Running out of oil?

By Walter E. Williams

"Proven" oil reserves, oil that's economically and technologically recoverable, are estimated to be more than 1.1 trillion barrels. That's enough oil, at current usage rates, to fuel the world's economy for 38 years, according to Leonardo Maugeri, vice president for the Italian energy company ENI. Mr. Maugeri provides a wealth of information about energy in "Two Cheers for Expensive Oil," published by Foreign Affairs (March/April 2006) and reprinted on the same date in Current.

There are an additional 2 trillion barrels of "recoverable" reserves. Mr. Maugeri says these oil reserves will probably meet the "proven" standard in a few years as technological improvement and increased sub-soil knowledge come online. Estimates of recoverable oil don't include the huge deposits of "unconventional" oil such as Canadian tar sands and U.S. shale oil, plus there are vast areas of our planet yet to be fully explored. For decades, alarmists have claimed we're running out of oil. In 1919, the U.S. Geological Survey predicted that world oil production would peak in nine years. During the 1970s, the Club of Rome report, "The Limits to Growth," said that, assuming no rise in consumption, all known oil reserves would be entirely consumed in just 31 years.

There are several factors that explain today's high prices. There has been a huge surge in demand for oil as a result of rapid economic growth in China and India, as well as in the United States. Another factor is the under-exploration. Mr. Maugeri says Saudi Arabia has 260 billion barrels of proven reserves, accounting for 25 percent of the world's total, but only one-third of the oil known to lie below its surface. Russia's reserves are three times its proven reserves of 50 billion barrels. While high prices are beginning to stimulate investments in oil exploration, they've lagged for several decades out of fear of oil gluts and low prices. It's going to be 2010 before today's investments yield fruit.

A substantial increase in oil production alone cannot ease today's high prices because of weak refining capacity. Not a single refinery has been built in the United States for 30 years. Improvements to existing refineries failed to keep up with growing demand and tougher environmental regulations. We're the world's only industrialized country with a net deficit in refining capacity that comes to 20 percent of domestic demand. That makes us highly vulnerable to disasters like last year's hurricanes. Exacerbating weak refining capacity are regulations whereby gasoline produced for one state may not be sold in another. There are 18 mandated different types of gasoline sold in the United States.

The long-term outlook for oil is good. There's an increase in oil-drilling technology and exploration. Oil as a source of energy has been in decline. In 1980, oil was 45 percent of energy consumption; today, it's 34 percent, yielding ground to natural gas, coal and nuclear energy. Recently, the House of Representatives passed "The Deep Ocean Energy Resources Act of 2006," which now awaits a Senate vote. Offshore oil exploration has been banned since 1982, despite Department of the Interior estimates that suggest the presence of 19 billion barrels of oil and 84 trillion cubic feet of natural gas. The House of Representatives also passed the "Refinery Permit Process Schedule Act of 2006." Should these measures become law, our energy capacity will be enhanced significantly.

America stands alone in the world as the only nation that has placed a substantial amount of its domestic oil and natural gas potential off-limits. That reflects the awesome control that radical environmentalists have over Congress. With high fuel prices, Americans might be ready to put an end to that control.

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Momentum building for offshore energy exploration

It's interesting what $3-a-gallon gasoline will do to Americans' views on energy exploration. In 1990, when President George H.W. Bush issued a presidential directive that prohibited energy exploration off the Atlantic, Pacific and Alaskan coasts and in the eastern Gulf of Mexico, the environmental movement cheered and few objected. We could afford to be magnanimous. Energy prices were a third of their current level, the prospect of finding more seemed open-ended, and China and India were placing little demand on the world market.

In 1998, with little having changed, President Clinton extended the moratorium on exploration in these areas to 2012. Again, with little objection. Today, the urgency is overwhelming. High energy prices, unstable and/or unfriendly governments in the top oil-producing regions and significant demand from the two most populous countries have Americans taking a second look at those moratoria.

The House of Representatives has made its move with the Deep Ocean Energy Resources, or DOER, Act of 2006. DOER, as currently constructed, wouldn't repeal the current restrictions. But it would give coastal states that want offshore drilling the power to opt out of them.

The legislation makes permanent the ban on energy production within 50 miles of the coastline unless a state legislature votes to end those restrictions and allow drilling. From 50-100 miles, states would have to affirmatively pass legislation to prohibit drilling. Only beyond 100 miles would states would have no authority to stop drilling.

Under the legislation, states that allowed drilling would share in the royalties collected on oil and gas leases in the new areas opened for exploration. Today, with just the western and central Gulf of Mexico open for drilling, the federal government collects between $4 billion and $8 billion annually in such royalties. Obviously, this number would increase if the rest of the America's coastal regions were opened for exploration.

