R-Squared Energy Blog

Pure Energy

Book Review: Crude World

Crude World: The Violent Twilight of Oil by Peter Maass

Introduction

It succors and drowns human life. And for the last eight years, oil — and the people and places that make it — was my obsession. – Peter Maass

Today a new book by Peter Maass was released. The book is called Crude World: The Violent Twilight of Oil. Peter Maass is a name you may know from a 2005 article that he wrote for the New York Times called The Breaking Point. The story was a comprehensive look at where he thought oil production/prices were headed – and what the implications might be. Maass focused on Saudi Arabia in the article, and spent a lot of time covering Matt Simmons’ viewpoints. It was after reading this story that New York Times columnist John Tierney offered to bet Simmons on the future direction of oil prices. Thus arose the Simmons-Tierney bet.

I thought Maass’ 2005 article was well-researched, and it was a captivating read. So when Mr. Maass e-mailed and asked if I would like a copy of his new book, I thought it would probably be a book I would enjoy. I still have a stack of books that have been sent to me to review, but I jumped this one to the front of the queue. I hadn’t really intended to, as I am working on two other books right now*, and would normally finish those before starting another. But once I picked this book up and started thumbing through it, I couldn’t put it down.

The subtitle of the book is The Violent Twilight of Oil. The book talks about the twilight of oil, but as the chapter titles imply the focus is less on the twilight and more on the seedy side of the business. The book notes that there are some countries like Norway, Canada, United Arab Emirates, Kuwait and Brunei to which oil appears to have generally benefited the population as a whole. But then there are also many cases in which the discovery of oil seems to have brought many problems to the population. (The book suggests that countries with established democracies and strong self identities are less likely to suffer following the discovery of oil).

The Chapters

The chapters read like the Seven Deadly Sins: “Plunder”, “Rot”, “Fear”, “Greed”, and “Desire” are a few of the ‘sins’ covered in various chapters. Within each chapter, Maass then takes a look at an example that embodies that particular “sin.” That sort of style reminded me of a really good book I read a few years ago written by Matt Ridley. It was called Genome: The Autobiography of a Species in 23 Chapters. Each chapter of that book tells the tale of one gene from each chromosome. In Crude World, Peter Maass tells the story of oil one dysfunctional example at a time.

The book picked up where the New York Times story left off. In fact, Chapter 1 – Scarcity – was mostly about Saudi Arabia and incorporates much of that 2005 story. And if you liked his New York Times story, you will probably enjoy the book as the same style is evident. But I use the word “enjoy” loosely, as it is a sober read. You will find yourself shaking your head at some of the things that have been carried out as a result of the world’s desire for oil.

In Chapter 2 – Plunder – the book covers the case of Equatorial Guinea. The oil wealth was plundered, with the help of international oil companies, banks that looked the other way as government officials brought suitcases of money in for deposit, and governments eager for access to the resource. While he was investigating the oil story in Equatorial Guinea, Maass was accused of being a spy and kicked out of the country.

Chapter 3 – Rot – was all about Nigeria. I won’t tell you how that one turns out, but I am amazed at the (dangerous) lengths Maass went to for the story. Rot describes his journey deep into the Niger Delta in a leaky canoe, courtesy of one of the local warlords. It is well known in the oil industry that Nigeria is a dangerous place to operate. Oil companies generally pay very big premiums to get workers to agree to an assignment in Nigeria. Oil workers are kidnapped in Nigeria regularly (but rarely harmed) and held for ransom from the oil companies operating there. Warlords are constantly doing battle there, and Maass described his visit to one village that had been attacked. Shell also featured prominently in this chapter.

Chapter 4 – Contamination – tells the story of Ecuador, with special focus on the Chevron lawsuit. Maass notes the irony that California – one of the most environmentally conscious states – receives the largest portion of Ecuador’s exports.

