Free Markets, Free People

oil leases

Obama’s so-called “energy policy” speech

I hesitated putting "policy” in the title because it really isn’t a policy.  It’s is a series of tired claims, mostly incorrect, unsubstantiated or flat out untrue.  There’s also a good bit of dissembling in the speech.  Examples:

Now, here’s the thing -– we have been down this road before. Remember, it was just three years ago that gas prices topped $4 a gallon.  I remember because I was in the middle of a presidential campaign.  Working folks certainly remember because it hit a lot of people pretty hard.  And because we were at the height of political season, you had all kinds of slogans and gimmicks and outraged politicians — they were waving their three-point plans for $2 a gallon gas.  You remember that — “drill, baby, drill” — and we were going through all that.  (Laughter.)  And none of it was really going to do anything to solve the problem.  There was a lot of hue and cry, a lot of fulminating and hand-wringing, but nothing actually happened.  Imagine that in Washington.  (Laughter.)

The truth is, none of these gimmicks, none of these slogans made a bit of difference.  When gas prices finally did fall, it was mostly because the global recession had led to less demand for oil.  Companies were producing less; the demand for petroleum went down; prices went down.  Now that the economy is recovering, demand is back up.  Add the turmoil in the Middle East, and it’s not surprising that oil prices are higher.  And every time the price of a barrel of oil on the world market rises by $10, a gallon of gas goes up by about 25 cents.

Consider this bit of nonsense.  The man who said it has been in charge of all of this for two years now.  And he’s absolutely right – nothing has happened.  And while he’s right about the result he’s attempting to wave away, as is his habit. It is a serious problem that we have the ability to affect.  But it can only be affected if we do something that will positively change the balance.  Like increase drilling.

So while he has a little fun calling “drill, baby, drill” a “gimmick” it is a much more coherent energy policy than he puts forward.  It, at least points to something which will result in more oil and more independence from foreign producers.  And, as I understand it, that’s supposedly a goal of his.

Anyway, his posturing then produced this derisive laugh-out-loud moment for me with his next remarks:

The point is the ups and downs in gas prices historically have tended to be temporary.  But when you look at the long-term trends, there are going to be more ups in gas prices than downs in gas prices.  And that’s because you’ve got countries like India and China that are growing at a rapid clip, and as 2 billion more people start consuming more goods — they want cars just like we’ve got cars; they want to use energy to make their lives a little easier just like we’ve got — it is absolutely certain that demand will go up a lot faster than supply.  It’s just a fact.

So here’s the bottom line:  There are no quick fixes.  Anybody who tells you otherwise isn’t telling you the truth.  And we will keep on being a victim to shifts in the oil market until we finally get serious about a long-term policy for a secure, affordable energy future.

Of course it’s a fact if you limit what is supplied to the market.  However, given the recoverable resources we have in this country, that fact can be considerably ameliorated by, gee I hate to have to repeat it, but “drill, baby, drill”.  Of course if you energy policy is to make war on the American energy sector and clamp down moratoriums on drilling while letting loose the EPA to make everything more expensive through it’s attempted regulation of GreenHouse Gasses (GHG), then not only are there no “quick fixes”, but the bill that will come due the American citizenry is guaranteed to cripple the economy in a lasting way.

We have domestic coal, natural gas and oil resources – recoverable resources – out the wazoo.  Enough coal for 400 years at present level.  And not just any coal, but high quality coal.  In fact we have 28% of the world’s coal.  We have natural gas for over a 100 years at present levels and oil for 60 years at present levels.  Given that, “drill, baby, drill” sound like more than just a gimmick, doesn’t it?

Then we go on to a blatant untruth:

I talked about reducing America’s dependence on oil when I was running for President, and I’m proud of the historic progress that we’ve made over the last two years towards that goal, and we’ll talk about that a little bit.  But I’ve got to be honest.  We’ve run into the same political gridlock, the same inertia that has held us back for decades.

We are now importing more foreign oil than we were when Barack Obama took office, primarily because of the moratorium.  There has been no – let me say that again, no – “historic” or other “progress” toward that goal. We are, in fact, in worse shape than ever.  With the rising demand that Obama notes, keeping domestic oil companies from expanding their operations is simply the worst thing we could do.  Yet we see exactly that happening to this day.

So, given that, this isn’t going to happen:

And today, I want to announce a new goal, one that is reasonable, one that is achievable, and one that is necessary.

When I was elected to this office, America imported 11 million barrels of oil a day.  By a little more than a decade from now, we will have cut that by one-third.  That is something that we can achieve.  (Applause.)  We can cut our oil dependence — we can cut our oil dependence by a third.

Sorry, under the current regime, that doesn’t have a snowball’s chance of happening.

And that brings us to our second derisive laugh-out-loud moment:

Now, today, we’re working to expedite new drilling permits for companies that meet these higher standards.  Since they were put in, we’ve approved 39 new shallow-water permits; we’ve approved seven deepwater permits in recent weeks.  When it comes to drilling offshore, my administration approved more than two permits last year for every new well that the industry started to drill.  So any claim that my administration is responsible for gas prices because we’ve “shut down” oil production, any claim like that is simply untrue.  It might make for a useful sound bite, but it doesn’t track with reality.

