Free Markets, Free People


The government’s war against cheap fuel

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.

Daniel Yergin hits the point:

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.


Twitter: @McQandO

Anyone–who is the number 3 oil producer in the world?

This may surprise you, but it is the US.  In fact, it probably does surprise you,  given all the whining about our dependence on foreign oil.  You’d think that we were a poor nation when it comes to petroleum resources and the amount we import.

Quite the contrary.  And you’d think that it would be in the best interests of the US to exploit its resources to a) give us a larger percentage of secure oil and b) employ oodles and bunches of Americans in an industry that has some pretty good and high paying jobs.

You’d think.

First the news:

The study released Thursday by the National Petroleum Council, a collection of industry, academic, government and other officials convened by the secretary of energy, touted how advanced technology has unlocked vast formations of natural gas previously deemed uneconomic to tap.

But the report also said the same drilling and production techniques that opened up shale gas – combined with success in the deep-water Gulf of Mexico, the Canadian oil sands and even surges in conventional oil onshore – are improving the nation’s potential to be more self-reliant for oil, according to the report.

"Contrary to conventional wisdom the North American oil resource base also could provide substantial supply for decades ahead," the report said.

FYI, this isn’t just some industry group turning out reports that favor drilling. 

The National Petroleum Council, a collection of industry, academic, government and other officials, convenes several times a year to gather information, give advice and issue reports on topics for the secretary of energy. The most recent report was a 2007 study on global energy supply and demand.

In 2009 Energy Secretary Steven Chu asked the group to look at U.S. natural gas and oil resources based on four concepts: economic prosperity, environmental sustainability, energy security and prudent development.

Optimistically, the Council believes that the US and Canada combined could produce 22.5 million barrels a day when the new resources are added in.  Secure oil.

And, if we’d just get to work and try to tap these assets, Goldman Sachs believes we’ll surpass Russia and Saudi Arabia as the largest oil producer in the world by 2017:

And earlier this month, Goldman Sachs said in a note to investors it expects the U.S. – now the No. 3 oil producer behind Saudi Arabia and Russia – to take the top spot by 2017.

This, given the current economic (and political) conditions, should be a no-brainer, shouldn’t it?

Well shouldn’t it?


Twitter: @McQandO

Employment: Why “government spending” should be shelved in favor of encouraging private investment

In macro terms its really fairly simple.  We have always come out of busts with booms.  Wondering what the next boom is going to be and how to help it launch itself is where government should be looking and trying to act  – not at deficit funding government make work projects and future energy schemes still some decades from reality.

For instance – a little look into the not to distant future and a scenario that would help us in both the balance of trade and employment, arenas (the latter almost immediately).

But also, we will help to satisfy burgeoning demand for petroleum in Asia, South America and Africa. Yes, the US is an oil importer. But if we import less, that will help to satisfy world demand just as much as if a new exporter appeared on the market. If we import a billion barrels a year (2.74 million barrels a day) less, at current prices that works out to $100 billion off of our huge trade deficit. This could also be a huge engine of job growth. We now have about 2,000 rigs drilling, and more are being added all the time. For each rig there are the roughnecks, the service companies, the drilling pipe and casing producers, the local service providers, etc. It is big business, and growing fast.

Fortunately, we have lots of places to drill, in various shale formations around the country. (It’s not “shale oil” in the classic sense, better to call it, “shale associated oil”). For those who think that Yankee ingenuity is a thing of the past, just look at our oil and gas industry. It serves as a powerful testament to the power of the free enterprise system that a great many people chipping away at the same problem can come up with creative new ways of extracting oil from the earth that a centralized government program of oil production would never (and has never) originated. You don’t see these new drilling techniques coming from Russia, which is still sadly statist in its efforts to exploit natural resources.

We have the resources, we could be exploiting them now (relatively speaking) and have them benefit our economy while we do the pie-in-the-sky energy research the Democrats think is the panacea to all our problems.  I’ve never understood their insistence on ‘either/or’ in that regard.  Why can’t we do both simultaneously – which seems both logical and would help do exactly what they claim they want – employ Americans. 

