With gas prices heading toward $4 per gallon and beyond, President Obama repeatedly declares that “there are no silver bullets” to make the numbers on service station pumps go back down and that it is impossible “to drill our way” out of trouble. In fact, a look at rig counts in the natural gas industry during recent years points to a different conclusion. According to the Baker Hughes Rotary Rig Count, between March 2007 and May 2008, the number of rigs drilling for natural gas soared to more than 1,600. As the accompanying chart shows, during the same period, the spot price of natural gas rose steadily from $255.96 per thousand cubic meters to $405.63. The next month, June 2008, saw natural gas hit its recent high at $456.57. But then, as supplies grew as a result of the increased number of rigs in action, the price of natural gas plummeted and has continued doing so ever since, falling below $100 in January this year. America has gone from having too little natural gas to a historic surplus. Most of the increased natural gas production took place on private or state-controlled lands, not on federal lands.
There is no reason not to expect a similar pattern on oil prices — if the federal government would allow the free market to work. The price per barrel of the benchmark West Texas Intermediate crude oil has steadily risen from below $80 in January 2010 to above $100 at present, even as the number of rigs at work drilling for oil has gone from under 400 to more than 1,200. To be sure, rig counts are far from the only factor determining the market price of natural gas and oil at any given time. But because the federal government issues permits for federal lands and offshore areas, the pace at which Washington approves drilling applications has a direct bearing on supplies and therefore prices. The current uptick in oil rig counts primarily reflects permits issued before the beginning of the Obama administration.
The number of approvals for drilling in the Outer Continental Shelf in the Gulf of Mexico — which accounts for a third of all U.S. oil production — under Obama has plunged from more than seven per month to only three. Measured in terms of how long is required for the government to consider a permit application, the average for the five years before Obama was 60.6 days. The average is now almost 110 days, according to the Institute for Energy Research. Viewed in terms of the percentage of all permits sought that are approved, the five-year average before Obama was 73 percent. Today under Obama, it is 23 percent and falling. In other words, it is almost certain that the oil-drilling rig count will head back down in coming months, but it will be in response to government interference rather than as a result of price fluctuations. And the price of gas at the pump will continue to go higher.
