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Now You Know

So now you know. Now you know why I’ve spent so much time on the radio for the past five years talking about how much oil we consume, how much we have in reserve, where most of the world’s oil is located and how much. Why I’ve told you the numbers that are critical to know.

I’ve been doing this to arm you for precisely this moment, the moment when oil increases in price to more accurately reflect its worth, when that increase causes consternation among the citizens and voters of this country and the world, who have been so poorly served by their leaders in planning for such a future, and for the moment in this country when this event causes the Bush Administration and its allies to propose the solution of increasing our own domestic production.

Just in case you don’t remember, let me remind you of the numbers, which are available to everyone at the Energy Information Administration website (http://www.eia.doe.gov).

We Americans currently consume about 7.5bbl (billion barrels) of oil per year, 1/3 of which is produced domestically, and 2/3 imported.

Since 1949, the US has produced 157 bbl, and we have imported another 125 bbl, for a total consumption during that time of almost 300 billion barrels of oil. That, my friends, is a lot of oil, and it should cause you to consider where we are going to get another 300 billion barrels of oil if the next fifty years is supposed to look like the last.

In 1980 when Ronald Reagan came to office on the first wave of discontent over high gasoline prices, we produced 3.1bbl and we imported another 2.3bbl. To put this in perspective, after a combination of almost three decades of Republican deregulation and improved drilling technology, we now produce 40% less oil domestically. And thirty years after we got our first look at the dangers of foreign oil dependence, we now import almost twice as much foreign oil. I’m assuming that this is not exactly the result that the Great Communicator promised to deliver with Republican rule, but Reagan’s heirs are counting on the possibility that you won’t bother to look at the numbers.

In truth, there is no leadership that could have maintained domestic production above 1980 levels. The reason is that, since we have used so much, we are almost out of oil in this country. And yet, yesterday, George W. Bush appeared at the White House with his feckless Secretary of Energy and feckless Secretary of the Interior, and proposed that there are ample supplies of oil in the United States to meet our needs, and he described these supplies:

First, Mr. Bush says there are 18 bbl offshore in the waters of the outer ocean coastal shelf currently prohibited from access, for environmental reasons, by the US Congress. Next, there are 10 bbl in the Arctic National Wildlife Refuge in Alaska. And finally, Mr. Bush claims there are 800 bbl, an astonishing amount, stored out in the mountains and deserts of the American West. Let’s take a moment and add up those numbers: 18 + 10 + 800 = 828 bbl. Now let’s divide those numbers by the 7.5 bbl consumed by our country annually for our present way of life: 828 / 7.5 = 110 years. Thus, Mr. Bush stood before us yesterday and argued that here in the United States of America we have enough oil to last 110 years. The problem, he argues, is that Democrats and environmentalists have enacted legislation that prevents us from accessing those supplies, and the result is $4.00 per gallon gasoline. The solution, therefore, is to lift those restrictions and invest with gusto in extracting that oil.

It’s a neat and compelling argument. So neat and compelling that I have already begun receiving email from conservative family members that show the cartoon cat Garfield pointing out that the “dipsticks” in Washington are preventing us from getting our oil and are causing economic hardship.

The only problem is that Mr. Bush’s arguments are either irrelevant or wrong. The outer coastal shelf may well hold oil, but even at the 18 bbl Mr. Bush cites, it is an amount equivalent to about two years of national supply. An authoritative project study on the Energy Information Website projects a mean return of 2.5bbl, or less than a year’s supply, in the Arctic refuge. And what can we say about 800 bbl of shale oil? Well, here is what one commentator at the Colorado School of Mines, which has spent more time on trying to get energy from oil shale than most other institutions, writes:

