Drilling for new oil in the USA
So the debate over drilling within the US has opened up again. There will be lots of debate about environmental impact that I don't feel sufficiently informed on to comment about. But given the success Bush has had redefining US foreign policy as a contest to see who can be the biggest asshole (read: tough on terrorists), I suspect the debate will revolve once again around that old canard: "energy independence". The idea is that if we drill more at home, we'll be less dependent on foreign oil.
Let me present a slightly different viewpoint I don't hear discussed much in the media. Allow me a couple of asides:
First, the notion that oil drilled in the United States will be consumed in the United States is of course not entirely true. Oil produced in Alaska may be much more cheaply consumed in Japan than in New York. That's just geometry. The market will make that decision based on shipping distances, quality of crude, availability of refining, and a thousand other factors. What domestic drilling may do is increase the world's supply of oil a bit (or at least slightly arrest the decline of US production), and thereby place downward pressure on the price of oil. This seems like a laudable goal.
Second, you will hear a few people say that it's not worth drilling for more oil because the amount is tiny and would not be felt for many years. Just because something won't have an effect for 5 years doesn't mean it shouldn't be done. But it's not often appreciated how much oil we consume and how much impact US exploration might have. Of course the numbers are always open to debate, but take the two extremely massive oil fields recently discovered off the coast of Brazil. These are game-changing fields, some of the largest on the planet. They total roughly 10-20 billion barrels of oil equivalent. That's a lot, right? What if we found those hiding in the Gulf of Mexico. Even though we're pretty certain there's nothing that big out there, even so... These fields, if drained completely dry, would only serve the US's oil consumption for less than three years. Three years. The numbers are staggering. Drilling activists like to suggest that there is a ton of oil in the ground that the tree-huggers are just hiding from us. That's true: but the amount of oil is not particularly significant if you look at it from a multi-decade point of view.
Which brings me to the point I was really trying to make. The point is actually very simple.
There's not a lot of oil left at reasonable prices given current consumption and growth trends. It's very hard to tell whether this price spike is the beginning of the end, or just a head fake, but the end is coming in our lifetimes. As any petroleum geologist will tell you, "the end" will arrive with lots of oil left in the ground, just too expensive for our means. When that end comes, when oil is $1000 per barrel, gasoline is rationed for national security reasons, when poorer countries without access to alternative energy technology are going to war to secure the oil they need to fertilize their crops so they can eat and drink, what situation do you want the US to be in? With major reserves already tapped to secure a few extra years of $4/gallon gasoline? Or with major reserves available within our borders to provide the fuel the army and navy require to secure peace in this dangerous world? Do you want the strategic oil reserve to have been run down to keep the cost of Summer road trips low? Or in place to ensure the smooth functioning of the military when Mexico, Venezuela, and Nigeria won't have any oil left to export? Do you want to have burned all the oil to light up Starbucks signs at night, or have some left over to maintain the crop yields which allow our nation to produce something the rest of the world thinks is worth buying?
Oil is running out. Aside from the obvious implication that we should be working on alternative sources of energy (and oil at $140/bbl is doing that much better than any Congressional plan would), it's not obvious to very many people that we should keep what's left for ourselves. Every nation should be looking towards energy security, just as they look for food security. Why should we pawn our future for a few years of fun in the present?
posted by Sebastian Good @ 10:13 AM
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3 Comments:
Excellent synthesis of a complex debate. I would add one more point: conservation. Conservation should be touted as a virtue, and energy/food independence should be inserted into the set of 'patriotic' things. Although the words 'virtue' and 'patriotic' have often been invoked for insidious purposes, I think that this strategy might actually have beneficial effects that would be visible immediately.
I can't say I agree with your post. The idea that oil would eventually be at $1k per barrel and we would ration it is like saying one day we would run out of horse and buggies and nothing will take their place.
We have two sides to this short term spike which will lead to lower prices in the future. First off, the technology of consumption will greatly improve. For example, a person driving a truck getting 12mpg because gas is $2 per gallon, then switching to a car that gets 24 MPG at $4 per gallon, has essentially halfed his consumption while not increasing his expense by one dime. The higher the price, the more incentive there is to switch to lower consumption and alternatives such as China is doing with coal to liquid plants (only the beginning). This is economical at $50 per barrel or less and as processes are improved, economical at lower prices.
Second is supply. Even at an estimated 4 billion barrels, the bakken oil field in North Dakota is an enormous find. New technology makes this field now economical to extract in large quantities. As companies drill a field more, and as the price stays high, they get better and better at extracting quantities at lower prices (see Chesapeake energy, symbol CHK). Since this is the "dawn" of development of this 100 year field, one can only imagine that they will get better and better at extracting this oil. This is not even including Alberta oil sands or our off limits massive shale deposits in the West that Shell oil says are economical to produce at $30 per barrel.
Even with massive government restrictions offshore and on federal lands, oil is likely here to stay forever as our major transporation fuel source. Even in 1859, it was thought that oil would only last a few decades before the world ran out of it. Let's see, it's now 149 years later and the world is consuming 80 MILLION Barrels PER DAY! WOW.
I am 32 years old and WILL NOT see the end of oil in my lifetime as a major transportation fuel source. The Bakken in the Dakotas will produce at least 50 billion recoverable barrels in my lifetime. That is my prediction. Do you see my point?
Eddie--
You are right that oil will be an important energy source for decades, if not centuries to come. But the spikes along the way (like this one) will get nasty. My point is that keeping oil in the ground at home keeps prices higher, making the move away from oil happen more quickly (as you point out), and leaves us with a strategic advantage over the coming centuries. We can change a lot of things, but changing where the US exists on the planet is not so easy.
It is true that the ceiling price of oil will be influenced by technology. Yes, at a certain point it just won't be worth anyone's money to pull it from the ground because there are other alternative sources. But don't be so sure that technological ceiling is lower than the geopolitical ceiling at which wars or other forms of conflict break out. Look at what's happening with food.
Secondly, I think it's worth pointing out that burning oil for energy is about as frustrating as burning trees is. Yep, trees burn, and they were an important source of energy for humanity for a long time, but they are far more useful as building material or paper (or even now, tourist attractions) than they are as fuel. It's the same with oil. It's a shame we convert so much of our oil into CO2 and heat, instead of marvelous and useful plastics and other synthetic compounds.
Thanks for writing!
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