Note to Self: Learn Mandarin, Fast

Yesterday's vote in the Senate has taught me that appealing to America's sense of pride in our land or responsibility to future generations as a means toward discouraging drilling in ANWR is a losing battle. Americans want cheap gas today, even it it means we'll find ourselves right back where we are 5 years from now. Therefore, it's time to appeal to the only emotion apparently still capable of motivating Americans to act politically: fear. (Hey, if Bush can constantly use it, who among his supporters can complain?)

Drilling for oil in ANWR will benefit China. China, the emerging economic superpower that's still run by Communists, will be the real winner if a large amount of oil is extracted from beneath the Arctic soil.

Why? In a word: geography.

Tom Friedman quotes noted energy economist Philip Verleger, who explains:

"Oil in Alaska cannot easily or efficiently be shipped to our Gulf Coast refineries. The logical markets are on the West Coast of the United States and in Asia. Consumers in China and Japan, not the U.S., will be the real beneficiaries of any big Alaska find.

"With a big find, China and Japan will be able to increase imports from a dependable supplier - the U.S. - while consumers in the U.S. will still be at the mercy of unreliable suppliers, such as Venezuela and Saudi Arabia. It is simple geography. [Also], a big find will lead to lower prices in the short term, promoting more emissions and more warming."

Moreover, focusing exclusively on squeezing out a little more supply will only discourage conservation, Mr. Verleger added, setting the stage for higher prices again in three or four years - "when exhausting oil reserves and burgeoning demand from China and India will drive the price of oil to well above $100 a barrel." That will put even more money in the pockets of some of the world's worst governments.

That's right. Drilling in ANWR, which is being touted by the administration as necessary to decrease our dependence on foreign oil, will actually do nowhere near as much toward that end as Norton is suggesting. Rather, it will help the nation that's set to challenge our #1 Superpower position .

I know, I know, it's silly to spread fear about China. They could emerge as the best thing that's happened to our economy in ages. We should be reaching out to them, not sowing seeds of doubt. On one hand, that's certainly true. On the other hand, though, China stands directly between us and our promise to spread freedom around the globe. And, more than that, China has an ace up its sleeve should the proverbial sh*t hit the fan: $200 billion in US T-bills it can dump.

The excessive tax cuts for the rich, combined with a total lack of discipline on spending by the Bush team and its Republican-run Congress, have helped China become the second-largest holder of U.S. debt, with a little under $200 billion worth. No, I don't think China will start dumping its T-bills on a whim. But don't tell me that as China buys up more and more of our debt - and that is the only way we can finance the tax holiday the Bush team wants to make permanent - it won't limit our room to maneuver with Beijing, should it take aggressive steps toward Taiwan.

What China might do with all its U.S. T-bills in the event of a clash over Taiwan is a total wild card that we have put in Beijing's hands.

None of which solves our energy needs at the moment, I realize, but neither does drilling in ANWR. The centerpiece of Bush's Energy Plan is a bill of goods, and the US is close to buying it.

Comments

[liberal japonicus]

I initially commented on this thread because the Friedman article quoted in the initial post is in my opinion a "crackpot" theory on its face by elementary economic theory.

I've just looked over the comments you've made, and you haven't mentioned Friedman's article til now. If you have a counter argument, I'd love to hear it, but please don't confuse offering a refutation to the Friedman article with phrases like

I suggest the liberal members of the thread go back and read the "Wealth of Nations"...It seems clear that the liberals don't really believe in free markets or capitalism.link

Sorry, incoherent rambling does not count as debate.link

Aha! Acceptance of the economic paradigm is the first step towards rational discussion. Next step is reading elementary economic texts where the issue you raise is discussed absent overheated rhetoric...even Krugman might agree here.link

Since you have a refutation of Freidman, you might want to take a look at these urls concerning Phillip Verlager jr., the economist Freidman quotes. here and here

[noah]

I believe Sebastian Holtzclaw has refuted the concept cited the NYT article which is the nominal subject of this thread...vide supra...read it. Other posts have caterwauled that the public has been misled by statements of public officials that drilling in ANWR will reduce our dependence on foreign oil...the fact is that if drilling and production of oil in ANWR occurs our dependence on foreign oil will be reduced whether the physical oil is sold to China or not. If you doubt it please explain.

And sorry appeals to authority don't work with me. If you have an opinion please state it.

[noah]

And I take it you don't like my rhetorical style...immoderate compared to the sneering responses that I have received?...not arguments...just sneering.

[Phil]

Vacuous ambiguity hits it apex. Film at 11.
The popcorn you're eating has been pissed in. Film at 11.

Moscow in flames, missiles headed towards New York. Film at all.

And sorry appeals to authority don't work with me.

Unless you're making them, apparently.

[noah]

Hypothetical:

1) Vertically integrated oil company with refinery in Houston loads supertanker in Alaska destination Houston.

2) Supertanker of same capacity loads oil in Venezuela destination China.

