The Case for Not Drilling ANWR 36 comments
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Drilling domestic oil reserves (read the Arctic National Wildlife Refuge - ANWR) has been, and will continue to be, a hot political topic, with the pro/con sides wrapping themselves in the US flag and Greenpeace flag, respectively. I'd like to wrap myself in the Adam Smith flag and make a case for not tapping into the reserves, just yet...
Being an economic realist (and a political cynic), I've observed that the ONLY thing which has really catalyzed the kinds of economic investments we've seen in the past couple of years (offshore drilling technologies, alternative energy research, etc...) that will end up providing the 50 year solution to our dependence on foreign oil has been the recent short term (past 2 years) surge in oil prices.
True, every state of the union address in recent memory has contained stirring words about "creating an energy policy that will end our dependence on foreign oil [wait for applause]" but, until the recent price surge, there really hasn't been more than a trickle of investment from either public or private sources. Recently, we've seen increases in public funding for the basic R&D needed to develop additional energy sources, and more dramatically, a huge flood of private investment into alternative technologies.
On the investment side, note that legendary venture capitalists Vinod Khosla and John Doerr have decided that alternative energy could actually be profitable. Making huge returns by investing in innovative alternative energy technologies is something that the Larry Kudlow and Al Gore can get behind.
On the consumer side, high prices at the pump have made fuel efficiency something that auto makers are actually considering, and consumers are demanding. If you don't want to drive a Prius, don't. But be happy that others are, since they're keeping fuel prices from rising quite as fast as they otherwise would.
Now to ANWR (and other domestic reserves). Let's say for argument's sake, we tapped ANWR and it had the "best case" scenario impact on oil prices (brought them back to pre-2006 levels). Good thing, right? Wrong. We'd also slip back to 2006 energy policy, along with the stirring, but hollow, state of the union remarks. It would go right back to priority #14 somewhere behind investigation of steroid use in baseball on the congress' agenda.
The oil reserves in ANWR will still be there (if we don't tap them) in 5, 10, or 20 years, and if the doomsdayers who want to drill them are right, oil will get increasingly scarce and valuable, so it's an appreciating asset that we can use later to supplement our energy needs (or even export?) after we've reached the tipping point in development of alternative sources.
Tapping this oil now would be the equivalent of a 40 year old tapping into his 401k account to pay down your mounting credit card debt. Magic! Problem solved, except the part where you continue with your same spending habits that ran the credit card debt up in the first place (spending more than you make), and you've depleted an asset that would've been much more valuable a couple of decades later - when you really need it.
While it's painful in the short term, living with scarcity is the best way to assure future availability. Just ask Adam Smith.
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This article has 36 comments:
You need to understand that if they started today it will take approximately ten years before the first drop of oil would run through the pipelines, so waiting ten years puts us behind by twenty years and our "friends" at OPEC know this. We can't afford to get to the point that we can't wait another ten years.
Second, if other energy sources are found then it contradicts just what you said about it being an appreciating asset. It will go down in value.
Third, the development of alternative energy is crushing the middle and lower classes and our economy. Soaring prices because of all of the development of corn for fuel is doing more to drive up the cost of everything we buy or use. People have no idea how this is driving up the price of everything we use. The sad part is my uncle that has been in alternative fuel development for years says at best the development of corn for fuel will eventually only be minimally less less costly than gas today
That is my say !
eventually our society would wither.
Just like building the bridge to nowhere, have the Gov. fund it, find it, cap it and have it ready for use if needed.
Otherwise, its just a possibility.
In a decade from now, the concept of "burning" such a valuable commodity (petroleum) will be seen as a "third world" application. Try to think past your own "quarterly" approach to life...as hard as that may be for many of us.
