By Richard T. Stuebi
I am appalled at the state of the public discourse on oil and gasoline prices.
Between the newspapers and the talking heads, there is an increasing cacophony that the government should do something, just about anything, to halt the increase in oil and gasoline prices.
From the lefties: Release stocks from the Strategic Petroleum Reserve! Stop Big Oil from gouging customers!
From the wingnuts on the right: Get the enviros out of the way and drill, baby, drill! Cut gasoline taxes!
All of these steps are just re-arranging deck chairs on the Titanic. The facts are simple, but they are discouraging, and they won’t be changed by wishful thinking or loudly-shouted populist mantras. (It’s useful to remember, but often forgotten in today’s world, that just because the volume of your voice is higher doesn’t mean you’re more correct.)
In its territory, the U.S. possesses about 2% of the world’s proven oil reserves. Yet, the U.S. economy consumes about 25% of the world’s annual oil production. This blog post depicts the situation succinctly.
True, the U.S. share of global oil consumption will likely decline in the coming years - but that’s probably not because our demands for oil will decline. Rather, it’s because China, India and the rest of the developing world are ravenously ramping up their demands for oil, with relatively little concern for the price.
With 727 million barrels, according to the DOE, the Strategic Petroleum Reserve is only big enough to support U.S. consumption for a little over a month, so releasing even all of it doesn’t change the fundamental dynamics.
There are balderdash claims floating across the Internet that there are hundreds of billions of barrels of oil resources in the U.S. (referring primarily to the Bakken Formation in the Dakotas) waiting to be tapped, if the bloody environmentalists would simply get out of the way. Alas, as this blogger does so nicely, just a little bit of fact-checking easily exposes these claims as wildly-exaggerated.
While there are about a trillion barrels of hydrocarbons in the Green River Formation in Colorado, Wyoming and Utah, this is not petroleum but rather oil shale – which is not to be confused with the shale gas deposits that have yielded natural gas bonanzas in such places around the U.S. as the Barnett and the Marcellus. Technologies in use today can’t produce the Green River oil shale resource, and while new technologies are being developed to pursue this compelling opportunity, they are being thwarted less by environmental constraints than by economic ones - more investment capital is required, and greater certainty of higher oil prices is required to attract that capital.
Meanwhile, the biggest slug of known petroleum reserves on Earth lies in the Middle East. Much of this is in Saudi Arabia - and as a set of cables released by Wikileaks a few weeks ago hints, it’s hardly certain that those reserves are as vast as have been widely-assumed. If production starts to decline from Saudi Arabia - either because it’s become geologically over-tapped or due to internal political strife of the type we’ve seen of late in the Middle East - it’s hard to know where oil prices will crest.
Even so, at least currently, Saudi Arabia and the rest of OPEC continue to set the world price for oil - and while the privately-held oil majors profit handsomely when the price rises, it’s not like these guys have much of a say in the price of oil. They’re the minority players in world oil production: They merely go along for the ride and take the money to the bank.
Moreover, the size of the planet’s endowment of fossil fuels is not increasing. Old fossils aren’t being compressed into hydrocarbons at anywhere near the rate they’re being extracted from the ground.
Exploration and drilling technologies have improved dramatically over the past 30 years, and the oil industry has poked holes all over the planet - and in large swaths of the waters too. We’ve explored most of the easy places, and we’ve sucked dry most of the cheap resources from the easy places. What’s left is harder stuff to extract. It’s more expensive. Any as-yet-undiscovered reserves are generally going to be in harder places, or in smaller quantities. There will be sizable finds here and there now and then - and they will be worth pursuing and utilizing in a responsible manner, but they won’t change the overall picture materially.
It’s damn-near impossible to consider this set of facts and conclude something other than oil prices - and therefore gasoline prices - are on an inexorable path upwards. Perhaps with some downward blips along the way, but the upward trend seems inescapable.
And, yet, the vox populi is whining insistently that some miracle be performed by some mystical force to push the price trajectory downward.
Do something, anything! These are the rants of a desperate society living paycheck-to-paycheck. These are the cries of those who live in denial that we’ve painted ourselves into a corner with no clear escape.
We Americans need to come to grips that we cannot continue to be held hostage to a damn-it-all mentality that continued economic well-being can only be achieved with permanently unfettered access to cheap oil and gasoline. If we can’t ensure unlimited low-cost energy supplies - and I hope it’s becoming clearer to more people that we surely can’t - then the house of cards on which we’ve built our economy will fall.
Rather than turning the world on its head to keep alive a false promise that can scarcely any longer be extended, we need to turn our commitments toward building a more robust economic system that isn’t precariously dependent on one non-replenishable commodity.
This is not a popular line of thinking. As the title of this post suggests, this is boldly going where no one wants to go.
I don’t want to argue whether or not it’s good for oil to be cheap or expensive. I want a reasoned debate about what do we do when oil is expensive and we can’t do anything about it.
In his 2011 State of the Union speech, President Obama offered the theme that, as Americans, ”We do big things.” Moving our economy off of oil is a very big thing. Alas, I’m not as sanguine as the president that we relish the challenge and have the appetite to do it proactively. However, I am more hopeful about our future after considering Winston Churchill’s (hopefully timeless) observation: “Americans can always be counted on to do the right thing ... after they’ve exhausted all other possibilities.”