What do we get? Significantly lower gas prices and less dependence on foreign oil.
That's what we get.
In your dreams.
Let's take an absolutely ridiculous best case scenario and look at it:
U.S. oil production is increased to the point that it meets all U.S. demand - no foreign oil is required at all to meet our needs. And the United States passes a law that says all the gasoline produced with U.S. source oil MUST be sold in the United States. Let's further say we do this overnight. How much do prices go down?
Okay, we now consume about 25% of the world's production, and just for ease of arithmetic, let's round off the foreign component of our consumption to about half. So then we would be using about 12.5% of the world's production, a significant decrease and we've doubled our production. Our gas prices would go down by at least half, right? A $4.00 gallon of gasoline would cost $2.00, right?
Wrong.
Again, keep in mind that this is a ridiculously simplistic scenario, but all other things being equal, that increase of 12.5% of the world's production would actually decrease U.S. gasoline prices to about $3.50 per gallon, based on its effect on the global oil supply.
That's a pretty good chunk, but still far from $2.00, and people were still bitching when it was $3.50.
Now, you have to assume a lot of things that aren't necessarily going to happen to get to $3.50, even in my fantasyland.
For one, you have to assume OPEC is going to keep pumping the same amount of oil as now. That would not necessarily appeal to OPEC, who tends to balance its production in order to keep prices stable (read not go too low) and preserve as much of their oil reserves as they can consistent with stable prices.
So, if U.S. production increases by 12.5% of world supply, OPEC is likely to decrease their production to offset at least some of the U.S. increase to keep prices as high as possible and preserve as much of their only real natural resource for future sales as they can.
Well, since U.S. oil companies can only sell their oil in the United States, the law of supply and demand would make prices go down, right? Let's look at that. If U.S. supply exactly equaled U.S. demand, you would have a state of equilibrium.
What would be their incentive to reduce U.S. gasoline prices below what the global market sets the price at? U.S. production would have to outstrip demand before the law of supply and demand would force prices down.
Would the cost of producing or refining the oil go down?
I don't know what would reduce the cost of production other than possibly some sort of economy of scale, and all other things being equal, refining the oil would remain stable.
Refining costs would actually go up if all they refined was U.S. oil, because some refineries would have to be shut down, because remember, oil is imported in part to be refined and exported as gasoline. Nothing would keep the industry from continuing to import and refine oil for export in addition to the U.S. oil they are refining for U.S. consumption, keeping the refineries pretty much at status quo.
Now, back to reality. The U.S. oil supply is not going to equal U.S. demand much less outstrip it, and no law is going to be passed forcing oil companies to sell all their oil in the United States. What do you think we are, some socialist democracy?
So, where does increased U.S. production leave us vis a vis gas prices? Given how little actual increased production (not imaginary) is going to add to global oil supply, pretty much where we are right now, as far as I can see.
And what do we get in terms of "reducing our dependence on foreign oil" by increasing production? Well, the price stays virtually the same, whether we're using U.S. or foreign oil, but by making U.S. production a bigger percentage of global production, we are actually depleting our oil resources while saving more of the rest of the world's oil resources. How exactly is that decreasing our dependence on foreign oil?
Okay, I know there are a million holes in what I have said here, and there are many other factors involved, but this is my understanding of this very simplistic hypothetical, and where it's wrong, I want to know so I can learn something from it.
So, flame away.