Policy makers need this pressure are so does the market to truly stimulate alternative energy investments. The US needs to adjust to high oil prices as other countries have had to face (two years of rising oil prices? I call that short term). I strongly doubt 'oil independence' will ever truly be achieved, rather, oil will remain 'expensive' as alternatives scale up to meet demand (but not relative to inflation). True visionaries will see the long term economic impact of high energy prices in a carbon constrained world and there will be winners and losers. Will the US economy 'fly apart at the wheels' because we do not drill ANWR? No, maybe for other reasons, but not because of letting ANWR sit where it is. When we price the use of a resource by including ALL costs (over the entire life cycle and include the impacts on our environment), policy and markets will enable better decisions more in line with our survival as a species.
Whiners should sell their Ford Excursions and Toyota Tundras and Nissan Armadas.
P.S. Have we been brainwashed
by Al Gore and the Greenies?
>P.S. Have we been brainwashed by Al Gore and the Greenies?
perhaps I am reading too much into the question but I doubt it...
I find it to be the typically lame rhetorical question using name-calling to discredit anyone who is of the opinion that anthropogenic effects are contributing to climate change and therefore we need an energy policy that does not rely on burning up all of the fossil fuel we have as cheaply as possible.
Al Gore is not the most authoritative word on the subject, just the most visible. The IPCC is the most authoritative given their body of work, credibility of membership among their peers and consensus-based nature of their output and I say that having spent the last two decades reading and studying both the science and counter science to climate change. You start by saying 'brainwashed greenies', I follow by calling you 'intellectually lazy and scientifically ignorant' and where does it go from there?
Let's confine our discussion to facts without resorting to name calling and charged words.
Political leaders may be able to see the writing on the wall (although some may be incapable of reading it). However, they are much more interested in votes today than what's good for their country tomorrow. They don't have the guts to tell us we need to use less, because they know we don't want to hear it...that might mean we have to make changes, like giving up our Hummers, Escalades, F350s, etc.
Also, politicians have subsidized the futile and economically destructive production of ethanol from corn to gain favor (i.e. votes) with midwestern farmers and give the public a (false) sense of impending energy security. Better to make ethanol from stuff people don't eat (waste wood chips etc)...or you could buy sugarcane-based ethanol from Brazil cheaper, but then again Brazilian farmers don't vote in the US.
Anwar's oil reserve capacity has been estimated at about 15.5 billion barrels. Sounds like a lot, but this is wouldn't even feed the US oil habit for 2 years. The sun will be around longer than that, and the winds will keep blowing...so those sources may provide better planks for a sound long-term energy policy.
Something most people don't realize is that Canada is the largest supplier of foreign oil to the United States. Thanks to NAFTA, you might say that the "real" US oil reserves are the (estimated)1.7 Trillion barrels of tar sands oil in Canada. The US also has tar sands resources which haven't been tapped (for the time being, it's easier to destroy the environment in Northern Alberta and pipe the oil south than to wreak the same kind of environmental havoc in the good ol' USA).
Oh well, end of energy rant. Just my $0.02.
My 2 cents worth
MSGTB
Of course, it takes brains to innovate. Since that is true, shouldn't we abolish government schools? Of course a mind is a dangerous thing to educate so I expect much resistance concerning that.
Where in the posted article, The Case for Not Drilling...is there any mention of Democrat or Republican? I see Adam Smith mentioned but I forget what party he belonged to.
Or, are you referring to any of those who replied? In other words, who are you referring to as 'you' in your second sentence?
I certainly agree with your statement, "In any case smart investors are making lots of money on increasing oil prices..."
Yes, I have...I really have. But not as much these last few days...I'm taking a breather, is all...still long though on oil and solar.
Do you offer facts or just the same old political tripe of 'those damned Democrats' so that others can say, hey what about 'those stupid Republicans'?
Try to find a right-wing-rant site. You sound like you need company.
Here's the point, Utopians: we don't need alternate energy yet. Why is everyone in such a rush? There is enough oil to last the next 200-300 years. By then, we *will* have viable new energy sources. You don't see a lot of people driving steam engines anymore, do you?