Timothy Siegel’s point about innovation is well taken as well.  One of the reasons we’re moving past the peak oil predictions of the past is because of innovation from private oil companies that is allowing them to extract harder to reach and exploit oil and gas at a reasonable price.   We, as a nation, should be encouraging that instead of doing everything in our power to cripple such innovation.

Instead we get solutions like those below from the left.  Government should spend money when one of the greatest engines for economic revival is left sitting at idle while the administration figures out how to get more sugar in its gas tank.

It’s freakin’ nuts.


Twitter: @McQandO

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The US: Massive energy resources and an incoherent energy policy

As Peter Glover says, writing in the Energy Tribune, this ought to be the lead story in every American paper and on every American news show.  But it’s overshadowed by Japan, Libya and other developments in the world.

America’s combined energy resources are, according to a new report from the Congressional Research Service (CSR), the largest on earth. They eclipse Saudi Arabia (3rd), China (4th) and Canada (6th) combined – and that’s without including America’s shale oil deposits and, in the future, the potentially astronomic impact of methane hydrates.

The US and Russia are the two most resource rich countries in the world.  Here’s the chart that shows how huge our advantage is:




Note it says “Oil Equivalent” on the left side.  That’s because it includes coal.  Yeah, that icky, nasty stuff that we’re trying to ban or make it supremely expensive to use.

The CRS estimates US recoverable coal reserves at around 262 billion tons (not including further massive, difficult to access, Alaskan reserves). Given the US consumes around 1.2 billion tons a year, that’s a couple of centuries of coal use, at least.

In fact, the US has 28% of the world’s coal.

Natural gas?

In 2009 the CRS upped its 2006 estimate of America’s enormous natural gas deposits by 25 percent to around 2,047 trillion cubic feet, a conservative figure given the expanding shale gas revolution. At current rates of use that’s enough for around 100 years. Then there is still the, as yet largely publicly untold, story of methane hydrates to consider, a resource which the CRS reports alludes to as “immense…possibly exceeding the combined energy content of all other known fossil fuels.” According to the Inhofe’s EPW, “For perspective, if just 3 percent of this resource can be commercialized … at current rates of consumption, that level of supply would be enough to provide America’s natural gas for more than 400 years.”

So, the possibility of 400 years worth of NG, a couple hundred years worth of coal – but what about oil?




Well shucks, seems we have the potential to be quite free of foreign oil, doesn’t it?

While the US is often depicted as having only a tiny minority of the world’s oil reserves at around 28 billion barrels (based on the somewhat misleading figure of ‘proven reserves’) according to the CRS in reality it has around 163 billion barrels. As Inhofe’s EPW press release comments, “That’s enough oil to maintain America’s current rates of production and replace imports from the Persian Gulf for more than 50 years”

Of course that all assumes we do something about taking advantage of the resources we have and actually putting ourselves in a position where we’re not at the mercy of foreign sources of the same sorts of product.

Obviously and hopefully, we’ll come up with affordable and available renewable energy products while we’re doing that. 

However, we have no coherent energy plan from this administration.  Instead it seems to have gone to war with the oil industry and is doing everything it can to slow its ability to find and exploit these resources.  19,000 jobs and 1.1 billion in earnings have been lost since the imposition of the administration’s moratorium.  Both former Presidents Bush and Clinton have spoken out against the delays.   And the administration remains in contempt of a court order which ordered them to speed up the permitting process.  As a result the EIA has estimated a loss of 74,000 barrels a day of production due to the moratorium this year.

Meanwhile our President touts foreign oil, our investment in it and claims we’ll be its “best customer”.

As Glover says:

Meanwhile US energy policy persists in pursuing the myth that renewables are the economically viable future, with fossil fuels already, as the president said in January, “yesterday’s energy”. With 85 percent of global energy set to come from fossil fuels till at least 2035 no matter what wishful thinkers may prefer, current US energy policy – much like European – is pure political pantomime.

Couldn’t agree more.  We sit on a veritable treasure trove of natural resources which could actually make us energy independent and we have an administration which is doing everything in its power to not just keep us dependent on foreign oil, but to increase our dependence.


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Is the economy set on "rebound"?

That’s kind of what some pundits are hinting with the latest "official" unemployment numbers.

