Free Markets, Free People
With the following quote, which Anu K. Mittal, the GAO’s director of natural resources and environment provided in written testimony to Congress, forever kills the meme that we have only 2% of the world’s proven oil reserves:
“USGS estimates that the Green River Formation contains about 3 trillion barrels of oil, and about half of this may be recoverable, depending on available technology and economic conditions,” Mittal testified.
“The Rand Corporation, a nonprofit research organization, estimates that 30 to 60 percent of the oil shale in the Green River Formation can be recovered,” Mittal told the subcommittee. “At the midpoint of this estimate, almost half of the 3 trillion barrels of oil would be recoverable. This is an amount about equal to the entire world’s proven oil reserves.”
Of course the 2% myth has been useful to deny the viability of “drill, baby, drill”. President Obama has used it repeatedly (and I have no doubt he will continue to do so because he seems to come from the school that thinks if they repeat something that is untrue enough times, well, it becomes true, or something). The entire argument has centered around the premise, given the 2% figure, that even if we were to drill everything, we’d still be dependent on foreign oil. And so, the logic then goes, since that is “true” then it would seem we should instead concentrate on alternate energies, especially clean and renewable energies, to displace fossil fuel use, decrease our foreign dependence and replace oil with those alternatives (even if they’re more costly).
Naturally, this works perfectly into a further claim that we’ll also save the planet from warming, increase net job growth by creating domestic green jobs and everyone will live happily ever after.
None of it is true. Myth after myth has been shattered. Global warming, despite James Hansen’s insistence, is simply not happening the way he and his alarmists claimed. He continues to beat the same drum he was beating years ago as if nothing has disputed his initial theories. Just last week he doubled down with a NY Times op/ed piece that barely yielded a yawn.
Should we be pursuing alternate and so-called “clean” energy sources? Of course we should. And we will as necessity and markets guide entrepreneurs. But this myth that we must be a net oil importer forever and ever and can’t find ways to fully secure our own supply (i.e. not have to import oil from unfriendly or potentially unfriendly countries or be subject to their whims) is a myth.
That is, unless we don’t exploit this resource. And remember, the estimate Mittal is talking about covers one area in the US. We’re not talking off-shore, where most of the off-shore area also holds vast amounts of oil but remains off-limits. We’re talking right here on dry land.
The Green River formation is near where the state borders of Colorado, Utah and Wyoming come together. The unfortunate aspect of that is most of the land is owned by the Federal government. And, under this administration, anyone who has been following the energy policy of the administration knows that’s bad news for Americans.
“The federal government is in a unique position to influence the development of oil shale because nearly three-quarters of the oil shale within the Green River Formation lies beneath federal lands managed by the Department of the Interior’s (Interior) Bureau of Land Management (BLM),” she testified.
Again, with this administration, most know what that means. If history is a guide, little if anything will be done to take advantage of this petroleum windfall by Mr. “All-Of-The-Above”.
Look at the Bakken oil fields and their impact in this down economy for an example of what Green River could mean in real terms. Here’s blurb published today from a Billings, MT newspaper:
Thousands of workers chasing quick riches by flooding into the Bakken oil field have helped jump-start home sales in Billings.
And the wave is starting to make Billings houses harder to find — and more expensive.
Well-site geologist Joe Hallgren works under contract for SM Energy of Billings. He and his family live in Williston, N.D., the oil boom’s epicenter. But, they’re building a house in Billings and when it’s finished in July they’ll move here and Hallgren will commute to the oil patch.
“I’ve seen a few boom-bust cycles. This one is crazy,” he said. “We got to the point where, for our family, Billings is just going to be better for us.”
Last week, Bozeman resident Doug Pezoldt, who surveys land for local engineering firm Sanderson Stewart, and his wife started moving into their custom-built Billings home.
“Really, in one year’s time, the boom in the Bakken has increased the volume of work and we just need more people in Billings to support that,” Pezoldt said. “My wife and I just feel like Billings is where we want to make our home long term.”
That is the reality of Bakken and the potential of Green River in a very down economy.
Question: Do you think the administration will bother to take advantage of it?
Harold Hamm, CEO of the country’s 14th largest oil company, Continental Resources, is featured in the WSJ today. He talks about oil, gas and his belief, given what he knows about our reserves, that we could be completely energy independent from OPEC if we’d exploit them.
Or, as the title of the piece says, North Dakota could be the Saudi Arabia of the 21st century. He thinks our technology for recovery of oil and gas is at such a state now that we could economically extract gas and oil that was previously unrecoverable and do it at a very nominal price.
