Romney's Crude Promises

Agenda-Setting Financial Insight.
Aug. 28 2012 4:24 PM

Romney's Crude Promises

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Romney’s promised federal oil gusher would produce little more than a trickle.

Photo by JEWEL SAMAD/AFP/GettyImages

Mitt Romney’s plan to boost America’s oil output is destined to come up short. The Republican Party’s presidential candidate boasts he can unleash a surge in domestic production by opening more federal land to exploration. But his claim that 62 percent of Uncle Sam’s crude is off-limits is misleading. Ecological havens aside, Big Oil already has the run of America.

Romney’s right that the federal government is sitting on a treasure trove of oil and gas - about 175 billion barrels of oil equivalent, according to the Congressional Budget Office. Unlocking this wealth is at the heart of his plan to free “North America” - as the candidate puts it - from reliance on foreign oil by 2020. Sadly the statistics behind this patriotic quick fix don’t add up.

The assertion that energy companies are barred from close to two thirds of resources on federal land is at best a partial truth. Romney’s figure only counts oil under American soil, ignoring vast offshore crude reserves. It also neglects natural gas altogether.

Moreover, it’s based on data from 2008. Since then, estimates of the reserves in Alaska’s National Petroleum Reserve have been greatly reduced. Take this into account and about 70 percent of resources are available to explorers, reckons the CBO.

That leaves Romney with far fewer ensnared hydrocarbons to liberate. He could open up drilling off the coast of Virginia and the Carolinas with the stroke of a pen. But accessing a far bigger prize off the coast of California would be harder: the Golden State has been skeptical of allowing this area to be exploited. And tapping the Arctic National Wildlife Refuge would require Congressional approval.

In any event, merely granting access to explorers doesn’t guarantee they will start pumping. More than half the land leased onshore and almost three quarters offshore is not yet generating a drop of oil or a whiff of gas, according to the Department of the Interior. That’s probably due to a shortage of rigs and skilled labor.

Finally, since federal land accounts for just a third of current crude production, opening up the final tracts won’t dramatically boost national output. Romney’s promised federal oil gusher would produce little more than a trickle.

Chris Swann is a Reuters Breakingviews columnist, based in New York. He writes about hedge funds, commodities and asset management. He joined from Bloomberg News, where he covered global poverty issues and the International Monetary Fund.