But as the three of us noted on yesterday’s podcast, that number is only a slight glimmer in an otherwise dark picture. And the underlying unemployment numbers (and trends) don’t really support the reduction of last week (the number of new private sector jobs was not enough to maintain the unemployment number). Or said another way, it is most likely a temporary blip. Another ominous development that doesn’t bode well economically is the precipitous rise in oil prices and the impact that will have on any recovery. In a word, the impact it will have is "bad".

Oil is one of those commodities that has a very broad impact on economic activity. It is, until an alternative or substitute is found, the literal life-blood of our economy.

How does oil staying in the $104 to $107 a barrel range sound? Not very good, obviously. As one refiner told me, his only control over how much the fuel he refines costs when it leaves his refinery is the economies he can wring out of his equipment, but the cost of the goods coming in are beyond his control. So that cost per barrel is what he’s paying as the crude shows up at his refinery for processing.

How long will it stay over $100 a barrel? Well, many are saying quite some time:

Oil prices climbed to near $106 a barrel Monday as intense fighting between Libyan government forces and rebels appeared to be turning into a civil war and raised the prospect of a prolonged cut in crude exports from the OPEC nation.

By early afternoon in Europe, benchmark crude for April delivery was up $2.25 to $106.67 a barrel, the highest since September 2008, in electronic trading on the New York Mercantile Exchange. The contract had gained $2.51 to settle at $104.42 a barrel on Friday.


Citigroup said it raised its 2011 average forecast for Brent crude to $105 from $90, but doesn’t expect the violent protests in North Africa and the Middle East to spread to Saudi Arabia, the world’s largest oil exporter.

"We assume that output disruption is maintained through the second quarter," Citigroup said in a report. "Output disruption, or at least the threat of, will support a fear premium for the rest of 2011."

As mentioned in the article, most now view the war in Libya to be a civil war. And, reports today say that Gadhafi’s forces have had some successes against rebel forces (apparently neither side is particularly swift in the combat portion of battle). Reports also point to other countries possibly helping the rebels. And we know there are "friends" of Gadhafi, mostly found in the socialist South and Central American countries, who will try to help the dictator maintain power.

The initial shock of the turmoil in Libya has worn off the markets and they are now looking at a prolonged reduction of capacity with Libya off line.  And, we’re seeing unrest in other Arab oil producing states as well.  Unrest, or instability, drives the price of oil up.

So it isn’t surprising that in the last two weeks, the price of gasoline rose at its second fastest pace ever:

Gasoline prices in the United States posted their second-biggest increase ever in a two-week period, due to the rise in crude oil prices stemming from the turmoil in Libya, an industry analyst said Sunday.

The national average for a gallon of self-serve, regular gas was $3.50 on March 4, according to the Lundberg Survey of about 2,500 gas stations, up 32.7 cents from the previous survey on Feb. 18.

The most it ever jumped was in 2005 when hurricane Katrina hit.  But that was soon solved because the event itself wasn’t prolonged as is a civil war.  So chances are, this isn’t the end of the rising price of gasoline.

As you might expect our national leaders have managed to put us in a position where we essentially have nothing to answer with domestically.  In fact, as I recall, we’ve been told repeatedly for the last 20 or so years that bringing significant new assets on line would take at least 10 years or so and thus, I guess, shouldn’t be done.  Er, yeah, ok and where would we be now if we had committed to that 10 years of bringing them on line 20 years ago?  At least better off than we are now.

And most likely not talking about using the strategic reserve I’d bet.  FYI, the strategic reserve is not supposed to be a tool for the use of politicians to drive down the price of gasoline when their failed energy policies show up at the pump.  It is a reserve for use by our military in case we’re cut off from the foreign oil we’ve become even  more dependent upon.

But back to the economy.

Does anyone really need an explanation of the impact higher fuel prices will have on a barely recovering economy (not to mention unemployment)?  And, with the specter of inflation rising – not to mention food prices – how likely is the impact to be “minimal”?

Yeah, it’s not.

And, as usual, we’re in a basically no-win situation thanks to the foresight of our elected leaders and their wonderful job of putting a practical energy policy in motion.  A 10 month drilling moratorium (and the jobs that go with it) with no real end in sight.