So Mr. Hamm goes to Washington and has a chance to meet President Obama. He has a moment alone with him and tries to get the message across.
When it was Mr. Hamm’s turn to talk briefly with President Obama, "I told him of the revolution in the oil and gas industry and how we have the capacity to produce enough oil to enable America to replace OPEC. I wanted to make sure he knew about this."
The president’s reaction? "He turned to me and said, ‘Oil and gas will be important for the next few years. But we need to go on to green and alternative energy. [Energy] Secretary [Steven] Chu has assured me that within five years, we can have a battery developed that will make a car with the equivalent of 130 miles per gallon.’" Mr. Hamm holds his head in his hands and says, "Even if you believed that, why would you want to stop oil and gas development? It was pretty disappointing."
Disappointing? It’s vesting our future in a myth (or at minimum a hope) while ignoring what we have in front of us upon which our economy runs.
With all the excitement over renewable energy, it might be reasonable to assume that fossil fuels such as coal, oil, and natural gas will go the way of the steam engine in the next 20 years.
Not so fast, says Daniel Yergin, author and one of the most influential voices in the world of energy.
"There is always the possibility that something big will happen very quickly, but probably not," Yergin said in an interview this week before delivering a lecture at the Free Library of Philadelphia.
"On a worldwide basis, about 80 percent of energy today is oil, gas, and coal. You say, What’s it going to be in 2030? Most studies say somewhere about 75 percent of the bigger pot."
Said another way, we should be doing everything we can at this moment to do two things – increase our oil and gas supplies and create jobs. The oil and gas industry promise an abundance of both.
As for our alternate or green fuels – yeah, maybe some day as Yergin, who has spent years researching them, admits, but not anytime soon:
"I’m convinced there will be major changes," he said. "But given how massive the energy system is, how complex it is, things just don’t happen overnight."
Existing energy systems contain an enormous amount of embedded capital. New technologies have long lead times. Automobile fleets take a decade to turn over. And world energy demand is expected to grow 35 to 40 percent by 2030.
Wind turbines, after decades of development, are only now cost-competitive, he said. Photovoltaic cells, first used in spacecraft in 1958, still require subsidies.
"It’s not a light switch where you can go from one to another," he said.
Precisely. It’s like trying to turn an aircraft carrier around that is going full speed … it not only requires miles and miles of ocean but a lot of time. We’re not going to transition to any alternate or green energy source in the foreseeable future – gas and oil will continue to play a dominant role in our economy. And it is high time we began to earnestly exploit our reserves.
Anyway, back to Harold Hamm. Why is Mr. Hamm so excited about North Dakota? Bakken shale:
How much oil does Bakken have? The official estimate of the U.S. Geological Survey a few years ago was between four and five billion barrels. Mr. Hamm disagrees: "No way. We estimate that the entire field, fully developed, in Bakken is 24 billion barrels."
If he’s right, that’ll double America’s proven oil reserves. "Bakken is almost twice as big as the oil reserve in Prudhoe Bay, Alaska," he continues. According to Department of Energy data, North Dakota is on pace to surpass California in oil production in the next few years. Mr. Hamm explains over lunch in Washington, D.C., that the more his company drills, the more oil it finds. Continental Resources has seen its "proved reserves" of oil and natural gas (mostly in North Dakota) skyrocket to 421 million barrels this summer from 118 million barrels in 2006.
"We expect our reserves and production to triple over the next five years." And for those who think this oil find is only making Mr. Hamm rich, he notes that today in America "there are 10 million royalty owners across the country" who receive payments for the oil drilled on their land. "The wealth is being widely shared."
The fact is that over the next few years, Bakken is going to provide huge employment opportunities, taxes, you name it – all of the positives that get an economy going again.
How much? Well that’s still to be determined, but if our experience with the Barnett shale formation down Texas way is any example, lots. Here are the results of a recent study of the impact of the exploitation of Barnett shale by the Perryman Group [pdf]:
More than 9 trillion cubic feet of natural gas have been produced from the Barnett Shale. Currently, 24 counties have producing wells, with permits issued for a 25th county.
Although exploration activity slowed during the economic downturn, production from the Barnett Shale continued to rise, topping 1.8 trillion cubic feet in 2010.
More than 70 rigs are currently drilling in the Barnett Shale.
The Perryman Group estimated the positive effect of Barnett Shale related activity on the regional and state economies. This economic stimulus stems from (1) exploration, drilling, and related activity; (2) pipeline investments and related operations; and (3) royalties and lease bonuses. In addition, the oil and gas companies involved donate millions to area charities and pay substantial ad valorem taxes.