The rest of the book’s ten chapters covers a litany of oil-induced miseries. Iraq, Russia, and Venezuela are all profiled. Former ExxonMobil CEO Lee Raymond is presented as the face of “Greed” (albeit it in the “Fear” chapter). There is an interesting explanation in “Greed” on why companies function as they do. Maass discusses a court case between Henry Ford and the Dodge brothers, in which the court ruled that a company’s mission “is organized and carried on primarily for the profit of its shareholders.” Thus, Maass argues that if Mr. Raymond had decided to run ExxonMobil in a more altruistic manner, the board would have removed him for not operating in the best interests of the shareholders.

The complaint that some will have about the book is that it isn’t balanced. There are a number of villains portrayed, but the oil companies really stand out. It seems that those who are telling the tales of misdeeds are generally trusted in the book, but those who are interviewed for balance are treated with suspicion. For instance, in the chapter on Nigeria, the author interviewed the director of Shell’s operations in Nigeria. The interview appears to proceed like a cross-examination. A Nigerian warlord’s words, on the other hand, seem to be taken mostly at face value.

But this is not intended to be a balanced book. It is a book designed to highlight the downside of our oil dependence. We can all think about ways in which oil has made our life better, but in the Western world we are generally spared from the nasty side of the business. In this book, Maass brings that message home loud and clear.

Conclusion

Crude World was released today, September 22, 2009. The general theme of the book is that the world’s dependence on oil has come at a very high price. This is not a book on peak oil, climate change, or renewable energy. It is not a technical book on the oil industry (for that see Morgan Downey’s Oil 101). The book covers the misery – the wars, the corruption, and the ruined lives – brought about primarily by greed from the lure of black gold. The book highlights the irony that oil could be used to improve the lives of a country’s citizens, but in far too many cases a country’s citizens end up being worse off after oil is discovered. The book was a fascinating read, and I couldn’t put it down once I started it. Now I can get back to my regularly scheduled reading.

Footnote

* The other books I am working on right now are Axis by Robert Charles Wilson and Outsourcing Energy Management by Steven Fawkes. The former is a science fiction book that I picked up because I really enjoyed Wilson’s previous book Spin. The latter has been a difficult read; I have been working on the book for six months. I met the author earlier in the year when he visited the Titan Wood plant in the Netherlands. We had quite a lot in common, and he sent me a copy of his book. But it is really a textbook, and so I have been reading it in small doses.

September 22, 2009 Posted by | book review, Matt Simmons, oil companies, oil consumption, oil exploration, oil production, peter maass | 55 Comments

Watch Stephanopoulos Grill Pelosi

George Stephanopoulos was relentless with Nancy Pelosi on ABC News regarding the question of allowing a vote on opening up more areas for drilling. In between repeated questions of “Why won’t you allow a vote?”, she repeated the canard about oil companies sitting on all of this undeveloped land (there already is a ‘use it or lose it’ provision), said that we need ‘real solutions’ like tapping the SPR, and said that allowing drilling wouldn’t make any difference anyway and was a gimmick. (Why not then extract money from the oil companies for the right to look?) She spoke out against the threat of global warming, and just as passionately called for oil to be released from the SPR, completely undermining her position on global warming.

See the video for yourself: Stephanopoulos Grills Pelosi

My hat is off to Stephanopoulos, as he didn’t let up. He kept asking the question, and she would throw all of these reasons out, and he would come back with “Why not allow that debate to play out?” He also pointed out her hypocrisy in refusing to allow the vote.

The Washington Post went after her as well in a Friday editorial:

No Drilling, No Vote

Instead of dealing with the issue on the merits, House Speaker Nancy Pelosi (D-Calif.), a staunch opponent of offshore drilling, has simply decreed that she will not allow a drilling vote to take place on the House floor. Why not? “What the president would like to do is to have validation for his failed policy,” she said yesterday when asked that very question. “What we’re saying is, ‘Exhaust other remedies, Mr. President.’ . . . It is the economic life of America’s families, and to suggest that drilling offshore is going to make a difference to them paycheck to paycheck now is a frivolous contention. The president has even admitted that. So what we’re saying is, ‘What can we do that is constructive?’ “

If there is an explanation buried in there about why that makes offshore drilling off-limits for a vote, we missed it. Ms. Pelosi is correct that drilling is no panacea for the nation’s energy woes. The short-term effect of lifting the moratorium, if there were any, would be minimal. That doesn’t mean the country shouldn’t consider expanded drilling as one of many alternatives. There are legitimate concerns about the environmental impact of such drilling — environmental concerns that, we would note, exist in other regions whose oil Americans are perfectly happy to consume. But have technological improvements made such drilling less risky? Why not have that debate?