Conclusion: US dependence on foreign oil is reduced. But if the unknown to us the two supertankers exchanged destinations US dependence would still be reduced because the oil company has basically swapped its oil for Venezuela's and gained a reduction in shipping costs.

[noah]

Phil,

In my mind, I wasn't appealing to the authority of Mr. Holtzclaw. He elaborated on the point that I had attempted to make earlier in the thread and I liked the way he had stated it. But I can understand why you might regard it as an "appeal to authority".

[liberal japonicus]

noah
I believe Sebastian Holtzclaw has refuted the concept cited the NYT article which is the nominal subject of this thread

Since you didn't cite Sebastian's refutation in your 3:56 post, I hope you weren't expecting us to know that you were talking about Sebastian's 'refutation. And, because I can't find Sebastian explicitly stating he was refuting a particular argument that was made, if could you restate what you think Verlager is stating (or, if you like, Friedman's version of Verlager, if you have more context than what Friedman's article gives) and how Sebastian 'refuted' it, I would be grateful.

[noah]

Refuting the idea that drilling in ANWR aids China and does not reduce our dependence on foreign oil. Sort of playing dumb here aren't we? Of course if you wish to refute what I am saying you could at least try addressing the arguments I have made.

See above for simplified example of how the delivery of Alaskan oil to China does reduce our dependence on foreign oil. Of course this depends on your acceptance of the concept of a fungible commodity. While it is true that all oil is not the same, oil companies know all about the economic value of different grades of oil.

[Edward]

I have to agree with liberal japaonicus, I do not see where Sebastian refuted either that drilling in ANWR aids or China or does not reduce our dependence on foreign oil. Perhaps you could quote the text you mean please.

[noah]

Nevermind...neither of you are really interested in a discussion. Sebastian Holtzclaw mentioned this site as one of reasoned discussion but appears to me that you just a bunch of Bush haters.

[Phil]

In my mind, I wasn't appealing to the authority of Mr. Holtzclaw. He elaborated on the point that I had attempted to make earlier in the thread and I liked the way he had stated it. But I can understand why you might regard it as an "appeal to authority".

I wasn't talking about Sebastian. I was referring to your repeated, "You people need to read X, or Y, or Z," and pretending that they're arguments of some sort.

Anyway, all of this is just window dressing. Edward has quite nicely argued the real point here, and done so repeatedly: That either we are going to respect and uphold the principles that led us to create a federal wildlife refuge, or we are not. Conservatives generally, and the modern Republican Party particularly, are constantly lecturing the American public on the importance of upholding this-or-that value, principle, or tradition. Now, either upholding principles is important, or it isn't, but the party pushing hardest for ANWR drilling really needs to decide which one is true. It can't have it both ways. If something is so easily thrown away the first time an opportunity presents itself, especially when the opportunity will provide a tiny marginal benefit if any at all, it isn't a principle at all. Or it's a falsely-held principle. In either case, it does little to engender trust in the people empowered to make these decisions.

[Now, as a libertarian, I could express my own problems with "publicly-owned" lands and the problems therewith, but they'd be a speculative reflection of the world the way I'd like it to be, not the world as it is; and they'd do nothing about the problem at hand. Just as if, to take an extreme example, I were to respond to every question concerning public schools with, "There shouldn't be any 'public schools' anyway," (as some libertarians are wont to do), it wouldn't be particularly constructive.]

[liberal japonicus]

Sort of playing dumb here aren't we?

I just wanted to know precisely what you felt was 'refuted' and precisely what arguments you have made. Sorry that seems so threatening to you.

As I, like you, am not an expert in the oil markets, I was just hoping for some data to go along with your 'refutation'. This article talks about current Chinese attempts to invest in Canadian oil sands. This country report has this:

Chinese officials have spoken of their intention to build a national strategic petroleum reserve, and Chinese officials announced a policy decision in February 2003 to support the creation of a strategic petroleum reserve, and have reportedly been studying several options for the development of storage capacity. In the meantime, anecdotal evidence has suggested that China may have built up its petroleum stocks substantially in 2003 and 2004. According to press reports, work has already begun preliminary work in early 2004 on four initial storage facilities, which would provide 30 days of import cover by 2008.

This interesting report (pdf file) notes that the Jones Act requires that any tanker transporting oil between two US destinations must be built in the US and suggests that the ANWR field would pump 4 billion dollars into the US economy on the ship building alone (I should note that since my parents live in Southern Mississippi, home of one of the two shipyards which can build oil tankers, so if this is true, it certainly helps my family out) However, if those costs are incurred by the company, the obvious path would be to export the oil so that non US tankers could be used, thus reducing costs (and, if I have understood your argument correctly, helping 'us' because of the profits made by oil companies)

So we have ship building, tanker capacity, oil grades, downstream refinery capacity, along with increased Chinese interest in Canadian sources of oil. All of this could underline Verlager's comments quoted by Friedman. Of course, if you want to spend your time explaining about fungible commodities and such, knock yourself out, but I kinda expect a refutation to incorporate some data about the real world. This is not a knock on Sebastian, as he specifically utilized hypothetical situations.