So to the original question – is the economy set to rebound?

Unfortunately if it was, it most likely will be one of the shortest rebounds in history.


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Gas prices, economics and politics

Gallup tells us that economic confidence has slumped sharply in the past two week due mainly to the spike in gas prices driven by the unrest in the Middle East and North Africa.


Funny how that works, no?  Gas prices go up, economic confidence goes down.  And the rest of that goes “economic confidence goes down, incumbents suffer”.

So you’d think smart politicians would want to ensure that they’ve done everything they could to ensure gasoline prices remain as low as possible.

You’d think.   But that’s not exactly what has happened here, is it?  We’re now in the 10th month of a drilling moratorium imposed by this administration, so there’s really no immediate or impending increases in production domestically that could help ease this, is there?

Says Gallup:

The slump in confidence is likely tied to gas prices, which have risen sharply amid growing political instability in the Middle East, most notably in Libya. The U.S. Department of Energy reported an increase in gas prices from an average $3.14 per gallon nationwide during the week ending Feb. 14 to $3.38 this past week. In addition, news media focus on the challenges governments are having in passing budgets may also affect Americans’ perceptions of the economy.

Gallup’s Economic Confidence Index comprises two measures — one assessing consumers’ views of current economic conditions and another measuring their perceptions of whether the economy is getting better or worse. Both components are more negative than they were two weeks ago, but most of the change has come from increasingly pessimistic expectations about the economy’s direction.

The pessimism is being driven by the understanding that we haven’t the means to effect the problem nor have we done anything in the interim to improve our ability to effect the problem.  In other words, we’re more at the mercy of foreign oil now than we were when this administration took office.

Secretary Salazar has been on a vendetta against oil, using the unusual but certainly horrific accident on the Deep Horizon platform, to effectively shut down a critical portion of the domestic oil industry.  It has cost thousands of jobs and billions of dollars (not only to the industry but to the government in the form of royalties and taxes).   Rigs which were scheduled to be deployed in the Gulf before the moratorium are now deploying elsewhere.  It costs millions for companies when oil drilling rigs sit idle.  So they’re off to do what – exploit foreign oil fields.  And they most likely won’t be back in Gulf waters anytime soon.

The point, of course, is the entire energy situation in the US is being badly mishandled by the incumbent administration.  And while they sit and fiddle, we become less and less able to effect world pricing for oil because our capability has been hamstrung by a government and bureaucracy that is basically antagonistic to fossil fuels.

That’s a risk, especially in these economic times.  If the economy is still in this sort of shape, pessimism still holds the majority in consumer confidence and gas prices hang around the $3.50 range, even some of the so-called front runners in the GOP at this point might be able to squeak out a win.  And it would most likely, as Charlie Cook predicts anyway, mean a tough election for Congressional Democrats in both houses.

Gasoline isn’t going to go down anytime soon as the unrest continues to roil the ME and N Africa.  And if something happens in Saudi Arabia, all bets are off.  But it is interesting to see how quickly the price of one commodity – albeit a critical commodity – can turn sunshine to gloom with the public.  It is something to watch going forward.


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The energy policy choices

Yesterday was a rather interesting day for me.  Besides being a mild and pleasant day in Washington DC, a new Congress was being sworn in and an vital industry group was making the “state of American energy” known via a presentation and news conference at the Newseum – a museum about the history of gathering of news (and a place you should definitely put on your “must visit” list the next time you’re there).

The American Petroleum Institute’s Jack Gerard made a very sound and clear argument for the development of an energy policy which will best benefit this country and economy.  Backed by a Wood Mackenzie study, the choices seem stark and the best one seems obvious.  As he laid them out, choice one is to continue the policy of limited or no access to domestic drilling areas both on and off-shore and taxation of the industry at an increased percentage in order to generate revenue for government use.   That will certainly generate revenue – no doubt.  But at what real cost to the economy?  That is the question.

Choice two is to open up access and focus on safe and environmentally sound drilling to boost production here in the US.  That, of course, would have the critical side benefit of creating hundreds of thousands of jobs and, by the way, producing more revenue for government than choice one.