The money quote, and the theme that Stephanopoulos kept coming back to: “If drilling opponents really have the better of this argument, why are they so worried about letting it come to a vote?

I will reiterate my position. I think that by the time this oil would come online – perhaps 10 years from now – the country will be in desperate need of it. We could sell the leases now and dedicate that money to moving away from oil. This addresses both the supply and demand issues. I don’t support drilling without these kinds of conditions, because we will just burn that oil up and then we will be back where we started from – or more likely worse off. If we fail to do anything, then we will continue to send more and more money out of the country to feed our dependence.

My position is explained here – The Drilling Debate: Narrowing the Chasm.

August 3, 2008 Posted by | energy policy, Nancy Pelosi, OCS, oil exploration, politics | 28 Comments

My Drilling Proposal is on the Table

I said I wasn’t going to update until Wednesday, but have a little free time this morning. Imagine my surprise to read this headline today:

Senate Democrats offer deal to break energy bill standstill

Turns out they are proposing the same deal that I proposed in my essay from last week on coming to a compromise on the drilling question:

WASHINGTON (CNN) — Senate Majority Leader Harry Reid surprised Republicans on Monday by offering them a chance to vote this week on four GOP-backed amendments to an energy bill, including one that would expand offshore oil drilling.

The possible breakthrough comes days before Congress recesses for August and lawmakers return home to face constituents anxious for relief at fuel pumps.

Reid, D-Nevada, said Democrats would allow votes on GOP amendments that would permit new drilling on the outer continental shelf; the development of oil shale in Western states; construction of new nuclear power plants; and broader legislation that Republicans have dubbed “find more, use less.” That legislation includes expanded offshore drilling, conservation initiatives, the improvement of battery technology, and language to curb speculation in the oil futures market.

Energy legislation also has been stalled in the House. A bipartisan “energy working group” of 28 lawmakers hopes to break the impasse this week by proposing a compromise that couples new offshore drilling with conservation and renewable energy programs.

Yet House Speaker Nancy Pelosi, a California Democrat, says she won’t allow a vote on a bill that includes new offshore oil drilling.

It is exactly this coupling that I think will get both sides to an agreement. Pelosi runs the risk here of losing all negotiating power if she blocks this sort of compromise. Pressure to drill will continue to increase, and right now the Democrats could still demand pretty generous concessions. I predict that unless supplies can grow (and I don’t expect them to grow much) and stay ahead of demand, then the pressure to drill will only increase over the next few years – and the Democrats will be in a weaker negotiating position. On the other hand, I think we are going to end up with a Democrat for president, and he will have something to say on the matter as well.

July 29, 2008 Posted by | Alaska, alternative energy, ANWR, energy policy, Harry Reid, Nancy Pelosi, OCS, oil exploration, oil imports, oil prices, politics | 29 Comments

The Drilling Debate: Narrowing the Chasm

I have given a lot of thought to the issue of opening up new areas for drilling in the Outer Continental Shelf (OCS) and in the Arctic National Wildlife Refuge (ANWR). My position has always been to leave that oil in place for a very rainy day. I wanted to see major conservation efforts in place before we considered tapping that oil. Opening those areas when oil was $20 a barrel would have meant that much of it would have been used frivolously.