Given that it's been years since estimates were last attempted -- the last oil company lease was abandoned in 1990 -- nobody knows for sure how much energy lies in the areas that the DOER Act would open. But the Department of the Interior, which regulates offshore drilling, suggests that 19 billion barrels of oil and 84 trillion cubic feet of natural gas could be available. Considering we use 7 billion barrels and 23 trillion cubic feet annually, this could be a substantial source of additional supply for decades to come.

And initial estimates often prove considerably low. The Prudhoe Bay field in Alaska, originally projected to produce no more than 9 million barrels, recently sent its 15 billionth barrel south through the Alaska pipeline. The western and central Gulf also already has produced more energy than originally expected.

With all this energy out there, demand at all-time highs and prices remaining high, what has taken so long? The biggest problem has been environmental concerns on the part of Florida lawmakers worried what a spill would do to their tourism industry. But we haven't had a major oil spill from an offshore well since a 1969 accident near Santa Barbara, Calif. Even the National Academy of Sciences says that "improved production technology and safety training of personnel have dramatically reduced both blowouts and daily operational spills."

The danger of such spills has been reduced so much that only 1 percent of the oil in North American waters comes from offshore oil wells -- most comes from natural seepage from the sea floor. And during Katrina and Rita, despite winds that reached 170 miles per hour and lashing waves that took out a quarter of America's domestic energy production, no significant spills were reported.

Opposition from Florida lawmakers appears to be softening. Sen. Mel Martinez, a Republican, is part of a group that has reached a compromise to get an offshore bill onto the Senate floor, although Sen. Bill Nelson, a Democrat, has gone no further than to call the proposal "promising." Compared to the House bill, the Senate's approach is narrower, seeking to open one specific energy-rich region in the eastern Gulf. If the Senate passes this measure, the House and Senate would then have to reconcile their respective bills and send the final version to the president. It's hard to predict what would emerge from such a process, but anything that gets the ball rolling towards more domestic energy production would be welcome.

America has a problem: high oil and natural gas prices and competition for scarce resources that figures only to grow more intense. Thankfully, it also has something of a solution -- substantial reserves under its control that could be captured with little risk to the environment. It's time Congress gets serious about bridging the growing gap between supply and demand. And this could be just the way to do that.

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Follow The Money: In Washington, Everyone's Got An Agenda

After watching An Inconvenient Truth and sitting through one of Al Gore's PowerPoint presentations, I have just one question remaining: Why is Al Gore pushing Enron's agenda? Before you decide that I'm delusional, check out my new book, The Big Ripoff : How Big Business and Big Government Steal Your Money, and my section called "Green: The Color of Money." The book shows how Enron was a key lobbyist for the Kyoto Protocol on Climate Change (the Holy Grail of Gore's Crusade), and how almost every environmentalist policy we are being fed by Washington is really a meal ticket for one big business or another.

In the interest of full disclosure, I have a fellowship with a think tank, the Competitive Enterprise Institute - yes, that Competitive Enterprise Institute - which takes donations from foundations, corporations, and individuals. My colleagues' motivations come under fire when they oppose some regulation or tax, and many dismiss the arguments of industry-funded groups. The Big Ripoff is about looking at everyone's motivations, so I welcome your scrutiny. But if all industry-funded positions were dismissed--if the media disregarded arguments put forward by anyone connected to a business who stood to profit--than many environmentalist campaigns of the day would also have to get thrown out.

A Carbon Dioxide tax? That's the policy advocated by Duke Energy CEO Paul Anderson, whose company is unusually reliant on coal-fired power plants. Is this altruism for the sake of the planet? Not really: many of Duke's coal plants are in regulated markets where his company has a government-enforced monopoly. If a CO2 tax drives up Anderson's prices, it's not as if anyone can undercut him. Customers pay more, no less coal gets burnt, and Anderson gets good PR.

Ethanol? This is an easy one: Archer Daniels Midland is America's top ethanol producer, and its former chairman Dwayne Andreas was a very generous donor to both parties. Andreas once dropped off an envelope of $100,000 in Richard Nixon's West Wing. He also gave $100,000 to Nixon's opponent Hubert Humphrey. Federal and state policies provide all sorts of subsidies and special tax breaks for ethanol, and now Washington is mandating the use of this corn-based fuel. And, oh yeah, ADM predicts an ethanol shortage now. The potential effect on gas prices is terrifying.

And the Kyoto global warming treaty? Enron pushed it hard. In 1997, Ken Lay met with Clinton and Gore in the White House and boosted the treaty. In 2000, an Enron memo exclaimed that the treaty would be "good for Enron stock!" The company planned to get rich off of brokering a government-created industry in carbon-credit trading. Also, Enron's coal-fired power plants were all in third-world countries unaffected by the treaty. At this point, the environmentalist asks, "well, who cares who gets rich off of a CO2 tax, ethanol, or Kyoto if all those things are good for the planet?" The Big Ripoff has two responses to that:

1) Pointing out who profits from "green" policy is as legitimate as pointing out who would profit from deregulation or tax cuts--a favorite media pastime. Sure, it doesn't amount to an argument against the policy, but it ought to be considered.