But we need ANWR NOW. We need the Colorado oil shales NOW. We need to lift the ban on coastal drilling NOW. Not because the world is running out of oil... it isn't. We need it because we are a society that consumes more than it produces. We need to get back to producing, or our dollar will continue to collapse, and we will wake up one day to find that we can't even *consume* anymore.
Besides, as others mentioned, it isn't as if they lift the ban on drilling and we have new oil tomorrow. It takes many years for that oil to come online. So let's lift the ban and start re-building our economy for tomorrow.
Where would we be if Cheney and his oil brethren had foreseen the approach of Peak Oil and skyrocketing pricing?
Where we would be if they had historically embarked on a policy of energy independence?
Where we would be if they had committed us to accelerating alternative energy sources: solar, wind, nuclear, wave, and hydro?
The Cheney Oil strategy was directed at private profits and megalomania; we even started a war to forward the strategy.
It is small compensation, indeed, that Cheney and Bush will earn the honor of being known as the most destructive and failure ridden presidency in US history.
Whos to blame? I blame all of us. Economics is a bit cynical--we act in our own best interest--and as long as oil is cheap, as it has been for decades, there is no incentive to change. But only with rising prices--then there is the crisis. (Capitalism doesn't seem to work well in avoiding long term problems, only addressing them after the fact).
Why didn't we plan ahead, and see the train wreck coming? Its the same reason we won't respond meaningfullly to global warming as a nation until the cost is evident and overwhelming and fully in peoples awareness.
Its the same reason we didn't prepare well for terrorist attacks on our nations soil--until after 9/11. As a nation we seem to respond to crisis only after the damage is done, and we are piss poor at thinking ahead proactively. Or is this all nations? Human nature? I don't know, but it is only after we have a pearl harbor--then we get into the war. Only after $135 per barrel-then we say EUREKA THERE IS A CRISIS!
This doesn't speak well for our nation, our economy, our species.
I do save a special variety of vitriol for Bush/Cheny because they lied to the nation about the reasons and the need for WAR, at the cost of 2 to 4 TRILLION dollars to our nation, our children and grandchildren. This debt will take generations to pay off, and the outcome is anything but guaranteed.
A better use of those trillions would have been a Manhattan Project style of response for energy independence that would truly push our nation off the energy status quo. But then, that would have required wisdom, something that we don't see much of in todays leaders.
Plenty of blame to go around. Bring on higher prices--it may be the only solution.
People don't respond well ( it seems in the collective) to reasoned analysis, when the alternative of denial is so much more palatable.
Peak oil? Nonesense--only a theory.
Global warming--rubbish--unpr...
Global terror menace to the US--extremely unlikely!--woops wrong about that last one.
But don't forget: America is an exporter of oil. Our oil companies do indeed pick up oil in the Middle East, but they take over 90% of that oil to Europe, Englan, Japan, China, et al.
As far as oil prices go, most everyone is leaving out one important point that every well-seasoned investor must understand: what I call "the scam factor."
You have to be a child and not have lived through the oodles of pump and dump acts that the NY crowd scams the public with to go for this one.
How can so many people believe that, all of a sudden, China and India are grabbing up all the oil in the world, causing prices per barrel to rise 50% over a few months?
China doesn't even report how much oil it buys, uses, or stores. The best we can guesstimate is that over the last five years China has gone from 4.9 million bpd to a little over 6.8 million bpd. The US uses about 20 million bpd.
How can so many people believe that, all of a sudden, there is a shortage of oil? That refiners can't refine enough oil? That there are break downs in the infrastructure lines?
Does no one remember the 1970s?
It's the same old slop warmed over, and the investing public is going for it again—big time!
Known reserves (fairly easily retrievable oil) in 1970 were about 560 billion barrels. By 2000 they were over 1 trillion. Eight years later they are about 1.6 trillion. (see PS below)
The world uses somewhere between 75 million bpd and 86 million bpd. (Nobody is exactly sure, though; these are estimates.)