Now that oil is over $100 – and in my opinion will be much higher in 5 or 10 years (T. Boone Pickens predicts $300/bbl in 10 years) – we will have tightened our belts a good deal by the time any of this oil could actually reach the market. Therefore, I think now is the time for Congressional hearings on opening up these areas. Let’s have an open debate on the issue. However, if these areas are opened for drilling, I have a compromise that should be very attractive to those in opposition.

Hopefully this essay conveys a pragmatic approach designed to bring two sides in this debate closer together. At present it is hard to imagine that they could be further apart. A big part of the reason for the chasm between views is that there is a great deal of misinformation and misunderstanding surrounding the issues. I hope to address those in this essay.

A recent sampling of letters to the New York Times gives a flavor of the views of the opposing sides:

To Drill or Not to Drill? There’s the Rub

First a letter opposed to further drilling:

Allowing offshore drilling for gas as a solution to high fuel costs, as President Bush urges Congress to do, is as sensible as growing more food in response to rising levels of obesity or robbing a bank in response to overspending one’s budget.

While it is not popular, the clear answer, as it is in the case of overeating and overspending, is to cut back in the consumption of food, in the consumption of one’s salary and in the consumption of fuel.

Painful as it is, I applaud the $4 gallon because it is the one thing that has finally gotten the public to focus on the fact that we need to consume less. For the first time, one hears from every quarter, turn off the lights in rooms you are not in, recycle that paper, drive less and take public transportation or ride your bike. That is the kind of talk political leaders should be encouraging, not new ways to keep up the old habits.

And one in favor:

As a 40-year Alaskan, I can tell you that opening of the Arctic National Wildlife Refuge is the most sensible solution for America’s oil problems. Most of the people who are trying to stop drilling in the refuge have never been in our state.

You have no idea how little space they are talking about. Take a regular envelope, pretend that is the refuge … now where you would put the stamp, that is the area they want to open.

Alyeska Pipeline has worked, the gas pipeline is in the process, and the Arctic National Wildlife Refuge should be. Congress is making this a party fight. How about putting that energy into fighting for all Americans, as oil prices don’t care whether you are Republican or Democrat?

So, where does the truth reside? Is it not worth the effort? Or can we “drill here, drill now” and make a significant step toward energy independence? Let’s investigate.

What is the Objective?

This is the key to the entire debate. Different groups have different agendas, and desires are often based on misinformation. Take a couple of extreme examples. I consider myself an environmentalist, but one who is practical, and informed on energy issues. Let’s take an environmentalist who may be less-informed. Like me, they are concerned about the impact of continued fossil fuel consumption on our environment. When they think of drilling, they envision oil slicks washing up on the shore, and a polluted ANWR. They see oil companies – not ordinary citizens – as the primary beneficiaries if drilling is allowed. They are optimistic about the ability of alternative fuels to rapidly scale up and replace depleting fossil fuel reserves. Or, they don’t fully understand the implications of falling fossil fuel reserves, or in an extreme case they don’t care and think the earth could use a healthy die-off of the human population.

Each of these groups is going to be vehemently opposed to opening up areas to additional drilling. They simply don’t think there is a need, and that it will simply delay our transition to alternatives. Those in Congress who are so outspoken against additional exploration likely fall into the category of ‘alternative fuel optimist.’ If they can only keep the ban in place, alternatives, mass transit, and conservation will rise to the challenge. The key to this approach is that the alternatives must deliver when they are needed, and they must cover severe shortfalls. What if they don’t? What is Plan B? Shortages? Rationing?

For our other extreme example, let’s consider the Hummer-driving, non-negotiable lifestyle mentality. The majority of this group is also not very informed on energy. They believe that underneath U.S. territory lies an ocean of oil, waiting to be tapped – if those darned environmentalists would only get out of the way. They are prepared to drill through a polar bear’s head if it will mean cheap gasoline – which they know it will. These people are going to be very outspoken about the need to drill anywhere, anytime. This approach suffers from a very similar problem as the previous approach: What if the oil that is available simply can’t cover any severe shortfalls? What if the expectations of these vast oceans of oil lead us to delay actions on alternatives? Again, what is Plan B? Military action?

