The Cost Of The Drilling Ban

September 5, 2008 | Filed Under Dan Scott, Democrats/Leftists, Economy/Finances, Energy, Media Bias, News, Publius Contributor, Security/Safety, Society/Culture, Taxes, War on Terror |

-By Dan Scott

According to the Energy Information Administration (EIA), the US imported 3,661,404,000 barrels of crude oil in 2007. That’s royalties the US Treasury didn’t collect, directly added to the annual budget deficit and ultimately the national debt. So how much money did the Democrats with their drilling ban cost the US Treasury last year? The bigger question is how much would the price of oil drop to if the US Congress had gotten it’s act together and stopped playing politics as our friends at CORE are so upset about?

According to Representative John Peterson (R) of Pennsylvania’s 5th District, the current going royalty rate is 15.17% on the cost of barrel of oil. (See PDF file)Before we start, the essential premise of Representative Peterson’s claim of $ 2.5 trillion over five years is based on the recent peak cost of oil and natural gas projected into the past. He was using the past five years of consumption by keeping the drilling ban thus denying the rest of the world that oil for their use.

The premise we will use is to assume a price for oil from back in 2006 of around $ 60/barrel when gasoline was around $ 2.70/gallon at the pump. That premise is based on the capitalistic concept of charging what the market will bear with an abundance of supply, i.e. the US producing all of its own energy thus freeing those imports for other countries to use such as China, India, etc. The period chosen was during the election cycle when Nancy Pelosi and the Democrats promised to lower the price of oil NOT raise it by their foolishness of maintaining the drilling ban instead. The US Treasury would have taken in $ 33,326,099,208 (3,661,404,000 barrels x $ 60/barrel x 15.17%) or roughly $33.3 billion on crude oil alone last year.

However, the drilling ban didn’t only affect crude oil, it also affected natural gas as well. According to the EIA, the US imported 4,607,582 million cubic feet (MCF) of natural gas and it’s equivalent in LNG or Liquefied Natural Gas. The average cost of this imported natural gas was around $ 6.87 per thousand cubic feet (TCF). Using the same royalty rate the US Treasury would have taken in $ 4,801,925,201 (4,607,582,000 TCF x $ 6.87 TCF x 15.17%) or roughly $4.8 billion on natural gas last year. Between the two energy imports, the US Treasury was denied $38.1 billion in revenue last year.

Now on the surface, in the scheme of things, that’s not a huge number when we compare that to the total revenue stream into the US Treasury. However, such a narrow view does not take into account a few not so insignificant items such as: the retail cost of gasoline on the consumer at the pump, the cost of transportation on economy as a whole, the cost of living on the poor, the loss of GDP, the loss of state and local sales taxes, the cost of government outlays for public assistance and unemployment and so on.

So how would we go about trying to figure what the drilling ban has cost the government, business and the private citizen? We can make some rough estimations by comparing the differences from 2006 to 2008 in government social service expenses, and cost of gasoline. I’m sure others will point out some other areas to count in as well, but the exercise with just these few items will make the point clear enough.

The cost of local, state and federal government social services:
In 2008, $ 447.9 billion is budgeted to cover social services.
In 2006, $ 411.4 billion was budgeted to cover social services.
The difference is $36.5 billion.

Cost to the consumer at the pump:
Gasoline in 2006 was on average for the year $ 2.70/gallon Gasoline in 2008 has been recently on average around $ 3.92/gallon
The difference is $ 1.22/gallon ($ 3.92 - $ 2.70)
Latest annual figure for gasoline consumption is 57,653.5 thousand gallons per day in 2007 or 21,043,527,500 (57,653.5 x 1000 x 365) or roughly 21 billions gallons of gasoline. The estimated extra cost to the consumer is approximately: $ 25,673,103,550 (21,043,527,500 gallons x $1.22/gallon) or roughly $25.7 billion out of our pockets directly.

The more intangible issue of outsourcing our energy supplies is the balance of trade. When we are forced to pay for energy from foreign sources this means dollars flow out of the economy elsewhere for an extended period of time. The balance of trade however, is kind of a paper accounting issue since all those dollars must eventually come back to be redeemed in some form or another. This raises two problems, first between the time the money goes out and then eventually comes back, that was time in which those dollars would have been recycling within our economy multiplying wealth. A dollar spent will recycle within our economy around five or six times a year creating wealth during each cycle. The second problem closely related to the first is the amount of dollars floating outside of the US. Too many dollars flooding the overseas market causes the dollar to fall in value and thus places upward pressure on domestic interest rates. To put a very conservative value to the amount of dollars being diverted from our economy and thus depriving us of wealth creation (GDP) from outsourcing oil (3,661,404,000 barrels x $ 60/barrel = $ 219,684,240,000) and natural gas (4,607,582,000 TCF x $ 6.87 TCF = $ 31,654,088,340) would be approximately $ 251,338,328,340 or $251.3 billion a year. That’s assuming we were denied the use of those dollars for only one cycle out of five or six per year.

Adding up the lost GDP from energy outsourcing ($ 251.3 billion), the increase in social service spending ($ 36.5 billion) and the cost of gasoline at the pump ($ 25.7 billion), the fiasco of the Democrat’s drilling ban at minimum is costing all of us around $313.5 billion a year. Of course the Democrats refusing to engage a rational exercise of common sense insist instead on keeping the politically correct drilling ban and raising taxes to somehow make up the difference on the cost of their policies. The problem for all of us is those policies (windfall profits tax) are self defeating as they will like before result in a reduction of oil and natural gas exploration here in the US thus outsourcing even more energy from foreigners.

As has been pointed out before, raising taxes on those who are the most productive investors in society will decrease the amount of money available for investment in the economy. Democrats are under the delusion just because they got away with a massive tax increase during Bill Clinton’s reign of foolishness doesn’t mean they will be lucky a second time. There is a crucial difference between then and now, the rising cost of oil. The Democrats lucked out with a period of very stable oil pricing, thus allowing the economy to absorb the tax increase. There will be no such luck this time around.

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Dan Scott calls himself a “Member of the Global Capitalist Cabal preaching Capitalism and personal responsibility as the economic solution to world poverty.” He is also a member of the 14th Amendment Society — victimhood is a liberal code word for denying the civil rights of others. He is also a proud member of the Global Warming Denier Cabal, insisting that facts not agendas determine the truth.

Dan can be seen on the web at http://www.geocities.com/fightbigotry2002/ as well as http://www.geocities.com/dscott8186/saidwebpage.htm, And can be reached for comments at dscott8186@yahoo.com.

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