The numbers for the two options come from the Wood Mackenzie study as cited in an API press release.

The study calculates that increased access to America’s oil and natural gas reserves could, by 2025, create 530,000 jobs, generate $150 billion in taxes, royalties, and other revenue for the government, and “boost domestic production by four million barrels of oil a day.

The other choice?   Not so good: “Raising taxes on the industry with no increase in access could reduce domestic production by 700,000 barrels of oil equivalent a day (in 2020), sacrifice as many as 170,000 jobs (in 2014), and reduce revenue to the government by billions of dollars annually”

That latter policy choice would reduce our domestic oil production, cost jobs, raise the cost of doing business for the oil and gas industry of which most will be passed along to those who can least afford it.  Plus:

An additional 1.7 million barrels of oil equivalent a day in potential production that is currently of marginal economic feasibility would be at greater risk of not being developed under the modeled tax increase.

So again we see some pretty stark examples of how government enabling an industry would be vastly more beneficial to the economy and its own revenue coffers than would government using regulatory restrictions, denial of access and a straight up scheme of taxation. 

Yet right now we have an administration which is choosing the latter course and is seemingly at war with that industry– an industry that “supports more 9.2 million U.S. jobs and 7.5 percent of the U.S. economy, and, since 2000, has invested nearly $2 trillion in U.S. capital projects to advance all forms of energy, including alternatives.”

Does that make sense to you? 

The energy policy choice that enables Americans to increasingly address their own domestic energy needs with good paying jobs and will actually provide more in revenue for the government than taxation alone seems the obvious choice.

So why aren’t we seeing it being made?


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The Obama Administration’s war on American petroleum

I’m in DC for a energy speech by American Petroleum Institute President Jack Gerard.  Disclaimer – API provided for my transportation, hotel, etc.  That, of course, will not change or even influence the fact that I am a strong proponent of the America petroleum industry and feel we should be exploiting our own native petroleum resources to the maximum.  Instead we seem to be on a reverse course.  Our government seems to be at war with the industry.  And, of course, those who’ll pay the price are you and me at the gas pump. 

If you noticed lately gas prices are going up.  Steve Everley of American Solutions gives you the top 5 reasons why that’s the product of the Obama administrations actions and policies.

It began right after President Obama took office in 2009 – Ken Salazar, the Secretary of the Interior, cancelled 77 oil and gas leases in Utah.  A year later 61 were cancelled.  Salazar also unilaterally extended the “public comment” period for new offshore drilling by another 6 months, thereby again delaying the process.

Meanwhile in Congress, the Democratic House passed a very harsh cap-and-trade bill.  It imposed taxes on CO2 which would have significantly raised the price of gasoline had it passed the Senate.  In fact, as Everley mentions, a less stringent cap-and-trade scheme studied by Harvard University would have raised gas to $7 a gallon.  Thankfully, the House bill died with the 111th Congress.  However, it now appears the EPA is prepared to do what Congress couldn’t and via regulation, impose a carbon cap.

Then came Deepwater Horizon and the excuse to shut down offshore drilling for a 6 month period.   That was quickly done by Salazar and we began to suffer the results in lost jobs and product.  Since the first moratorium has expired, the administration has unilaterally imposed a second one of 6 months.

The effect has been devastating to the industry (especially in the Gulf states) and it has put the US in an energy hole.l   The Energy Information Administration projects that we’ll see a decline of 220,000 barrels per day from offshore sources in 2011.  Prior to the Obama administration’s shut down of that source, EIA had projected increases in production for 2011.

Why this is happening should come as no surprise to anyone who has acquainted themselves with candidate and now President Obama’s energy policies.  They simply don’t include gas and oil.  In fact, as most should remember, when a candidate for the presidency Obama said he knew what he wanted to do in the energy arena would drive up the cost of gas, but he thought that was necessary for environmental reasons and because he thought it would help incentivize the green energy industry.

If I’ve said it once, I’ve said it a thousand times – any comprehensive energy policy must include the exploitation of all traditional energy sources to include oil and gas.  They are key and critical to our economy and way of life, and cheap energy is what helps fuel the economy.  Any energy plan must be reality based and recognize that you can’t abruptly cut off oil, gas and coal without wreaking havoc on that economy.   And you have to have a plan to transition the economy from the traditional fuels to the greener and more renewable fuels as they become viable and affordable.