The majority of us fall somewhere in between, but it breaks pretty sharply along party lines. Democrats don’t want to drill, Republicans think we should drill. Perhaps we should first develop an idea of the stakes.

How Much Oil is at Stake?

That’s a big problem. We don’t know. All we have right now are ‘educated’ guesses. Multiple government agencies have made assessments. The Minerals Management Service in the Department of the Interior estimated in 2006:

The MMS estimates that the quantity of undiscovered technically recoverable resources ranges from 66.6 to 115.3 billion barrels of oil and 326.4 to 565.9 trillion cubic feet of natural gas. The mean or average estimate is 85.9 billion barrels of oil and 419.9 trillion cubic feet of natural gas.

Of that, they estimate that reserves in areas currently off-limits to exploration amount to just under 18 billion barrels. Based on the 2007 U.S. consumption rate of 20.7 million barrels of oil per day, 18 billion barrels would last just under 2.5 years.

The EIA estimate from areas currently off-limits to exploration was very similar at just over 18 billion barrels:

Impacts of Increased Access to Oil and Natural Gas Resources in the Lower 48 Federal Outer Continental Shelf

This graphic was recently used in a post at Grist by Joseph Romm, who argued that the amount of oil that is off limits has been greatly exaggerated. Based on the above graphic, Romm has a point, as the amount of undiscovered oil in areas open to exploration is more than twice the estimate from areas off limits to exploration. However, much of that oil is in mile-deep water that will be very expensive to develop. So the comparison isn’t necessarily apples to apples.

Estimates of recoverable oil from ANWR are of a similar magnitude. The Energy Information Administration (EIA) in a 2008 report noted:

In the mean oil resource case, the total volume of technically recoverable crude oil projected to be found within the coastal plain area is 10.4 billion barrels, compared to 5.7 billion barrels for the 95-percent probability estimate, and 16.0 billion barrels for the 5-percent probability estimate.

The EIA also presumes that it will take 10 years to scale up and bring production online:

At the present time, there has been no crude oil production in the ANWR coastal plain region. This analysis assumes that enactment of the legislation in 2008 would result in first production from the ANWR area in 10 years, i.e., 2018.

The primary constraints to a rapid development of ANWR oil resources are the limited weather “windows” for collecting seismic data and drilling wells (a 3-to-4 month winter window) and for ocean barging of heavy infrastructure equipment to the well site (a 2-to-3 month summer window).

The timeline broke down as 2 to 3 years to obtain leases, 2 to 3 years to drill an exploratory well, 1 to 2 years to develop a production development plan, and 3 to 4 years to build infrastructure.

What’s the bottom line? With an estimated 18 billion barrels of oil offshore and 10 billion barrels in ANWR, there is potentially enough oil there to meet four years of U.S. demand. However, in terms of imports, currently around 13 million barrels a day, there is potentially enough there to eliminate oil imports for nearly 6 years. Further, based on my proposal below, there may be enough there to eliminate imports for 20 years.

Finally, consider the economic ramifications. If we do nothing, despite well-intentioned calls for conservation, our insatiable demand for oil imports will continue. With production from some of our major suppliers having peaked (e.g., Mexico) and with internal consumption in other countries negatively affecting their exports, the price of oil will be under constant upward pressure over the long term. If we don’t produce those 28 billion barrels of oil, we will go and buy those barrels on the open market. At today’s oil price, that means that about $3.5 trillion will leave this country, much of it flowing into countries that are hostile to the U.S. By keeping that money at home, we can not only create jobs, but we have an opportunity here to fund a transition away from oil, and to more sustainable options.

Let’s Compromise

Both sides generally agree that our dependence on petroleum is a problem. Among the arguments from both sides is that this dependence puts our national security at risk and that it endangers the environment. I think both sides would agree that a long-term solution to the problem could be a combination of conservation, along with alternative options such as higher efficiency vehicles, electric transport, and mass transit. Where large numbers will start to disagree is whether this is achievable in the short-term, or whether it is going to take a few more years and a few more technological developments.

