If you ever want to baffle a news reporter, ask them this question: “If the combined cost of a gallon of gasoline and a piece of candy is $4.40 and the gasoline costs $4.00 more than the candy, how much is the candy?”
About 99 percent of them will confidently proclaim the answer is 40 cents. You’ll have to walk them through the math a couple of times before they come to understand they missed the mark by 20 cents.
In Chapter 4 of my book, Feeding the Media Beast, I explain that for news people “numbers are numbing”. It’s especially bad when numbers are combined with any subject that has even a moderate level of complexity.
Since energy stories are almost always moderately complex and most often highly complex, news organizations typically get them wrong. Or they don’t even see the most interesting part of the story that’s right in front of their faces.
Strategic Petroleum Reserve
Consider the claim the Biden Administration is making about how the release of oil from the Strategic Petroleum Reserve is lowering the cost of gasoline by 40 cents a gallon.
It’s heartening to see that the administration agrees with the basic economics of supply and demand (i.e., more oil results in the refinement of more gasoline, which then lowers the cost of the gasoline).
People can debate the validity of the 40 cents cost-savings estimate, but that’s not what is most interesting. Let’s take the argument further.
What if we were to assume the 40 cents per gallon number is correct and then go back and measure how much money Americans have saved at the gas pump as a result of advanced oil field technologies such as horizontal drilling, hydraulic fracturing directional drilling, and subsurface imaging.
Thankfully, I don’t have to do the math on this question because the Institute of Energy Research has already run the numbers. (Of course, I just happened to see IER’s math and thought it would be fun to show it to you along with my take.)
U.S. oil production
IER’s work is clever, but not complicated. As most of you know, U.S. oil production peaked in 1970 and had been in steady decline until 2008 when it hit a low of five million barrels per day.
Nearly all industry experts were proclaiming that the U.S. and the world had hit peak oil and that oil production would decline every year thereafter. The experts were wrong. Really wrong!
IER’s math is simple enough that even a news reporter can understand it. IER charted the amount of U.S. oil production decline on the pre-2008 trajectory next to the significant gains in production between 2008 and 2021.
They then calculated the reduction in the cost per gallon of gasoline as the result of increased oil production. Throw in the number of gallons used per year, multiply, and watch the eye-popping dollar signs add up.
The total cost savings for U.S drivers… $2,061,557,327,878!That $2 trillion in savings is more than $24,000 for a family of four since 2008.
the cost of gasoline
Yes, I understand this is a counterfactual. If oil companies hadn’t made advances in hydraulic fracturing, horizontal drilling, and other technologies when they did, things would have been a lot different. For starters, people would have driven far fewer miles as they always do when the cost of gasoline rises.
The U.S. government would have made various changes that would have created other changes, etc., etc. But I still think the intellectual exercise is a good one.
The bottom line is that the oil and natural gas industry has saved the U.S. consumer far more money than people will ever know. And this is only a fun calculation on oil production and the cost of gasoline.
Petroleum technologies also opened the tap to a gigantic amount of natural gas, making America the world leader in gas production—by far. If we attempted to estimate the amount of wealth generated by the full scope of oil and natural gas production, including benefits from high-paying industry jobs, the roughly 1.5 to 2.5 service sector jobs created, tax revenues, and royalties, that $2 Trillion in gasoline savings would look small.
Americans (and people in every other country) should have a much greater appreciation for the benefits oil and natural gas producers make to their daily lives. But they don’t, in large part because news organizations are uninterested in giving people the facts. And in many cases, they lack the imagination and the mathematical competency to see energy reality staring back at them.
* Mark Mathis: Author, “Feeding the Media Beast” & Filmmaker, “spOILed” and “Fractured” & Video Producer, Clear Energy Alliance
- The fanciful goals of Green New Deal are nowhere in sight (Article)
- oil prices continues to be led by daily shifts in mood (Article)
- OPEC+ turns protective of limited spare capacity (Article)
- Russian Invasion of Ukraine accelerates higher fuel and electricity prices (Article)
- The Iranian gas dues problem and resupplying Iraq and Turkey (Article)
- Carbon Tax Drives Energy Prices Higher (Article)
- The way down for crude prices could be long and winding (Article)
- Are people spoiled by the comforts of affordable and abundant energy? (Article)