What's the problem? Where's the shortage?
The telling sign that the first major downturn is about to come is that after Goldman Sachs and T. Boone and nearly everyone else you can imagine came on the tube pumping the ppb at $150 & $200, the price has not moved even 5% since then (from $127).
Pickens has been an oil bull since the 70s, and GS always piles on late to get the public in after the momentum players are fully invested.
If the ppb continues to stall in the low to mid-130s, the momentum players will know the public is finally fully invested. There will then be no more money to go in.
So when they've depleted the public's pockets, they'll start dumping and the public (suckers that WSt. uses them as), which is now buying oil and energy stocks as never before, will get killed—per usual.
That's a view from someone who bought his first stock in 1967 and has been watching the NY crowd run these scams on the public for the last 35 years. They use the same method of operation over and over. And why shouldn't they? The Congress doesn't understand what they're doing, and quite frankly, few other people do.
Jim Cramer has admitted to doing this back when he ran a hedge fund; the people running these operations aren't smarter than the average bear. They're simply more crooked and devious.
They're greedy and heartless, too. They won't stop. Soon after the "we're running out of oil" and "China and India are using up all the world's oil" and "refineries can't refine enough oil" scam is over, they'll move to another sector and within a few months the financial media and the Big NY Houses will begin pumping it. And, guess what? The public will go for it again.
Rebeldog
PS: Iraq has just announced that its latest survey shows that they have another 225 billion barrels in reserve. Thus, add another 225 billion barrels to the World's reserves.
We currently import more crude from our buddy, Hugo Chavez, in Venezuela....1,200,000 BBD. Want more perspective? Total OPEC imports....5,900,000 BBD. Total imports....13,000,000 BBD.
Current US production...5,100,000 BBD. ANWR isn't a solution. A shift to vehicles on alternate energies is. A near-ban on plastics made even remotely from oil is also. Jimmy Carter put solar panels on the White House, Ronald Reagan took them down. Let's Roll!!!
To those who reacted negatively to Chad's suggestion, what would you have us do? Release all such known reserves to maintain cheap oil right up until there is zero surplus production, and then expect decades of technological innovation and adaptation to happen overnight - and in the midst of a probable worldwide recession, if not also in the midst of world resource wars?
Chad is right. Cheap oil will prevent the change that needs to happen, from happening until it would be too late for changes to avert disaster.
There is no long run shortage of oil. 1)Deep sea drilling is just beginning witness the big Petrobras find off the Brazilian coast. 2)The Canadian tar sands are just beginning to be developed. They are expensive initially but the reserves are bigger than Saudi and no exploration is needed.3) Barnett shale oil (Colorado needs to be developed. Bad move by democrats in congress to block this development 4) Bakken shale looks like a hugh reservoir it will also be coming on line.
The arguments to leave Anwar alone for the long run because no replacements exist is an extraordinarily poor argument.
Cheap energy is what fuels the US economy. Increasing energy costs artificially by stopping drilling and congressional interference while east europe, China andRussia have low energy costs will significantly damage the US economy and our standard of living.
Now we have to find a way to make sure it is manfacutred right here at home in the good old USA. So we tell the companies that would rather take their business across the pond. If you build it here at home we will give you a tax credit of so much, and for every job you create for this project you will get another tax credit (this amount would have to be established by the bean counters). BUT, the company has to prove that they are complying. One other thing in order to get these business tax credits, these jobs have to be filled by US Citizens, and all material used in these products have to be bought from the good ole USA.
Please if you agree with this, copy it and send it to every elected official you can and demand they impliment this today. Ok this is my idea now where is yours?
I would also love to see oil wells off the coast in every state. Just the threat alone will drive prices down by the greedy. It's time we let companies build more neuclar, and new state of the art refinnaries. Green Peace, this country is in trouble, get out of the way.
