Can the United States quickly and significantly lower gas prices by tapping into the Strategic Petroleum Reserve? During today's OnPoint, Daniel Weiss, a senior fellow and director of climate strategy at the Center for American Progress, explains what the U.S. government can do to ease the impact of rising gas prices on consumers and create a long-term energy strategy that will reduce the country's dependence on oil. He also discusses the short-term outlook for prices.
Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. With me today is Daniel Weiss, a senior fellow and director of climate strategy at the Center for American Progress. Dan, thanks for coming on the show.
Daniel Weiss: Thanks for having me.
Monica Trauzzi: Dan, with oil and gas prices climbing lawmakers are starting up the debate, once again, on how to lower those prices and reduce our dependence on foreign oil. It's a conversation that occurs every couple of years. Is this time any different?
Daniel Weiss: Well, yes, this time is different. First of all, it's important to note that President Obama has done more in the last couple of years to reduce oil demand and save consumers money than many of his predecessors. For example, the fuel economy standards that he enacted back in 2009 are about to take effect this fall. The cars that are going to be in the show room this fall are going to be more fuel efficient, with an ultimate goal of having cars that are one-third more fuel efficient by 2016. And that means the average car owner will save about $3,000 per car.
Monica Trauzzi: Ultimately, how high do you think gas prices will go and is there a price at which Congress absolutely must act?
Daniel Weiss: Well, it's unclear how high prices are going to go. The price has been driven up by speculation or fear about a disruption of supply in the Middle East, which we really haven't seen that much of. I mean we've taken 1 million barrels of Libyan oil off the market, but that's, you know, less than 2 percent. In fact, oil prices are down this morning below $100 for the first time in several weeks. It's my belief that if oil should rise to $125 a barrel or gasoline to four dollars a gallon, then President Obama should take a small amount of oil, 30 million barrels from our full Strategic Petroleum Reserve and put that on the market. That will put immediate deflationary pressure on prices and we can take the money from the sale of that oil and invest it in transit, in helping people ride transit more frequently, which will also save oil and help them, consumers, with high prices.
Monica Trauzzi: OK, and tapping into the strategic petroleum reserve is one of the things that Congress will be talking about this week in a couple of different hearings. What are the risks associated with that? Are there risks associated with that?
Daniel Weiss: I don't believe there are risks. The reserve is full right now. If we were to sell 30 million barrels it would be about 96 percent full. Fifteen years ago, the Republican Congress sold about 23 million barrels of oil from the reserve just to reduce the deficit and that was at a time when it was only 78 percent full. It's all the way full now. We could put 30 million barrels on the market, it would be in the market within two weeks and push prices down as we've seen in the past and we'd still have plenty of oil in case there was a supply disruption.
Monica Trauzzi: How much would it push prices down?
Daniel Weiss: That's hard to say. Every circumstance is different, but under President Bush, when he sold the oil, it reduced prices 6 percent in the first month and 15 percent after two months. So that would, at today's prices, reduce prices about $15 a barrel and, ultimately, reduce gasoline prices about $0.35 to $0.37 a gallon, if past is prologue.
Monica Trauzzi: Why wouldn't drilling more positively impact the energy situation?
Daniel Weiss: Well, first of all, the amount of oil that we've produced domestically is at its highest in the last eight years. So we have been drilling more and producing more. Second, opening up new areas takes a long time. If we decided today to drill more offshore, it would take seven years to produce any oil. That's not going to have any price impact for a long time. Lastly, three quarters of the leases that are already owned in the western Gulf of Mexico by oil companies, have not yet been developed. They ought to be focusing on producing from those leases first, rather than seeking additional places off America's beaches.
Monica Trauzzi: So, maybe drilling more wouldn't be a great short term plan, but, in the long term, Republicans are calling for an all-of-the-above approach. Doesn't that make the most sense when we're talking about an overall energy policy looking ahead 10, 20 years?
Daniel Weiss: It would be nice if the Republicans were actually acting on an all-of-the-above policy rather than just saying that they're for one. But their budget cuts that just passed the House would actually make it harder to reduce oil use. For example, they cut millions of dollars from transit, which is very, very fuel efficient and, in fact, has four dollars of economic benefit for every one dollar of federal or public investment in transit. Second, they would defund the efforts to help American automobile factories convert to make more fuel-efficient cars. Again, that's taking us backwards, not forwards. They would cut $2 billion from energy efficiency and renewable energy. So, their lips may say all of the above, but their budgets say, "Drill, baby, drill."
Monica Trauzzi: Congress is generally wary about acting out against big oil. Does the political will even exists to do anything that would negatively impact big oil or cause some job losses in the oil sector?
Daniel Weiss: Well, you know, that's interesting. There was just a poll released from the Hill that shows by 50 to 35 percent people support selling oil from the Strategic Petroleum Reserve in order to reduce prices. Now, that's something both big oil is against, because the higher the price, the more profits they make. We did an analysis on that last week and it showed that. And that Republicans are against because the higher the price the more big oil makes, the more big oil makes, the more campaign contributions they get. So Republicans and big oil are against something that the public overwhelmingly favors, which is selling oil from our full reserves in order to reduce the price just a little bit.
Monica Trauzzi: There's a big focus right now on Japan and what's happening with the nuclear industry there. Will that have a trickle-down effect to the energy policy discussions here, the price of oil? What are your expectations about how that situation may affect the U.S.?
Daniel Weiss: Well, it's expected that the Japanese's oil demand, which I believe it's one of the world's largest users of oil, aside from of course the United States, which is first and then China, has already had a deflationary impact on prices. The price of oil is below $100 a barrel today for the first time in weeks. Second, I think it's going to cause a lot of rethinking about the prospects for new nuclear power plants. Where they're built and how they're built need to be carefully looked at to avoid siting questions that appear to be a part of what happened in Japan. It's interesting, we've already got two nuclear power plants at least, in California, that are on earthquake fault lines, which, if I was running those plants right now, I would be double and triple checking every system.
Monica Trauzzi: All right, we'll end it there on that grim note. Thank you for coming on the show as always.
Daniel Weiss: Thank you, Monica.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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