Can we all stop whining about $4 gasoline long enough to take steps to stave off $10 per gallon gasoline by 2012?
Yes, you read that right: 10 bucks for a gallon of gasoline—and we’re probably talking the corn-fed, taxpayer-subsidized variety that reduces your MPG while padding Big Ag’s collective wallet, not the Hi-Test Supremo anyone without a Ferrari Testarossa or ’73 VW Bug would be silly to use.
Got your attention, didn’t it? I just pulled that number out of the air, but don’t be surprised to see it as the next benchmark in the escalation of the ever-hyperventilating Oil Forecast War among investment bank analysts.
Actually, $7 a gallon by 2010 is the latest forecast from an I-bank apparently designed to frighten the livestock and send the kiddies ducking under the covers. CIBC World Markets projects a benchmark West Texas Intermediate (WTI) crude oil price of $200 per barrel by 2010 and with it a resulting 7 bucks a gallon for gasoline.
This follows Goldman Sachs a couple months ago predicting $150-200 per barrel of WTI in the next 6 to 24 months.
The point is this: The only feasible way to bring oil and gasoline prices down is through reduced demand or increased supply. Four bucks a gallon by itself is already starting to squeeze demand, even if that’s offset by still-rising demand worldwide. And
Increased supply? Well, we could ignore the law and Congressional intent in creating the Strategic Petroleum Reserve and probably relieve pressure on oil prices for a few months by drawing down the SPR. Whoops, there goes our oil supply security blanket at a time when Iran, Venezuela, and Nigeria are prospects for supply disruptions and hurricane season looms in the Gulf of Mexico.
What about OPEC? Aren’t they “holding us hostage,” “bleeding us dry,” “robbing us?”
Contrary to the daily abuse heaped on the oil exporters’ group by many of the—for lack of a better G-rated term—leaders in this country, OPEC (read:
What about Big Oil? Speaker of the House Nancy Pelosi, seeking to blunt efforts to end bans on drilling off most of
“The fact is there are 68 million acres onshore and offshore in the US that are leased by oil companies—open to drilling and actually under lease—but not developed. If oil companies tapped the 68 million federal acres of leased land, it would generate an estimated 4.8 million barrels of oil a day—six times what Arctic National Wildlife Refuge would produce at its peak.”
Apparently Speaker Pelosi subscribes to H.L. Mencken’s (probably apocryphal) dictum that “Nobody ever went broke underestimating the intelligence of the American public.” I will defer to Rep. Don Young’s (R-Alaska) humorous dismantling of Pelosi’s claim, a Big Lie so audaciously stupid (or cynically pandering, perhaps?) that I fear for the survival of the species should it gain traction: http://republicans.resourcescommittee.house.gov/PRArticle.aspx?NewsID=1674 (Disclaimer: Shameless plug follows).
As it so happens, there is a tremendous amount of untapped oil in the
So a big push on EOR that’s now economically attractive could help stem the
Don’t hold your breath. Instead, many Americans choose to threaten and heap abuse on the main suppliers of oil—OPEC nations and oil companies—while we continue to consume a commodity that we know, in our hearts, will provide the bulk of our transportation fuels for another generation…
…and while we continue to lock up the oil resources that, had they been developed as originally proposed, could have saved us from this dilemma in the first place.
There’s a word for that:
Hypocrisy.
July 8th, 2008 at 3:17 pm
Great article Bob. You didn’t touch on the oil were getting from Canada and Mexico. Putting it in layman’s terms what are the pro’s con’s of the larger percentage of oil we are buying from them?
See you soon.
Travis
July 8th, 2008 at 5:09 pm
Good question, Travis. Right now Canada is our biggest supplier of oil at about 17% of total US oil imports. Mexico is No. 2 with a bit more than 12%.
Fortunately, our neighbors to the north have the right idea about developing their own resources.
Canada’s oil sands output could more than double to 3 million barrels per day by 2020; the US will use most of that. But there’s no guarantee that increase will happen. Canada is grappling with the threat of limits on oil sands expansion due to concerns over soaring costs, greenhouse gas emissions, and water and natural gas use. In any event, the projected US oil demand growth will suck up all of that oil sands increase and then some.
Mexico, on the other hand, faces being a net oil importer itself within the frighteningly near term if it can’t move past its archaic restrictions on foreign participation in its upstream sector. If energy reforms aren’t forthcoming in Mexico, count on the US having to compete with our southern neighbor for oil supplies. And there is a powerful Hugo Chavez-type leftist in Mexico, Andrés Manuel López Obrador, consolidating his political strength there and who would love to get his hands on Pemex. Another Chavez on our southern flank? Think about that.
But even buying all of our oil from friendly neighbors still hurts our foreign trade balance and still adds to the pull on global oil demand. For example, if we were to develop the not-so-pristine coastal plain of ANWR–the only part industry is interested in, contrary to another Big Lie of antidevelopment forces–it would reduce US outlays for foreign oil by more than $200 billion. That doesn’t count the tens of billions of dollars in government royalties and taxes ANWR development would pump into the economy. Compare that with the tens of billions being spent to subsidize biofuels that are contributing to malnutrition and starvation in poor countries and razing entire rainforests (Hello, Mr. Gore, can we talk about the Law of Unintended Consequences?).
Developing domestic oil delivers huge economic benefits to the US beyond easing global supply pressures that keep oil prices sky high. There’s an old rule of thumb in the oil and gas industry that, beyond the jobs drilling a well creates directly, there’s a multiplier effect for indirect jobs created by that activity. In Oklahoma, for example, a 2005 study showed that each $1 million spent on drilling a deep natural gas well in the state provides employment for 6 oil and gas worker; the multiplier effect supports another 8.5 jobs statewide. Drilling a typical deep gas well in Oklahoma can support 45 jobs statewide. That’s just drilling. Producing the well adds another 3 jobs directly and 6.5 jobs indirectly, and so forth, down through pipelines, gas processing plants, etc.
I could go on and on (and apparently have). Bottom line, despite all the squawking we’ve heard in recent years about recession and job losses and exports of jobs outside the US and all the wailing and gnashing of teeth about high gasoline prices today, we still aren’t willing to take the easiest steps that would prevent both situations from getting even worse 5 or 10 years from now and bolster the economy to boot.
July 8th, 2008 at 5:26 pm
Thanks for lesson.
I’ll try and come up with something that will require you to write 10 paragraphs to explain.
Talk to you soon.
Travis
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