2) The Big Ripoff argues that ethanol subsidies, CO2 taxes, and Kyoto--especially as they are exploited by big business--will not improve the environment. In brief: ethanol evaporates more than gasoline, releasing more smog-causing hydrocarbons; also, the energy intensity of producing ethanol, plus the potential damage to soil from single-crop farms, pose environmental threats in themselves. Under Kyoto, Enron would have had more incentive to expand its third-world coal-fired power plant business. The CO2 taxes wouldn't reduce coal use by regulated power companies, who could pass on the cost no sweat.

These three environmental proposals are typical of Washington policy and the exemplify the Ripoff: Politicians push rules that they say are for our own good. But Washington lobbyists raked in $2.28 billion in 2005, with about $2 billion of that coming from business lobbyists--you can bet they don't invest that much for nothing. Because small business and the average American don't have that sort of access, the policies tend to enrich big business while driving up costs for consumers and taxpayers and choking off entrepreneurs.

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A pro-nuclear Prime Minister

The media are desperately trying to portray Howard as in conflict with US policy but only they think so. Australia is a major supplier of uranium and PM Howard is keen to use that as the basis for an Australian nuclear industry -- to the horror of the Australian Greens

John Howard has given his strongest sign he wants a domestic uranium enrichment industry, and he agrees that the Bush administration's new global nuclear policy influenced his decision to conduct an inquiry into Australia's policy. The Prime Minister's desire to join the uranium enrichment club risks a conflict with President George W. Bush's global nuclear energy partnership, a radical US initiative to prevent nations moving into enrichment reprocessing. In a historic joint concord before the G8 summit this week, Mr Bush and Russian President Vladimir Putin agreed to work together "to allow all nations to enjoy the benefits of nuclear energy without pursuing uranium enrichment and spent fuel reprocessing capabilities".

Asked directly in Washington last month what the Bush administration's attitude would be towards an Australian decision to become an enrichment nation, a senior US official replied: "I'm not able to say."

Asked about Mr Bush's GNEP in an interview with The Australian, Mr Howard said: "I'm not suspicious of it. But I'm keen to keep an eye on it and keen to ensure it doesn't damage Australia's position. "The fact that this (GNEP) isbeing developed is a reason why we should look more closely at whether we should process uranium."

In political terms, Mr Bush seeks a new global nuclear bargain. Nuclear supplier nations such as the US, Russia, Britain, France, China and Japan would provide user nations with reactors and nuclear fuel on a "cradle to grave" basis in exchange for a guarantee they would not enter into enrichment, reprocessing and technologies necessary to produce weapons.

Mr Howard left no doubt about his personal preference. "It does seem odd that you wouldn't enrich uranium, doesn't it?" he said. "One of the great historical anomalies of the Australian economy which most Australians could never understand is that we had the best wool in the world and we sent it overseas to be processed and we bought it back at a much higher price. "That always struck people as rather odd. I would be keen to avoid that occurring."

Any Australian decision to enrich uranium creates a potential conflict for the US between its global policy and its alliance obligations. Under GNEP, an Australian enrichment decision would be seen as a bad precedent, but this conclusion would be offset by trust in Australia as a close US ally and responsible nuclear player.

Mr Howard said he had not tested US sentiment on Australia's enrichment option. "I think any administration would accept it," he said. "Certainly, the present one would accept it. I can't imagine a future administration would have a different view. We would be seen as a totally reliable and trustworthy country."

After launching his vision on Monday for Australia to become an energy superpower based on its huge reserves of coal, gas and uranium, Mr Howard said he was working closely with Canada to ensure that the world's two biggest uranium producers were not locked out of the nuclear fuel-cycle. "Each of us has a very direct interest in the nuclear fuel cycle, and there is a body which is still embryonic being put together by the United States and the other nuclear powers which we will have to watch very carefully," Mr Howard said. "We have to watch that it doesn't impact negatively on Australia and Canada. "I am not suggesting there is any malevolence on the part of these other countries, but we will have to watch for any unintended consequences."

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Many people would like to be kind to others so Leftists exploit that with their nonsense about equality. Most people want a clean, green environment so Greenies exploit that by inventing all sorts of far-fetched threats to the environment. But for both, the real motive is to promote themselves as wiser and better than everyone else, truth regardless.

Global warming has taken the place of Communism as an absurdity that "liberals" will defend to the death regardless of the evidence showing its folly. Evidence never has mattered to real Leftists

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