than might have been ex­pected, in part be­cause of un­ex­pected and un­know­ing col­lab­o­ra­tors.

For ex­am­ple, en­vi­ron­men­tal groups and gov­ern­men­tal reg­u­la­tors in the United States and else­where have for decades lob­bied for poli­cies that re­duce oil pro­duc­tion by busi­nesses in non-OPEC na­tions.

Higher oil prices are pow­er­ful in­cen­tives that have gained the un­di­vided at­ten­tion of oil pro­duc­ers.

Chevron, Exxon Mo­bil, and Cono­coPhillips, for ex­am­ple, are re­fo­cus­ing their at­ten­tion in the Texas Per­mian Basin, an old oil field that is once again boom­ing. This is largely due to new tech- no­log­i­cal de­vel­op­ments, such as hy­draulic frac­tur­ing and hor­i­zon­tal drilling, en­cour­aged by higher prices.

In 2002, North Dakota pro­duced just 30 mil­lion bar­rels of oil in the Bakken for­ma­tion; as prices climbed, pro­duc­tion reached 112 mil­lion bar­rels in 2010.

Plans are un­der way to add thou­sands of new wells, mak­ing North Dakota fourth in oil pro­duc­tion be­hind Texas, Alaska and Cal­i­for­nia.

High prices are also hav­ing pos­i­tive ef­fects for Amer­ica’s largest trade part­ner.

Canada has the sec­ond­largest oil re­serves af­ter Saudi Ara­bia and pro­duces more than 1 mil­lion bar­rels a day.

Canada has been de­vel­op­ing its vast oil sands de­posits, which con­tain a sub­stance called bi­tu­men.

This thick oil prod­uct can, at to­day’s prices, be eco­nom­i­cally pro­cessed into lighter pe­tro­leum prod­ucts, which is what we use to fuel our cars.

The oil sands in­dus­try al­ready ac­counts for about half of the oil ex­ported to the United States, and Cana­dian out­put is ex­pected to dou­ble over the next 10 years.

Con­sider this: Would the United States be bet­ter off get­ting oil from our Cana­dian friends rather than OPEC, which is dom­i­nated by coun­tries such as Iran and Libya that aren’t in sym­pa­thy with U.S. in- ter­ests?

But in­de­pen­dence from OPEC also re­quires tough choices to in­crease oil sup­ply and even­tu­ally ease prices.

This in­cludes drilling off the coasts of Alaska, Cal­i­for­nia and Florida and re­sum­ing oil drilling in the Gulf of Mex­ico.

In Eco­nom­ics 101, ev­ery­one learns that in­creas­ing the costs of pro­duc­tion re­duces sup­ply and raises prices.

Ba­sic eco­nom­ics sug­gests there should be a mora­to­rium on new en­ergy pro­duc­tion rules from the En­vi­ron­men­tal Pro­tec­tion Agency and no new taxes on en­ergy pro­duc­ers.

The other en­ergy al­ter­na­tives do not ap­pear to be sat­is­fac­tory or, at the very least, timely.

Even those who be­lieve in nu­clear en­ergy should note that Ger­many re­cently an­nounced it will join Italy in ban­ning the use of nu­clear en­ergy.

For the fore­see­able fu­ture, there won’t be enough wind­mills, so­lar pan­els or hy­brid cars to make us in­de­pen­dent of the OPEC car­tel.

Now is the time to open our do­mes­tic oil ex­plo­ration.

The grip of OPEC can be bro­ken by the old­est en­emy of ev­ery known type of busi­ness car­tel: un­bri­dled competition.

Mark C. Schug is an eco­nomic con­sul­tant and pro­fes­sor emer­i­tus at the Univer­sity of Wis­con­sin-Mil­wau­kee. Gor­don D. Gaster is a fi­nan­cial con­sul­tant.

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.