Or it could be true, huh Mr. President:

The Energy Department’s Energy Information Administration reports that production in the Gulf of Mexico is in decline, forecasting a decline of 250,000 barrels a day from Gulf production, due partly to the moratorium and restricted permitting.  While the annual production figure for 2010 was greater than 2009, EIA’s month-by-month production figures show a peak in May of 2010, and a relatively steady decline since.

So as usual, our transparent President is playing word games with you. As for the 7 deepwater permits issued in recent weeks (funny how those happen to pop out of the pipeline whenever Salazar or Obama is going to make a statement about energy), most of the permits have gone to drilling sites in which the drilling had already been underway and was stopped by the moratorium.  New drilling?  Not so much.

And how poorly does this President and his administration understand the industry they’re constantly attacking?  Not very well at all:

Moreover, we’re actually pushing the oil industry to take advantage of the opportunities that they’ve already got.  Right now the industry holds tens of millions of acres of leases where they’re not producing a single drop.  They’re just sitting on supplies of American energy that are ready to be tapped.  That’s why part of our plan is to provide new and better incentives that promote rapid, responsible development of these resources.

Apparently there is oil under every lease and it is of equal value and all you have to do is stick a drill in the ground and boom, gusher!  In fact, here’s the reality:

Companies pay millions of dollars to acquire these leases (each lease costs at least $250,000 and some have gone for more than $100,000,000), further fees for renting the leases and the leases have a finite term.   If a company does not produce oil or gas from a lease then they are required to return it to the government.  In other words "use it or lose it" is already the law.

These are very successful and sophisticated companies that are engaged in this business and it makes no logical sense for companies to pay millions of dollars to purchase leases, sit on them for 10 years, and then give them back to the government. They make money by supplying the American economy with the energy it needs to grow, not from sitting on assets. The level of capital expenditures by the industry to develop these leases demonstrates their commitment to find oil and gas. For example, the industry spent more than $37 billion (with a B) in capital expenditures to develop deep water Gulf leases issued between 1996 and 2000. In addition they paid more than $4 billion (with a B) in bonus bids to obtain those leases in the first place. With that level of investment, it is hard to argue that the industry is not working hard to develop the leases it owns.

Finally, these arguments simply ignore the basics of the oil and natural gas industry. Companies purchase leases for the right to explore for the resources. You don’t know if a lease actually contains oil or natural gas until you move forward and drill an exploratory well. Companies purchase a large portfolio of leases to give them the greatest opportunity to find oil and natural gas. They work hard to survey and study all of their leases with the hope that they can narrow the list down to a subset that have the best likelihood of actually containing oil or natural gas. However, it is not uncommon for a company to spend $100 million to drill a well and find no oil or natural gas. In fact, companies drill more wells that have no oil or natural gas than wells that actually do.

So again, you see the President of the United States spinning something that just isn’t true to try and cover his administration’s war on the oil and natural gas industry.  This is all political grandstanding.  It is the use of the bully pulpit to play CYA. 

Well, it’s not working.

Finally:

Now, in terms of new sources of energy, we have a few different options.  The first is natural gas.  Recent innovations have given us the opportunity to tap large reserves –- perhaps a century’s worth of reserves, a hundred years worth of reserves -– in the shale under our feet.  But just as is true in terms of us extracting oil from the ground, we’ve got to make sure that we’re extracting natural gas safely, without polluting our water supply.

That’s why I’ve asked Secretary Chu, my Energy Secretary, to work with other agencies, the natural gas industry, states, and environmental experts to improve the safety of this process.

Obama is suddenly a natural gas supporter.  Well sorta.  He says he is, but if you read carefully what he says above, you can seen the combinati9n of interests he cites – other than the natural gas industry- are a recipe for slow, slow movement.  The more current example is what is going on with the oil industry.  That is precisely the process he’s outlining for the NG industry and the exploitation of those resources.

Believe it or not, Senate Minority leader Mitch McConnell (R-KY) may have summed up the current administration’s real energy policy best:

Over the past two years, the administration has undertaken what can only be described as a war on American energy. It’s cancelled dozens of drilling leases. It’s declared a moratorium on drilling off the Gulf Coast. It’s increased permit fees. It has prolonged public comment periods. In short, it’s done just about everything it can to keep our own energy sector from growing. As a result, thousands of U.S. workers have lost their jobs, as companies have been forced to look elsewhere for a better business climate.

Consider this: just three of the areas we could tap in Alaska are thought to hold enough oil to replace our crude imports from the Persian Gulf for nearly 65 years. So the problem isn’t that we need to look elsewhere for our energy. The problem is that Democrats don’t want us to use the energy we have. It’s enough to make you wonder whether anybody in the White House has driven by a gas station lately.

Indeed.

And unfortunately, that’s not a laugh-out-loud moment.

~McQ

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