[Edward]

Nevermind...neither of you are really interested in a discussion. Sebastian Holtzclaw mentioned this site as one of reasoned discussion but appears to me that you just a bunch of Bush haters.

Noah, you don't know me very well, but you seem to know Sebastian. I'd ask you to trust his judgment and take my question as sincere. I actually do not see where Sebastian (who I have a great deal of respect for, in case that's not clear) actually showed where those two ideas (that China will not benefit and our dependence on foreign oil will be decreased as promsied) were wrong.

We're possibly in the realm of splitting hairs here, I realize, but, well, that's what bloggers do.

[praktike]

I'll go on the record as not being interested in a discussion with this noah character. That he seems to think that the market for oil is a "free" market is enough to deter me from entry ...

[votermom]

Sorry I came late to the thread. I'm very saddened at the prospect of drilling in ANWR.
Truly, nothing is sacred.

[Dantheman]

"Truly, nothing is sacred."

Not true. Protection of what few wilderness lands we have left and which we promised to preserve in exchange for opening other areas to development is sacred to a significant portion of the public. It just is not sacred to those who control the levers of power. We can come up with a list of things which are sacred to the minds of those people, but that's a topic for another thread.

We are just at a point in our history where the public has fractured into 2 groups largely talking past each other. I hope, and suspect, it will not last too much longer, and that we will soon be led by a person who truly is a uniter, not a divider, who moves the country onto a new path where we again generally agree on our society's goals. It has happened many times before.

[Bernard Yomtov]

In West Texas wildcatters still go out and drill a few wells looking for isolated pockets of recoverable oil and gas. It is a risk/reward calculation that is very much driven by the price of oil and gas. By the logic of the recent posts the government should stop them because the quantities recovered are truly miniscule in the big picture. By the same logic I suppose the Iraqi oil fields should not be brought into full production since they will not "solve" the supply problem either.

Noah,

No one here has objected to drilling in West Texas. Presumably the drilling is taking place on private land whose owners have granted permission, or on public land where again the appropriate political authority has allowed it.

We have objected to drilling in ANWR. ANWR is public property - it belongs to the US, which is to say to American citizens. Hence American citizens have the right to decide what activities will or will not be allowed in ANWR, including whether parts will be leased for oil exploration.

Now it happens that many of the owners prefer that there be no oil drilling there. This has nothing to do with understanding free markets or anything else. It is a matter of the preferences of the owners. Suppose you owned some land jointly with some partners, and you were approached by an oil company seeking to drill on that land. It might be that some of your partners would oppose this, while others would favor it. Presumably the partnership would have some method of settling the matter.

Your hypothetical partnership is exactly analogous to the public ownership of ANWR, and its procedures for settling disputes are analogous to the political processes the country uses to decide what happens in ANWR.

Now I am forced to concede that the argument that the oil will only benefit China is not compelling, though I would like to hear more from Mr. Verleger before rejecting it out of hand. On the other hand, the claim that the benefit to the US from drilling will be quite small seems plausible, and it is certainly reasonable to oppose drilling on the ground that this benefit is not worth the environmental damage.

What any of this has to do with Milton Friedman, or understanding free markets, or liberals, or any of the other things you are ranting about I don't know. It seems quite straightforward to me.

And BTW, to continue my pedantry, it is not a "wild assertion" that demand is not influenced by supply. Please go get one of those textbooks you are so busy urging everyone else to read and read it yourself.

[A. Random Physicist]

Some here seem to be making the assumption here that drilling ANWR will increase the supply of oil and thereby lower the price. That's not at all obvious, because the market for oil is not a free market.

Current estimates are that full production at ANWR will be about 1 million barrels per day. That sounds like a lot, but Saudi Arabia currently produces about 10 million barrels per day (link). The Saudis also have a long history of raising or lowering their production (their production capacity is believed to be about 15 million bpd) to manipulate prices. So there's no guarantee that drilling ANWR would increase the current supply of oil and lower the price---Saudi Arabia could easily lower their production 10% to compensate.

[bob mcmanus]

I have been kinda tangential to the topic here, and may continue so. But without checking my previous comments for a contradiction(if there is one, I have just changed my mind) for the record I am no longer averse to exploration and development of ANWR. Not for shipment to China, but for our own energy independence and National Security. And maybe pumped directly into the Strategic Reserve. At the moment I realize that looks economically stupid, but I fully expect external conditions to change fairly radically and obviously by the ANWR comes online.

[Bernard Yomtov]

gov'ts are so massively involved in oil production that politics should be the first tool in analyzing that market.

Bob,

I agree totally that the political aspects of the oil market are crucial. But to the economic and political aspects interact. China wants oil for economic development, among other things. But the amount they buy is going to depend on the price. After all, you don't pay $100 barrel for oil if it's only going to get you $90 worth of development.

[Anarch]

After all, you don't pay $100 barrel for oil if it's only going to get you $90 worth of development.

You might if it gets you something else intangible too (e.g. improved relations or something like that) but otherwise yeah, that's a good point.