Tuesday, May 27, 2008

COP: Inconvenient Truths About Oil

USA Tom Glennon
May 24, 2008

Before my recent retirement after a career of almost 40 years, I had the unique opportunity to work in the technology areas for a major oil company, an international financial operation, and one of the world's largest international banks. As a result, although not an expert in either exploration or production of crude oil and its impact on financial and consumer markets, I did have access to information that most American consumers did not. This was not secret data, nor was it proprietary information. It was simply a case of facts the media was not interested in reporting, and our politicians felt were not germane to their own agendas. Let me start with a few simple facts. At the time of the 1972 OPEC oil embargo, the domestic production of crude oil in America peaked at about 10 million barrels per day. This domestic production accounted for almost 2/3's of our total needs, resulting in about 1/3 of our needed crude to be imported. The chilling effect of the embargo on our economy, and ability to provide for the national defense, resulted in our political leadership pledging that the government would work to allow America to achieve energy independence in 10 years. What have we achieved so far?

By 1980, domestic crude production had fallen to 8,572 million barrels per day, while our oil usage climbed to 16,058 million barrels per day. Imports had risen to 7,486 million barrels per day, or 46% of our needs. In 2005, our total crude oil requirements were 20,802 million barrels per day, while domestic production had fallen to 7,486 million barrels per day. The 15,624 million barrels per day necessary to keep America and her economy moving were met by imports, which now account for 75% of our needs. So much for the pledge to make America independent of unreliable foreign sources. What went wrong?

Of natural crude, we have large reserves off the coasts of California and Florida. However, no drilling in these areas has been permitted by law since the late 1960's. China, however, by using agreements with Cuba to drill in this area, will begin doing so shortly.

America also has additional reserves in the Gulf areas, from Florida to Texas. However, no drilling is permitted in most of these areas. Mexico, however, has no such restrictions.

In Alaska, both onshore and offshore, we have large areas of proven reserves, which are not allowed to be developed by law. Canada has no laws prohibiting such development.

In the mountain Western states, large amounts of oil are available in the shale rock formations. However, EPA regulations prohibit their development.

In the far West, vast areas of tar sands remain undeveloped due to environmental restrictions. As with the geographic areas noted above, most of the land is owned or controlled by the federal government. Canadian use of tar sands is a major source of their oil exports.

The conversion of coal to oil, a technology available for over 100 years, remains another untapped resource, due to legislative and environmental restrictions.

The bottom line is that America could have become energy independent with regard to crude oil by the mid 1980's. In the area of electricity, the addition of more coal fired generating plants, nuclear power plants, and additional hydro electric plants could have made the need for gas and oil fueled electrical plants unnecessary by 1990. That would have freed up more crude for other purposes, and reduced our overall consumption of oil. In addition, our electrical generation capacity would substantially exceed our present needs, rather than the sporadic shortages we now experience.

Some analysts have estimated that if all of these options had been initiated in the immediate aftermath of the OPEC embargo, crude oil today would have a domestic price of 40-45 dollars per barrel, with secure supplies, and uninfluenced by foreign costs or international speculators. Why didn't this happen?

It is popular to blame the oil companies, oil cartels, or greedy speculators. But in truth, we are in a bed of our own making. It is not the usual suspects who have passed laws based on bad science, radical environmental lobbies, self interest, political agendas or ignorance of technological advances and free enterprise economics. It is the result of our own government, mainly through the ineptness of Congress. At the risk of sounding glib, the following old saw comes to mind. If the opposite of Pro is Con, what is the opposite of Progress?

One need only look at the energy bill recently passed to confirm my opinion. While this 86.3 billion dollar legislation (including 3.8 billion in pork that has nothing to do with energy) does tell the auto makers how to build cars, tell us that we can't buy incandescent light bulbs after 2012, and demand that we continue to use 1.25 gallons of gasoline to produce 1 gallon of ethanol (subsidized by us of course); it does not result in one new gallon of gasoline, or one watt of new electricity.

So who is to blame for the "new" energy crisis we face? Look no further than Washington DC. For 34 years, through Republican and Democratic controlled Congresses and Presidencies, they have done all that they can to create what we, the consumer, must now face. And I see no hope that they will do anything to correct the situation they have created. The resources are there, the technologies are proven, and the self corrective economic system is in place. We need only a government that is both accountable and responsive.

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