That famous quote by Yogi Berra came to mind after hearing that the White House warned the oil industry not to use the Gulf of Mexico spill as a justification for any future oil price hikes.
Last week White House press spokesman Robert Gibbs said that demand for oil often increases during the summer season in the United States as more people get in their cars, then added that the oil disaster should not have any affect on pump prices.
Current high inventory levels of crude oil will prevent an immediate affect of increasing fuel prices from any oil exploration restrictions. However, any long term offshore oil drilling policy changes by the Obama administration will eventually cause fuel prices to spiral back upward.
President Obama put a moratorium on offshore oil drilling in the wake of the explosion of the oil rig Deepwater Horizon in the Gulf of Mexico on April 20, 2010. The tragic loss of eleven workers’ lives and the resulting massive oil spill caused most of the new offshore oil drilling to come to a screeching halt.
Coincidentally, Mr. Obama’s decision came right after the Department of Interior postponed hearings on the offshore oil drilling lease sale, which were to be held in Norfolk, Virginia on May12, 2010 as well as in North Carolina and Maryland. No new date was set for the hearings. Planned leasing for oil drilling off the Atlantic Coast have, for all intents and purposes, been put on permanent hold.
Virginia governor, Bob McDonnell, joined the chorus as well. He demanded answers on many questions he would like to ask before moving forward with offshore oil drilling. He compared his stance to President Barack's decision to call for a moratorium.
Earlier in the week the governor of California, Arnold Schwarzenegger, announced that he had withdrawn his support to expand offshore oil drilling along the Santa Barbara coast. He also cited the massive Gulf oil spill as the reason for his decision and said that no new oil drilling will take place off the state's coastline in the foreseeable future.
The Republican governor had proposed expanding oil drilling off the Coast of Santa Barbara County to help plug the state's budget deficit even after state Democrats blocked a similar proposal. A deal had been struck in 2008 between California environmental groups and Plains Exploration & Production Co (PXP), which in turn would have brought the state some $100 million in royalties per year.
The California coast was not part of President Obama's announcement a month ago when he announced he wanted to expand oil drilling off the Atlantic coast and in eastern portions of the Gulf. Currently, 27 platforms are still in operation off the California coast, which are producing over 13 million barrels of crude oil per year. That leaves us with domestic crude oil production being limited to drilling on land.
The Bakken oil formation, located in North Dakota, Eastern Montana and Saskatchewan, is one of those oil fields that will now receive some additional attention by the oil companies. The “Bakken” is the largest oil field in the continental U.S. with only Alaska with more potential crude oil in the ground.
However, the locals in Sidney, Montana and Williston, North Dakota are not impressed by the recent focus on their neck of the woods. They have been through the boom and bust cycles before in their oil production and are taking a cautious attitude this time to the outsiders coming in and promising them the big bucks. Housing for the incoming workers is short and hard to find with most of them using the camps built with the drilling rigs.
While visiting Sidney, Montana recently I spoke with some of the people working in the oil fields. They complained about drilling personnel being brought in from Oklahoma and Texas to do most of the labor. They are scheduled to work 12 hour days for two weeks straight before going home for two weeks for rest and relaxation with their families.
The harsh weather conditions in Montana and North Dakota are given as the main reason for the oil companies to put their roughnecks through their hectic schedule and living in camps built next to drilling rigs.
Oil production from the Bakken formation is currently around 5 million barrels per year. That amount will be increasing as investment money finds its way into expanding unconventional drilling for the high quality crude oil. That process, called hydraulic fracturing, will lead to yearly production levels that will easily exceed the oil currently being produced off shore California. Current oil reserves are estimated to be around 4.5 Billion barrels by the U.S. Department of the Interior Geological Survey (USGS) from a two year old report.
The Keystone XL pipeline currently being constructed by Trans Canada (TRP) to carry crude oil from the Alberta oil sands to the Gulf refineries and is scheduled for completion by end of 2011. Environmentalists say the crude extracted from oil sands produces more greenhouse gases than other sources, partly because it requires a more intensive refining process before it can be used. , extracting the oil leaves behind toxic residue and damaged lands.
On the other hand, Bakken crude oil is high gravity and relatively easy to refine. Trans Canada reversed their stance and two months relented in their opposition to allow the ramping up of Bakken crude oil into the Keystone XL pipeline system running through North Dakota and Eastern Montana. This was only after political pressure was brought to bear from both states threatening to slow down the process of obtaining the necessary rights of way for the pipeline.
The United States presently uses somewhere in the vicinity of 7 billion barrels of oil each year. This means that all the oil readily able to be extracted from this formation would last the U.S. less than eight months. This is in contrast to Saudi Arabia oil production which is over 8 billion barrels a year and can continue to provide those numbers for the foreseeable future.
Where do we go from here for increasing domestic oil production in order to achieve energy security for the U.S.? What will it take to have our politicians come up with a national energy policy to bridge us into using renewable energy alternatives? We will know those answers in twenty years as hindsight is better than foresight.
Disclosure: No positions