“To date, commercial oil in significant quantities from oil shale remains a fond hope, subject to wry statements including: "Shale oil--fuel of the future and always will be." In 1946, a real estate promoter erected a sign along what is now U. S. 70, regarding the minor shale oil boom at the time: "Get In On the Ground Floor." It is still not too late to get in on the ground floor. But all plans to do so have been at least temporarily discontinued. Perhaps oil shale will eventually find a place in the world economy, but energy demands of blasting, transport, crushing, heating, adding hydrogen, and the safe disposal of huge quantities of waste material are large. There appears to be a positive net energy recovery from oil shale processing, but it is low and does not compare with net energy from conventional oil well drilling. The large amount of water needed to support any major oil shale operation along with the supporting infrastructure of housing is also a difficult problem. The western U. S. oil shales are in the headwaters of the Colorado River, which already has more water rights against it than it can meet. Most of the time the river now no longer reaches the Gulf of Lower California.

The President of the United States, the person who has been elected ostensibly to be as honest as possible about what is possible and what is prudent, is now suggesting that the future of American transport energy lies in blasting, transporting, crushing, heating, adding hydrogen, and producing huge quantities of waste material from the American West. But that is not honest. Here is honest:

Americans: we drive vehicles that are too big, and we drive them too far, and we do not have other options – like walking, biking, or public transportation, because we have not invested in those options. Because we have not invested in those options, we do not have the right to expect that they would exist right now as gas prices rise. Americans: we live in homes that are too big and located too far from our work. The solution to these problems is not to destroy our country by desperately blasting and drilling away at the marginal deposits of oil that now remain to us after a century of depleting them, or to engage in science fiction to turn rocks into oil. The solution is to begin to change our cars, our homes, our cities, our systems, and our ways, and to not divert from that course no matter what the price of a barrel of oil does on any given day. Then, and only then, will we be free.

But doing what needs to be done will not come from George W. Bush or his allies or successors. They would not do what needs to be done when oil was cheap. They are not doing what needs to be done when it is more costly. And they will never do what needs to be done. It will need to be done over them, around them, and through them

This past weekend I traveled to West Virginia, a state of extraordinary natural beauty, to go whitewater rafting. It is also a state of great natural resources, of timber, and especially of coal. We glided in rafts through peaceful currents and raging rapids, the sun glinting through beautiful 50 year-old sycamore, oak, hickory, poplar, and ash. The old growth trees were long gone, cut down over a century ago to make way for the mining operations, the remnants of which lay scattered along the river gorge like ghost towns. But at least the mountains remain, the only thing left by last centuries miners, giving the foundation for new growth and new life.

But coal mining today is not like coal mining 100 years ago. Today in West Virginia, coal mining companies are removing entire mountains, pushing them into valleys, destroying streams and habitats, so that we can run our appliances and air conditioners. That vision of mountaintop removal, a vision close to hell, is not visible to tourists on protected West Virginia rivers. That hell, a hell born from the beliefs, assumptions, and approaches of George W. Bush and his supporters, is kept hidden from view, off the highways, away from the parks, accessible only by airplane. That hell is being perpetrated in the American East, and it should be stopped. But George W. Bush not only has no intention of stopping it in the East, he now proposes to unleash it on the American West, to crush and pulverize the Rocky Mountains and cook them down for oil. For Bush and his supporters, our country, an intricate web of careful, mindful relationship between the land and its people, has simply become a concept of resource meant for human comfort.

It’s my hope that most Americans are wising up to these games. In the wake of 9/11, George W. Bush sought not to punish those who were responsible, but instead to implement an entire military and geopolitical vision across vast swaths of the planet. The result has been an enormous project with harmful effects. It is the same with $4.00 gas, where Bush now seeks to implement an energy vision of vast scope and harmful effect.