One more thing, how about a wind generator in the front door of the Bush Estate and the Kennedy Estate houses on Marthars Vinyard. Lots of wind there fellows, how many houses could those generators supply electric for? If we working class Americans must suffer then I think the do nothing Americans leaches like the rich and famous can make a visual sacrifice.
China, with a population more than four times as large as ours, produced a GDP during 2007 less than 24% of ours. GDP is defined as the total market value of all final goods and services produced within the country in a given period of time. China and India are determined to continue growing their GDP, which will require oil, so their competition with us for foreign oil will increase. Unless we're prepared to shut down our industries, commerce and transportation systems and relegate our country to Third-World status, we must establish and maintain reliable, affordable sources of energy.
No matter how much we conserve and aggressively develop alternative energy resources, for the foreseeable future our nation will continue to be dependent upon oil. Aside from our energy needs, there are at least 6,000 products that are made from petroleum. They range from denture adhesives, football cleats, shoe polish and lipstick to asphalt and artificial limbs. The costs of all of them have been affected by the high cost of oil. Even if we can eventually wean all of our cars, buses, trucks and farm machinery from gasoline and diesel fuel and convert our homes from heating oil to other sources of energy, there is still no substitute for producing those products.
We've been working on affordable alternative energy sources for more than a century and still haven't yet found a replacement for petroleum. Even if we found the "magic solution" tomorrow it would take us decades to convert our entire infrastructure to accommodate it. Certainly we should continue trying, but it's unrealistic to believe that our refusal to develop our own domestic petroleum will result in anything other than continuing to escalate the cost of energy.
It is not only arrogant but imperious to insist that we maintain undeveloped petroleum reserves off of our own shores and in our wilderness areas while we exploit the petroleum resources of other countries. Continuing to send our money to unfriendly governments for their oil not only imperils our economy and weakens our dollar, it also threatens our nation's security. It is currently illegal to explore for oil off our Atlantic shores, the eastern Gulf of Mexico, our Pacific regions and in Northern Alaska. It is also illegal for us to explore for shale oil in our Rocky Mountains which many energy experts believe could yield three times as much oil as Saudi Arabia. We're the only industrialized nation in the world that has tied its own hands in this way.
Opponents to development of those reserves use emotional terms to assert that our wildlife and our beaches will be "destroyed." But that's untrue. By specializing in advanced ultra-deep offshore oil exploration in its Atlantic coastal regions, Brazil has transformed itself from a country that was dependant upon Ethanol to fuel vehicles to becoming a net exporter of oil within less than a decade. Using modern ecologically-friendly technology, Brazil accomplished this feat without fouling any of its beautiful beaches with spills or visual pollution. Our country's leaders could learn from our neighbors to the south. We have the proven technology to drill off-shore for oil without spills even when the platforms are subjected to hurricane-force winds such as the ones in the Gulf of Mexico during Katrina.
While we don't know how domestic drilling for oil offshore and in ANWR will affect energy prices, we do know the pain that our failure to do so has caused. Many industry experts believe that the mere announcement that we will begin drilling for oil again will have an immediate impact on speculators who've been partially credited for some of the price increases for oil. If speculators believe that the price of oil will go down in the future, they will begin dumping their holdings onto the market, providing almost instant relief from our current withering prices. Aggressive and environmentally responsible development of our domestic petroleum reserves will also help to bring much needed jobs back home and will reduce funding for terrorists and unfriendly foreign governments.
There is no single, simple solution to the high cost of fuel but political leaders and others, who are essentially advocating that we do nothing but bite the bullet, pay exorbitant prices and conserve are neither compassionate toward those who are suffering nor realistic. Those who are proposing the use of, "alternative power sources that are affordable, renewable and environmentally friendly" but, aside from nuclear power, do not yet exist are putting ideology ahead of common sense. The practical affordable solution is to immediately begin building nuclear power plants and drilling for domestic oil now while development of those non-existent "other solutions" continues.