Download the IWF Energy Prices Fact Sheet below.
As the average price of gas climbs higher than ever before, Americans feel increased economic pressure while waiting for prices to come back down. Unfortunately, the options being discussed by the Majority in Congress will only serve to make the situation worse. Nationalizing the oil industry or raising taxes on oil companies will not encourage a decline in prices and might drive them up even further. Greater government regulation or intervention in the energy industry is not the solution. Allowing the market to operate without needless intervention in order to increase energy supply is.
Why are gas prices higher than ever before?
- In June 2008 average gas prices hit a historical high in the U.S., exceeding $4/gallon.
- Similarly, the cost of crude oil has hit record highs exceeding $125/barrel.
- Global demand for crude oil, the primary determinant of gas price, has risen dramatically over the last decade as countries like China and India continue to develop. For example, China's demand has increased by more than 730 million barrels/year in the last five years. This increased demand for oil is typical of a country as its economy grows and expands into a highly developed nation.
- Global supply of crude oil has not risen in proportion to the increase in demand. Since 2006, the average daily demand for barrels of oil has exceeded the average supply.
The rise in crude oil and gas prices may be reversed with an increase in oil production.
- Because other oil producing countries have been unwilling to increase production, the U.S. must focus on developing its own natural resources.
- Saudi Arabia, the world's number one oil producer, has consistently resisted U.S. calls for a substantial increase in production. From 2006 to 2007, OPEC reduced its yearly production of crude oil by almost 160 million barrels.
- Congress has passed legislation banning the drilling of many oil rich areas in the U.S.
- The Arctic National Wildlife Refuge and adjacent State waters are estimated to hold an average of 10.4 billion barrels of oil, possibly the largest oil field in the northern hemisphere. The Senate has consistently passed legislation blocking its development.
- The Federal Outer Continental Shelf is estimated to contain an average of 86 billion barrels of oil. However, 85% of the shelf's 1.76 billion acres is off-limits and 97% is undeveloped.
- Shale oil reserves in the Green River Formation hold an estimated 800 billion gallons of recoverable oil, more than three times the proven amount of oil in Saudi Arabia. The 2005 Energy Act called for the development of technologies to extract shale oil, however a Congressional moratoria on the leasing of shale-oil land has halted this effort.
While alternative sources of energy are likely to have an important role to play in our future energy markets, Congress needs to reverse the destructive policies that prevent the exploration and refining of fossil fuels in order to increase domestic supply of energy.
Information taken from the U.S. Geological Survey (www.usgs.gov), the Energy Information Administration (www.eia.doe.gov), and GovTrack.us.