Offshore Drilling and Automobile Fuel Economy: The Relative Impact on Oil Production

Last
week, the U.S. House of Representatives passed a bill that lifted some
restrictions on oil drilling in America's outer continental shelf. The
bill was supported by many Democrats but was criticized by many
Republicans for not going far enough and for not opening up enough
areas to drilling. Senator John McCain supports lifting all
restrictions on drilling in the outer continental shelf. He argues that
increased offshore production will reduce dependence on foreign oil, in
addition to lowering gas prices.

However, the Energy Information Administration (EIA) has concluded that
even Senator McCain's proposal for comprehensive drilling would have no
impact in the near-term, since it will be close to a decade before any
oil can be extracted from the coastal areas in question. The EIA
estimates that actual production would not begin until 2017 and would
not reach peak production until 2030. Further, the EIA projects that
this will only increase domestic oil production by 200,000 barrels a
day (0.2 percent of projected world production), an amount too small to
have any significant effect on oil prices.¹

It is interesting to compare the potential impact on oil prices of the
proposal to remove restrictions on offshore drilling with the impact of
the recently passed Energy Independence and Security Act of 2007. This
legislation included regulations designed to increase production of
renewable fuels and increase energy efficiency. Most significantly, the
measure raised the corporate average fuel economy (CAFE) standard for
automobiles. Under the legislation, the minimum CAFE standard for
passenger vehicles must average at least 35 miles per gallon (mpg) by
2020, up from the previous minimum standard of approximately 27.5 mpg
at present.²

CAFE standards were first implemented in 1975 at 20 mpg and increased
to 27.5 mpg in 1985. The CAFE program had the direct effect of reducing
national oil consumption by compelling automakers to produce more
fuel-efficient cars. The Board on Energy and Environmental Systems
estimates that without CAFE standards, gasoline consumption (and crude
oil imports) would be about 2.8 million barrels a day greater.³ Currently, our consumption of oil is estimated at 20.8 million barrels a day.⁴

Figure 1 shows the relative impact on oil production of lifting
drilling restrictions on the Outer Continental Shelf, compared with the
impact on oil consumption of increasing standards of automobile fuel
efficiency.

FIGURE 1
The Relative Impact of Offshore Drilling and Increasing Fuel Efficiency Standards in 2030

The Energy Independence and Security Act of 2007 should have a similar
impact on fuel efficiency and oil consumption, also lowering
consumption by approximately 2.8 million barrels per day by 2027, the
year when the EIA projects that peak production could be reached from
drilling in the currently protected offshore area.⁵
If this is the case, then the increase in fuel economy standards
contained in the recent legislation will decrease oil dependency by an
amount fourteen times greater than any comprehensive offshore drilling
effort.

Senator Obama has proposed a slightly more ambitious fuel efficiency
schedule which would increase mileage standards at the rate of 4
percent a year. This would lead to somewhat greater energy savings,
especially if the increases are continued beyond the 2020 date. In this
case, the mileage standard will reach 52 miles per gallon by 2027,
which will raise the average for all cars driven to just less than 42
miles per gallon by that date. In this case, the savings in oil
consumption would be equal to 4.2 million barrels a day by 2027.⁶ This amount would be 21 times as large as the impact of opening up the protected offshore areas to drilling.

While Senator McCain opposes drilling in the Arctic National Wildlife
Refuge, his running mate Governor Sarah Palin strongly supports lifting
the restrictions on drilling. The EIA has estimated that drilling in
the Arctic National Wildlife Refuge would have no effect in the
near-term. Production would not begin until 2018, and in 2030,
production would plateau at 710,000 barrels a day. This amount of oil
is projected to decrease the price of oil by about $2.00 a barrel,
which would bring down the price of gasoline by less than 5 cents a
gallon.⁷

In conclusion, the increase in CAFE standards signed into law by
President Bush will have four times the impact on oil dependency as
drilling in the Arctic National Wildlife Refuge and fourteen times the
impact as drilling in the Outer Continental Shelf. The addition of
Senator Obama's conservation proposal to the increased CAFE standards
would have 21 times the impact of opening up drilling in protected
offshore areas and 6 times the impact of drilling in the Arctic
National Wildlife Refuge. The impact of opening drilling in either area
will be zero for close to a decade. Even when these regions attain peak
production in close to twenty years, the potential impact on gasoline
prices will still be negligible.

________________________________

1.
The projections for oil output for the protected areas can be found in:
United States. Department of Energy, Energy Information Administration.
Annual Energy Outlook with Projections to 2030. Washington: GPO, 2007. https://www.eia.doe.gov/oiaf/archive/aeo07/issues.html. Accessed September 8, 2008.

2. White House. Fact Sheet: Energy Independence and Security Act of 2007. Washington: White House, 2007. https://www.whitehouse.gov/news/releases/2007/12/20071219-1.html.
Accessed September 9, 2008. The current 25 miles is a rough average of
the 27.5 MPG requirement for cars and the 22.2 MPG requirement for
light trucks.

3. Board on Energy and Environmental Systems. Effectiveness and Impact of Corporate Average Fuel Economy (CAFE) Standards. Washington: National Academy Press, 2002. https://www.nap.edu/openbook.php?record_id=10172&page=3. Accessed September 9, 2008.

4. Central Intelligence Agency, World Factbook. Rank Order - Oil - Consumption. Washington: CIA, 2005. https://www.cia.gov/library/publications/the-world-factbook/rankorder/2174rank.html. Accessed September 11, 2008.

5.
This calculation assumes that the efficiency of the fleet of cars sold
increases at the rate of 0.85 MPG per year between now and 2020. It
also assumes that each year a car is on the road it is driven 10
percent less (e.g. 2005 cars are driven 10 percent less than 2006 cars)
and that it is pulled off the road altogether after 20 years. It also
assumes a baseline where gasoline consumption rises by 10 percent from
9 million barrels per day in 2008 to 10 million barrels per day in
2027.

6. This calculation makes the same assumption about the rate at which cars are pulled off the road.

7.
The projections for oil output for the protected areas can be found in:
United States. Department of Energy, Energy Information Administration.
Analysis of Crude Oil Production in the Arctic Wildlife Refuge. https://www.eia.doe.gov/oiaf/servicerpt/anwr/pdf/sroiaf(2008)03.pdf. Accessed September, 9 2008.

By Matthew Sherman and Dean Baker