The Price of Gasoline at Pumps - Term Paper Example

 Introduction During the first half of the year 2000, people in the United States were shocked when gasoline prices shot up nearly 100% in only a few months. The shock of the price increase caught the attention of a society that had grown dependent on private automobiles and gasoline, especially since the increase followed several years of a glut of inexpensive oil and gasoline. The reasons for the sharp price increase are complex but are based on several factors. First, as demand rose in response to low fuel oil prices, oil-producing countries reduced production rates, thereby reducing the supply. Second, in order to reduce air pollution from burning gasoline, producers in the United States are required in many areas to reformulate gasoline with additives that produces a cleaner burning fuel. This reformulating, which is done at a limited number of refineries, further lowered the supply. Reduced supply together with high demand resulted in a quick increase in the price of gasoline at pumps. (Botkin and Keller, 2003) To avoid such an event from happening again, many industry players and a part of the public as well would point that the solution is simply increasing the supply. Thus, every source should be utilized. This logic presents a problem in the Arctic National Wildlife Refuge (ANWR) where there have been debates on whether to open the area to oil exploration but environmental values are endangered. In this paper, I aim to assess the benefits and costs of the venture and ultimately determine whether it is appropriate to open the area to oil exploration. In the end, what would ultimately be the basis is what we value more: a dependable supply of oil or an ecological preservation or is it possible to find a point where they can meet in between. ANWR Background The Arctic National Wildlife Refuge (ANWR) on the North Slope of Alaska is one of the few pristine wilderness areas remaining in the world. The U.S. Geological Survey estimates that the refuge contains about 3 billion bbl of recoverable oil. The Energy Information Administration, in a May 2000 report titled Potential Oil Production from the Coastal Plain of the Arctic National Wildlife Refuge: Updated Assessment, states that the coastal plain region harboring the 1.5 million-acre 1002 Area is "the largest unexplored, potential productive onshore basin in the United States." The oil industry has long argued in favor of the drilling for oil in the ANWR, but the idea was unpopular for decades among many members of the public and the U.S. government and no drilling was permitted. (Botkin and Keller, 2003) Analysis of Benefits and Costs As with all industrial developments especially in oil projects, issues actually revolve on just two opposing forces: environmental and social impacts. We are aware that ecological importance has become a major issue that must be included in our ventures due to the fact that we can not tolerate pollution anymore. However, most job generating and welfare increasing measures are only possible with the introduction of business that may have environmental repercussions. This dilemma is further highlighted by the ANWR issue. In this section, we take a look at the arguments in favor and not in favor of drilling in the ANWR. Arguments in Favor of Drilling a) The United States need s the oil and it will help us to be more independent on imported oil In the introduction, it was mentioned that oil prices rose dramatically in the United States due to problems in supply and legislation. However, this was actually just the fourth oil shock since 1973. The first one occurred when the Arab oil embargo of 1973-1974 occurred. Arab oil producing countries cut back productions and imposed an oil embargo on shipments forcing Americans to wait in lines to receive limited amounts of gasoline. Prices of oil more than doubled. The second occurred in 1978 with the overthrow of the Shah of Iran which disrupted petroleum supplies and again led to long queues in the United States. The third was when Iraq invaded Kuwait causing panic in the world financial market resulting in an increase of approximately 170% of oil prices in just three months. As these problems would show, the United States is still very dependent on imports. However, the ANWR reserves with its large reserves could dampen or even prevent oil shocks. (Blevis, 1998) b) New Oil facilities will bring jobs and dollars to Alaska For sure, oil refineries, distillation plants and construction will bring jobs and income to the residents of Alaska even to its indigenous people. If leasing, development, and production occur, ANWR revenues from bonuses, rents, and royalties, as well as from any sales of gravel and water, could generate billions of dollars for the federal and native landowners, depending on the amount of oil that is found and on oil prices. Peak annual royalties alone might range from $200 million to $2.5 billion, followed by declining revenues for 30-50 years. The allocation of these revenues between the state and the federal government could be one of the most contentious issues if development legislation were to proceed. Although 90% of the federal share of revenues would be paid to Alaska under the Mineral Leasing Act, H.R. 4 and S. 388 specify an alternative disposition. Some have suggested using federal revenues from ANWR for various purposes, including land acquisition in Alaska or elsewhere as part of the mitigation for reduced habitat values in a developed 1002 area. Although the provisions are ambiguous as to derivation and amounts, under S. 388, a portion of revenues from the leasing of ANWR would be placed in a special Renewable Energy Research and Development Fund to be used for research into wind, solar, biomass, geothermal and hydroelectric sources of energy. Whether options for alternative disposition of revenues are available depends on whether Congress lawfully may make an alternative allocation for the revenues. (Miller and Miller, 1998) c) Less Invasive drilling, exploration and retrieval tools have become available There are currently new exploration tools to evaluate the subsurface for oil pools which require fewer exploration wells. New drilling practices have much less impacts on the environment. These include: (1) construction of roads of ice in the winter that melts in the summer instead of constructing permanent roads; (2) elevating pipelines to allow for animal migration; (3) drilling wells in various direction from a central location thereby minimizing land needed for wells and; (4) disposing of oil field wastes by putting them back into the ground to minimize surface pollution. All these processes are argued to make the exploration more environmentally friendly. Arguments against Drilling in the ANWR a) Advances in technology are irrelevant to the question of whether or not the ANWR should be drilled. Some wilderness should remain wilderness. Drilling will forever change the pristine environment of the North Slope. Roughly 22,000 acres of tundra wetlands, floodplains, and other habitats have been directly lost due to the oil fields and Trans-Alaska Pipeline System. But the impacts to wildlife and their tundra habitats extend well beyond the sites of constructed facilities. A study of major landscape impacts due to the Prudhoe Bay oil fields in Science found that secondary effects such as hydrological changes to wetlands lagged behind construction and the total area eventually disturbed greatly exceeded direct impacts. According to caribou biologists Nellemann and Cameron (1998). Many studies recorded decreased caribou densities within 4-km of pipelines and roads and regional changes in calving distribution for the Central Arctic Herd at Prudhoe Bay. Prudhoe Bay air emissions have been detected nearly 200 miles away in Barrow, Alaska. b) Even with the best technology, exploration and development will impact the ANWR Intensive activity, even in the winter on roads constructed of ice, will disrupt wildlife. Technological advances have reduced the size of individual drilling pads and some roads, but oil development unavoidably involves construction of many permanent industrial facilities and noisy operations spread across vast expanses of the landscape. b) Large amounts of water to construct roads of ice. The water which will be used for the construction of ice roads will come from tundra ponds. One kilometer of ice road will require 1 million gallons of water. That is, tundra ponds are in danger of extensive and unsustainable use. c) Heavy vehicles used in exploration permanently scar the ground The transport of oil will require heavy trucks. This will permanently scar the ground even if the ground is frozen hard. d) Oil development is inherently damaging Oil projects involve a massive industrial complex of people, vehicles, equipment, pipeline and support facilities. e) The record of oil exploration in the area is, to say the least, undesirable in terms of environmental performance. According to the Alaska Department of Environmental Conservation spill database (1999), developed areas in the region such as the Prudhoe Bay oil fields and Trans-Alaska Pipeline have registered an annual average of 409 spills since 1996. This corresponds to a minimum of 1 oil spill per day and a total spilled volume of 1.3 million gallons from 1996 to 1999. EPA data shows that the Air Pollutant Emission of oil refineries in the Alaskan region is about 56,427 tons of oxides of nitrogen oxides and 24,000-114,000 tons of methane. BP Petroleum was found to have illegally disposed of hazardous drilling wastes for three years. The waste eventually reached the surface and presented a problem for workers. More than 55 contaminated sites associated with the oil industry exist on the North Slope (EPA, 2000). The problem with oil development in the Arctic Region is when development starts, there is no stopping it from further widening its scope. People will always find an excuse for expanding citing loopholes in any legislation. Consider, for example, the Prudhoe Bay. Since the deposit was discovered, thousands of exploratory and producing wells have been drilled with 500 miles of road networks. The current active site is more than 1000 square miles. Predicted operations were exceeded far beyond expectations. There were five times more drilled wells, two times more road mileage and three times more area covered by infrastructures. The problem is, the network continues to expand. Conclusion After having known both sides of a coin, we are now in a position to state our recommendation. In many industrial issues, a point where both sides supposedly found equal footing has been made. Suffice it to say, the developments pushed thru. In this study, however, we cannot find such point because in the developments where they were able to find one, immediate and long term environmental degradation became prominent. For sure, developments will bring about wealth and increased economic activity and we certainly do not want our country to be dictated by other countries. However, hard science and numerous experiences have proven that the development can negatively affect the wilderness as what had happened to Prudhoe Bay. Once development starts, there will be no stopping companies and those who benefits from it from finding a way to skip all those legal limitations. The development is actually a black hole problem where development results to further developments which results to further expansion and so on and so forth. Congress voted not to drill in 2002. I agree with them. It is not that I do not want Alaskans to prosper. It is because there are technologies available already which are cleaner and greener. Alternative energy sources such as solar, geothermal and wind power are proving themselves to be business friendly and sufficient for customer demand. References: Alaska Department of Environmental Conservation (1999). Data on Oil Spills in Prudhoe Bay and other oil projects. ADEC: Alaska Blevis, D. L. (1988). The new oil crises and fuel economy technologies. New York: Quorum Books Botkin, D. and Keller, E (2003). Environmental Science: Earth as a Living Planet. New York: John Wiley and Sons EPA Database (2000). Air Pollution Emissions on Alaskan Oil Operations. Environmental Protection Agency: Washington D.C Miller, E. W. and R.M. Miller (1993). Energy and American Society. A Reference Handbook. Santa Barbara, California : ABC- CLIO Nellemann, C., and R. D. Cameron (1998). Terrain preferences of calving caribou exposed to petroleum development, Arctic 69:1736-1743 Read More