None of the alternate fuels that the environmental crowd wants to replace traditional fuels fits either of those two criteria yet.  Until they do we must maintain and expand our traditional fuel exploitation.  To not do that, especially in a time of recession, is absurd.

Lift the ban on offshore drilling, support the oil, gas and coal industries and integrate them into any energy plan produced.  Do that now.  And then take a look at the state of alternate energy sources and make an honest, not political, assessment of where we are today, when those technologies and fuels will be viable and affordable, and plan accordingly.

That’s how it should be done.  That is not, however, how it has been done.


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About that oil spill (update)

If you’ve tried to imagine its size, there’s a site out there that will help you. And if that doesn’t put it in context enough for you, you can drop it on a map anywhere you’d like.

I dropped it on Washington DC.

Imagine something of that size in that area. Why there’d be a mobilizing of everything that could be mobilized trying to fight this thing and control it.

And of course there’s the “what will it do” question as in, once it gets into those loop currents around the keys, then what?

That particular test was run with dye within 20m of the surface. Don’t forget there’s a huge plume of oil well below the surface that is going to move as well.

Yes, some will disperse with time. Some will evaporate. But there’s still questions about that which is moving below the surface and how much of that will remain concentrated enough to have an effect. After all, the dye made it.

UPDATE: OK, my bad – the YouTube vid above is that of a model showing how the current flows and approximate time in days, for it to disperse. ScottH in comments brought it up and asked me to make it clear. Not sure how I ended up thinking it was real (oh, yeah, the dye reference). I sound like a global warmist. Anyway, this at least has some real data and some science behind it, however it is a model.


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Dumping The Dollar

While the Fed tries to assure us that when the time comes it can wring the excess money it has pumped into the economy without driving it into the ditch, Paul Krugman and others want more spending, and we’re staring at 9 trillion in additional debt, the rest of the worldhas seems to be quietly deciding that the dollar has become an unstable currency in which they’d rather not trade:

Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.

The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong, may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years.

They’re talking about a whole range of different currencies to replace the dollar but the fact remains that the old buck ain’t what it used to be and those trading in oil are looking for a more stable means of trade.

The transitional currency in the move away from dollars, according to Chinese banking sources, may well be gold. An indication of the huge amounts involved can be gained from the wealth of Abu Dhabi, Saudi Arabia, Kuwait and Qatar who together hold an estimated $2.1 trillion in dollar reserves.

Which explains some of the growth in the price of gold. Of course this transition will take time as the various countries carefully get rid of their dollar reserves over the coming years. However, if they are as committed to this transition away from dollar as the base trading currency for oil as this article indicates, then obviously the strength of the dollar will be adversely effected over that transition period and beyond as dollars are dumped. Couple that with the excess dollars we’ve pumped into the system these past few months and you can begin to understand the possible economic disaster this may end portend.

Ever since the Bretton Woods agreements – the accords after the Second World War which bequeathed the architecture for the modern international financial system – America’s trading partners have been left to cope with the impact of Washington’s control and, in more recent years, the hegemony of the dollar as the dominant global reserve currency.

The Chinese believe, for example, that the Americans persuaded Britain to stay out of the euro in order to prevent an earlier move away from the dollar. But Chinese banking sources say their discussions have gone too far to be blocked now. “The Russians will eventually bring in the rouble to the basket of currencies,” a prominent Hong Kong broker told The Independent. “The Brits are stuck in the middle and will come into the euro. They have no choice because they won’t be able to use the US dollar.”

Chinese financial sources believe President Barack Obama is too busy fixing the US economy to concentrate on the extraordinary implications of the transition from the dollar in nine years’ time. The current deadline for the currency transition is 2018.

We’ve been talking and hinting about this since it first began surfacing and warning of the dire economic consequences such a move would have. Of course it is the result of our own profligate spending and financial mismanagement, but I don’t think, for the most part people understand the implications of this move to replace the dollar. And it also doesn’t appear we have ability (much less a plan) to reverse this trend toward this change of the economic guard.


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