Just as there are problems presented with $4.00 gas, there is also great opportunity. But it’s not the kind of opportunity that George W. Bush, his supporters and followers, see. Towards the end of our trip down West Virginia’s New River this past weekend, we floated beneath one of the world’s tallest bridges, spanning the deep, leafy green river gorge, and on the far bank I suddenly saw congregated a crowd of about thirty on the shore, and six people standing waist deep in the water, holding hands. I realized I was about to witness a baptism in the river. Our boat fell silent as we all watched. I consciously searched my mind for the media conditioned biases about evangelical Christianity, and about Appalachia and hillbillies. But the weekend with the friendly, gracious and caring people of West Virginia had dispelled any that might have existed. I watched with emotion and open heart as two individuals were plunged into the cool, clean waters of the river, and emerged to cheers.

And I suddenly realized that these West Virginians, who have lived through destruction of their world for over a century, and who continue to live with it, understand better than most of us, where salvation can be found. For them, as it does for all of us, it lays literally with, and in, the river.

I’m Leo Gold. This is the New Capital Show.
Posted on Jun 19 by Registered CommenterLEO GOLD | Comments2 Comments

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Reader Comments (2)

I didn’t hear anybody from “strategic planning working for a major” answer your request to call in to discuss reserves in the continental US. I am a geologist working for a small independent here in Texas. I just wanted to add what I could to the oil reserve debate from my perspective.
Everybody talks about reserves, but reserves by themselves don’t mean anything to me. For illustration, one could discover a billion barrel oil field but if it was learned that each well drilled at a cost of several million dollars into the field could only produce at a rate of one barrel of oil a day then that field would be abandoned as uneconomic and those reserves would just sit there as useless. I have found through the years that people don’t typically understand the time value of money. Oil companies are typically looking at risking millions of dollars to drill a single well. The majors look at projects whereby the investment may be hundreds of millions of dollars before any cash flow is seen. This cash flow has to do more than pay off the cost of the project. It must outperform an alternate investment that returns a reasonable rate of return…say 8% to 10%. Because of the compounding nature of interest rates, the longer a project takes to deliver initial cash flow, the harder it is to catch the compounding curve. Why would anyone invest in an oil project if that money could outperform the oil prospect by just sitting in a bank and earn interest with little or no risk. Because companies must buy the leases, invest in seismic data, map the prospect, sell the prospect, secure a drilling rig, pay for drilling, pay for completion and wait for a pipeline to be constructed, these bigger projects take years before production begins. That ticking clock will kill you…especially if you further delay things by drilling few dry holes before discovering oil. Nothing is certain in the oil field. Conversely, a smaller and less risky project may deliver cash flow soon after drilling but it is still trying to catch that compounding interest rate curve. So catching that curve is also dependant on the rate that you can produce that gas. Another fact of life for oil companies is that generally all production declines from the rate of initial production….each day you are able to produce less than the day before. So oil companies are always looking at costs, time, risk, production schedules in an environment where the price of the product is uncertain. Why would one invest in a 10 year project if 10 years from now that product had the possibility of being worth half of what your projections allow? Nothing is certain in the oil field.
Now some fun with numbers. Let’s say that we were going to replace the 14 million barrels of oil the country imports every day. There’s been a lot of talk about this Bakken shale play in North Dakota. Let’s say we are going to jump into this trend. Let’s say every well we drill initially delivers 1000 barrels per day (a pretty stout number). That means we need to have 14000 new wells to meet our countries import needs. Now we aren’t going to build 14000 new rigs to drill these holes simultaneously…we need to feel our way by devoting say 100 rigs to drill the effort. Furthermore, each of the wells would take a month to drill. That means if successful we could deliver 100 rigs x 1000 bbls/day or 100000 bbls /day increasing by that amount every month. So we would need 140 months (nearly 12 years) to offset our current imports. By that time the first wells are well on the way down the decline curve. So we need more than 100 rigs a day and more money at risk. At $3 million per well how many companies are going to put $300 million upfront without knowing the economics will pay out? And what’s the probability that 7000 wells in a row are going to produce 1000 barrels of oil a day? Remember…nothing is certain in the oilfield.
Jul 8 | Unregistered CommenterEGM
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