Tuesday, June 24, 2008

How Much Would We Save From Off Shore Drilling

It seems that we would save about $0.08 a gallon by opening up offshore drilling.

According to the NYT, the Energy Information Agency estimates that the total amount of oil in the offshore zone in question is about 16 billion barrels. If we assume that it would take about ten years from the day of authorization to get to peak production and that most of the oil is pumped out over 30 years, this would translate into a bit over 1 million barrels of oil a day.

That would be equal to about 1 percent of world production in a decade. If we assume a long-run demand elasticity of 0.3, this would imply a drop in world prices of approximately 3 percent. In today's prices, we would be looking at a drop in the price of a barrel of oil from around $135 to $131. If this were passed on one to one in gas prices (this is long-run story), we might expect to see a drop in the price of a gallon of gas from around $4.00 to around $3.92 a gallon.

1 comment:

Anonymous said...

Easing restrictions on offshore drilling for oil and gas will not lower gas prices anytime soon. A majority of citizens from coastal states including Florida, California and Alaska oppose new offshore drilling. Most Republican elected governors from coastal states oppose new offshore drilling. John McCain’s proposal to end the federal ban on offshore drilling is nothing less than a political gambit.