Cheaper gas likely won’t be seen soon

By Sean Mussenden
Media General News Service
Published: July 18, 2008

WASHINGTON—Can the federal government bring down the high cost of gasoline anytime soon?

John McCain thinks so. Barack Obama, and most economists, are deeply skeptical.

The price of fuel is stuck above $4 a gallon in most cities, and short-term relief for drivers has emerged as one of the most hotly debated issues in the presidential campaign.

“We’re not going to bring gas prices down easily (or) quickly,“ Obama told supporters in New Mexico last month. “I try to be honest with people. It’s going to take some time.“

McCain disagrees. He has backed several proposals that he says will lower the cost of gasoline sooner rather than later, including a temporary suspension of the federal gas tax, and the removal of a moratorium on offshore drilling, both of which Obama opposes.

Economists and energy experts say that neither of those moves will do anything to reduce gas prices in the short-term.

Last month, when McCain revealed his support for ending the moratorium on drilling on the Outer Continental Shelf along parts of the Atlantic, Pacific and Gulf coasts, he said that it “would be very helpful in the short-term in resolving our energy crisis.“

Even those in the oil industry who support lifting the moratorium say that action is not a short-term panacea. Increasing the oil supply could help push prices down eventually, but not for several years after the moratorium ends.

Cathy Landry, a spokeswoman for the American Petroleum Institute, an industry group, said that some fields off Florida and California could begin producing within five to 10 years. “Offshore drilling is a cost-intensive, risky process, and every step along the way there could be hitches,“ she said. “You don’t go from leasing to production overnight.“

Nor would it bring prices down much. A 2007 study by the federal Energy Information Administration found that lifting the moratorium would not affect prices for at least 20 years, and even then, the effect would be minimal.

If the moratorium is lifted, in 2030 U.S. offshore oil rigs would produce 2.4 million barrels of oil a day, the study estimated. If the moratorium is left in place, the rigs would produce 2.2 million barrels a day in 2030—about 7 percent less.

The industry disputed the estimates, arguing that they are based on analyses that used decades-old technology. New analyses might reveal larger pockets of oil, Landry said.

Obama—and many Democrats in Congress—argue that the potential for environmental damage from new offshore drilling outweighs the limited, long-term benefits.

His campaign has put more emphasis on strategies for lowering the price of gas over the next 20 years by raising gas-mileage standards and increasing federal investment in hybrids and alternative-fuel vehicles. McCain has made similar proposals.

In recent weeks, McCain has acknowledged that drilling is not likely to provide short-term relief. But he argued that it could have a “psychological impact,“ on the oil-futures markets that could help to bring prices down immediately, even if no new offshore wells are drilled for years.

The role of speculation in oil-futures markets—and its effect on gas prices—is one area where Obama and McCain agree. Both say that the markets need to be more tightly regulated to prevent speculators from driving up the cost of oil. Economists are divided on how much blame speculators deserve for current oil prices, as opposed to tight supplies and growing worldwide demand.

Obama has been critical of another proposal that McCain says will bring down short-term prices: suspending the 18.5-cent federal gas tax for the summer.

“When John McCain says we’re going to drill our way out of the problem, or suspend the gas tax for 60 days ... that’s a gimmick. He’s not being serious,“ Obama said last month. Obama says it would do nothing to actually lower prices at the pump and would deny the government money to repair highways.

McCain, though, insists that the proposal is serious, and has called it “the most direct and obvious way to give Americans a break at the gas station.“

It seems counterintuitive, but economists say that a temporary elimination of the gas tax wouldn’t lower prices by more than a few cents, if at all. That’s because the price of gas fluctuates with supply and demand. Removing the gas tax would encourage demand by make driving cheaper.

If U.S. refineries could produce more gas to match that increased demand, the price would drop by the full 18.5 cents. But they cannot. U.S. oil refineries run at or near capacity most of the time. When demand goes up and supply stays constant, refiners can charge more for gas.

Economists say that prices would drop for a few days, before quickly rebounding to pre-suspension levels. In effect, consumers would still pay the 18.5 cent tax, but instead of that money going to the government to pay for road construction, it would go to refiners.

■ Sean Mussenden can be reached at or 202-662-7668.