Political  Calculations

Environmental Economics' John Whitehead greedily sharpened his old pencil following a statement Texas governor and GOP presidential candidate Rick Perry made in New Hampshire:

Rick Perry in the Union Leader:

We can create hundreds of thousands of jobs and increase our oil output by 25 percent if we fully develop oil and gas shale formations in the Northeast, mountain West and Southwest. I also support drilling in Alaska’s Arctic National Wildlife Refuge coastal plain (ANWR), offshore expansion in the Beaufort and Chukchi Seas, and development of the National Petroleum Reserve in Alaska, all of which would maintain the Trans-Alaska Pipeline System. This will create more than 185,000 U.S. jobs. ...

Additionally, our families, communities and employers will benefit from more affordable energy prices as we increase the domestic supply. American manufacturing will experience a tremendous boost if we control electricity prices and get a handle on the cost of fuel for transportation fleets.

Doing the back of the envelope (and not worrying about whether the 25% increase in oil output is realistic) with these data:

daily world oil production = Q = 89,123,026 [barrels]
25% of daily U.S. oil production = dQ = 2,422,000
oil price = P = $90
demand elasticity = ed = -0.1
supply elasticity = es = 0.2
dp = ((P*dQ)/Q)/(-ed + es)

The world price of a barrel of oil would fall by $8.20 as a result of a 25% increase in U.S. production. If gas prices are about 70% due to the price of oil and gas costs $3.35 per gallon, then the oil price share of gas is about $2.35. Cross-multiplication tells me that the oil price share of the price of a gallon of gas would fall to $2.13 and we'd enjoy and $0.22 drop in the cost per gallon. Filling up a 20 gallon tank you'd save about $4. Doing this every week you'd save about $200/year.

Political Calculations

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