The Perryman Group estimated the 2011 total effect of Barnett Shale activity to include $11.1 billion in annual output and 100,268 jobs in the region. While the majority of the stimulus comes from exploration and drilling, pipeline development and royalty and lease payments also contribute to the overall impact.
For the state as a whole, Barnett Shale-related activity leads to estimated 2011 gains in output (gross product) of almost $13.7 billion as well as 119,216 jobs.
The Perryman Group estimates that the cumulative economic benefits during the 2001-2011 period include $65.4 billion in output (gross product) and 596,648 person-years of employment in the region. For the state as a whole (including the Barnett Shale region), the total benefits over the 2001-2011 period were found to include $80.7 billion in output (gross product) and 710,319 person years of employment.
Approximately 38.5% of the incremental growth in the economy of the region over the past decade has been the result of Barnett Shale activity. Moreover, the overall economic contribution of this phenomenon now constitutes about 8.5% of the local business complex.
Activity in the Barnett Shale is also an important source of tax revenues to local entities as well as the State. The Perryman Group estimates that in 2011, counties, cities, and school districts in the region will receive some $730.6 million in additional fiscal revenues due to the Barnett Shale and related activity.
The State will likely receive another $911.8 million, for a total gain in local and State taxes of an estimated $1.6 billion.
Over the entire 2001-2011 period, The Perryman Group estimates that local taxing entities received an additional $5.3 billion in tax receipts, with another $5.8 billion to the State.
It would seem to most reasonable and rational people that encouraging this would be the smartest and one of the most effective ways to help the economy recover.
But apparently that’s just not the priority – at least when it comes up against the political agenda pushing the myth of instant green energy if we’ll just pour more money into it.
So, instead we get this:
Washington keeps "sticking a regulatory boot at our necks and then turns around and asks: ‘Why aren’t you creating more jobs,’" he says. He roils at the Interior Department delays of months and sometimes years to get permits for drilling. "These delays kill projects," he says. Even the Securities and Exchange Commission is now tightening the screws on the oil industry, requiring companies like Continental to report their production and federal royalties on thousands of individual leases under the Sarbanes-Oxley accounting rules. "I could go to jail because a local operator misreported the production in the field," he says.
The White House proposal to raise $40 billion of taxes on oil and gas—by excluding those industries from credits that go to all domestic manufacturers—is also a major hindrance to exploration and drilling. "That just stops the drilling," Mr. Hamm believes. "I’ve seen these things come about before, like [Jimmy] Carter’s windfall profits tax." He says America’s rig count on active wells went from 4,500 to less than 55 in a matter of months. "That was a dumb idea. Thank God, Reagan got rid of that."
A few months ago the Obama Justice Department brought charges against Continental and six other oil companies in North Dakota for causing the death of 28 migratory birds, in violation of the Migratory Bird Act. Continental’s crime was killing one bird "the size of a sparrow" in its oil pits. The charges carry criminal penalties of up to six months in jail. "It’s not even a rare bird. There’re jillions of them," he explains. He says that "people in North Dakota are really outraged by these legal actions," which he views as "completely discriminatory" because the feds have rarely if ever prosecuted the Obama administration’s beloved wind industry, which kills hundreds of thousands of birds each year.
Continental pleaded not guilty to the charges last week in federal court. For Mr. Hamm the whole incident is tantamount to harassment. "This shouldn’t happen in America," he says. To him the case is further proof that Washington "is out to get us."
And everything we’ve seen seems to agree with Hamm’s assessment. He’s completely right about the wind power point. In fact, the California condor, which was finally removed from the endangered species list, is probably going to end up going back on because so many have been killed by wind mills. Not a peep from the Feds.
The government floods green energy—a niche market that supplies 2.5% of our energy needs—with billions of dollars of subsidies a year. "Wind isn’t commercially feasible with natural gas prices below $6" per thousand cubic feet, notes Mr. Hamm. Right now its price is below $4. This may explain the administration’s hostility to the fossil-fuel renaissance.
This administration’s policies are simply absurd to say the least.
We have the means, the technology and the will to exploit these natural resources. They will provide millions of jobs (both direct and indirect) – good, high paying jobs. That also means increased revenue at all levels of government, not to mention more and more energy security.
Mr. Hamm calculates that if Washington would allow more drilling permits for oil and natural gas on federal lands and federal waters, "I truly believe the federal government could over time raise $18 trillion in royalties." That’s more than the U.S. national debt, I say. He smiles.
Even if that’s only half true, what’s not to like or want, especially now in our current economic situation?
I have no idea …. ask President Obama.