Drill, baby, drill… not!

Oil Derrick
Just keep digging...

I subscribe via email to The Daily Green, a website that advocates green consumption as well as champions environmental initiatives by the green movement. I chanced upon this article on high gas prices in Alaska one day in my email. It took me by surprise because one would think that since Alaska produces quite a significant amount of America’s gas (gasoline, referred to as oil or petrol in the Singaporean context), one would be surprised by how expensive petrol can be in Alaska. And what caught me by greater surprise is that this article was written by a green Republican! Jim DiPeso, The Green Conservative of The Daily Green, is policy director of Republicans for Environmental Protection, and if you, like me, used to think that Republicans do not believe in saving the environment, then you thought wrong.

Coming back to this article, in the “Land of Sarah Palin”, to have oil prices higher than the rest of the country and to have stage legislators calling for fuel price regulations would be a surprise given our assumptions that Alaskan oil would fuel the state and that Republicans are against price controls or regulation. The article highlights the components of the cost of petrol, and highlights that essentially all that crude oil pumped out of Alaska goes into the global market, subject to global market pricing, which is subjected to influence by OPEC (Organisation of Petroleum Exporting Countries) as well as influence by global events that will affect demand and supply of crude oil worldwide.

In addition, Alaska’s petrol market is described as oligopolistic, i.e. players have more pricing power in a relatively-small state with little competition in supply of petrol compared to other states. Given that competition in refining and distribution of petrol is limited in Alaska, the prices would probably already been higher even if Alaskan oil went straight to Alaska. The fact that petrol producers in Alaska even need to import crude oil from other countries will debunk the myths about Alaskan-produced oil.

So essentially, the “drill, baby, drill” lobby who claim that the answer to lower petrol prices would be to open up more oilfields in Alaska are quite mistaken. Looks like The Green Conservative is pitting himself against other Republicans who belong to that lobby. And perhaps the solution might turn out to be more competition instead, which is something the Republicans should focus on instead of drilling their way out of an energy crisis in America (and give the environment a reprieve!)

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