The current state of energy geopolitics is just short of a total mess. Violently anti-American terrorist forces are rolling up vast swaths of Iraq and its rich oil assets. In other areas of the Middle East, simmering discord threatens both the production and flow of energy. If that weren’t enough, Russia’s involvement in Ukraine is wreaking havoc on Europe’s supply of natural gas.
In the past, problems in the Middle East meant high oil prices. But that isn’t happening this time thanks to a boom in domestic oil production on private and state lands. Since 2008, oil production in the United States has increased by 70 percent and this increase has stabilized world oil prices.
Despite upward pressure on gasoline prices from international events, American consumers on average enjoyed the lowest gasoline prices seen over a Labor Day weekend in four years. But it gets even better; the U.S. Energy Information Administration (EIA) projects that prices at the pump will continue to drop through the balance of 2014.
Just over two years ago, the situation was very different. Amid dramatically rising gasoline prices, President Obama mocked calls for increased energy production. “Step one is drill, step two is drill, and step three is keep drilling,” he said. "Well the American people aren’t stupid. … You know there are no quick fixes to this problem, and you know we can’t just drill our way to lower gas prices." Then-Interior Secretary Ken Salazar chimed in with the second verse, “At the end of the day, we all know that we cannot drill our way to energy independence.”
Just 31 months ago, the president declared in no uncertain terms that “anyone who tells you we can drill our way out of this problem doesn’t know what they’re talking about – or isn’t telling you the truth.”
The president was wrong. America’s robust energy production is being widely applauded for the cheaper gasoline prices. American motorists are benefiting from the lowest summer’s end prices in four years. According to AAA, the current national average is $3.433 per gallon. Consumers will save another 10 to 20 cents per gallon by Halloween, AAA predicts. And the Energy Information Administration (EIA) forecasts that prices will continue to drop through the end of the year.
Domestic oil is today producing at a rate not seen in 25 years, with greater production yet to come. According to the EIA, the U.S. will produce at the record rate established in 1970. Thanks to improved new drilling technologies, hydraulic fracturing, and advanced underground imaging, America’s energy renaissance has pushed us past Russia and Saudi Arabia, becoming the world’s largest producer of liquid fuels.
Not only are Americans paying less to drive to work, but steady fuel prices also mean that it is costing less to transport foods and goods to market. The growing energy security from foreign oil-producing nations also means that an estimated $100 billion annually will stay here to stimulate jobs and economic growth.
Domestic oil production is not the only factor in the price we pay for gasoline. Another significant contributor is the world price for oil. The chaos beyond our shores means the price for oil on the global market is higher than it would be within a relatively more stable environment. So robust is America’s Energy boom that many analysts advocate lifting the 1973 prohibition on exporting oil. Not only would exports benefit the American economy, they argue, but doing so would decrease the global price of oil. Larry Summers, former top economic advisor to Obama recently said, “Permitting the exports of oil will actually reduce the price of gasoline. A new Brookings Institution study estimates that as a result, U.S. gasoline prices would decrease by 2 cents to 12 cents per gallon on average.
Think for a moment what the downward trend of transportation costs mean to consumers and the economy as a whole. Now consider where America would be if we weren’t drilling our way to lower gasoline prices.
Pyle is the president of the Institute for Energy Research, a free-market research and analysis organization.