I fall into the latter category, for a variety of reasons. I am pretty familiar with a lot of the alternatives, and they are simply not competitive even at gasoline prices of >$4/gallon. To illustrate that point, consider Europe, where gasoline prices in many locations are now approaching $10/gallon. Even at that price, fossil fuels remain the dominant choice for transportation. It is going to take more than price – or at a minimum much higher prices than Americans probably anticipate – to drive us away from a very high level of dependence upon fossil fuels.

So how about a compromise? I propose that we open up some of the more promising areas to exploration, and then devote the royalties to funding fossil fuel alternatives. We could subsidize public transportation. We could provide a tax credit of $1,000 for each person who purchases a car that gets over 40 mpg. We could borrow a page from T. Boone Pickens’ plan, use these oil revenues to fund wind and solar power, and displace natural gas which could then be used to displace petroleum.

It is true that the oil won’t flow from these areas for perhaps a decade, but by then we are likely to be in very bad need of it. Prices will probably be very high, which means the royalties from the oil will provide a lot of money for funding alternatives. This should be a compromise that parties from both sides could agree to. If not, then what’s going to happen is that as prices continue to rise, so will the pressure to drill, and Congress will eventually cave in to these demands. But by failing to earmark the money for alternatives, it will just postpone the inevitable. So now is an opportune time to hold open Congressional hearings on the subject.

That’s a compromise I prefer. However, one that would have even greater support behind it would be to return an oil dividend to U.S. citizens (as Alaska has historically done). That is tangible for people, whereas funding the alternatives may not be. However, while I think this compromise would find wide support among many people with stretched budgets, it does nothing to address the problem of oil dependence. That, in my opinion, must be part of any solution.

A final excerpt from those New York Times letters summed it up best, in my opinion:

People say we should have a Manhattan Project-style program to develop alternative energy. That is fine, but while the Manhattan Project was continuing, we did not put World War II on hold while we waited for the atom bomb. The conventional war was continually fought throughout that time.

Conclusion

As I recently calculated, we could displace a great deal of our fossil fuel consumption with solar power, but it will ultimately take a multi-trillion dollar investment. We could borrow from T. Boone Pickens’ plan and use wind and solar power to displace natural gas that is currently used to produce electricity. That natural gas could then be used in CNG vehicles to displace petroleum. The net impact would be a large reduction in our fossil fuel consumption (and note that it is much easier to produce natural gas from biomass than it is to produce liquid fuels).

We sit on top of trillions of dollars of oil. We should use it – sparingly – to wean ourselves from oil dependence. The realistic alternative to this is that we continue to be highly dependent upon petroleum. As a result, we will watch those dollars flow out of the U.S. – right up until the point that our imports dry up and we watch a new generation of sons and daughters march off to fight resource wars because of our failure to plan ahead.

July 23, 2008 Posted by | Alaska, alternative energy, ANWR, OCS, oil exploration, oil imports, oil prices, solar power, wind power | Comments Off on The Drilling Debate: Narrowing the Chasm

The Drilling Debate: Narrowing the Chasm

I have given a lot of thought to the issue of opening up new areas for drilling in the Outer Continental Shelf (OCS) and in the Arctic National Wildlife Refuge (ANWR). My position has always been to leave that oil in place for a very rainy day. I wanted to see major conservation efforts in place before we considered tapping that oil. Opening those areas when oil was $20 a barrel would have meant that much of it would have been used frivolously.

Now that oil is over $100 – and in my opinion will be much higher in 5 or 10 years (T. Boone Pickens predicts $300/bbl in 10 years) – we will have tightened our belts a good deal by the time any of this oil could actually reach the market. Therefore, I think now is the time for Congressional hearings on opening up these areas. Let’s have an open debate on the issue. However, if these areas are opened for drilling, I have a compromise that should be very attractive to those in opposition.

Hopefully this essay conveys a pragmatic approach designed to bring two sides in this debate closer together. At present it is hard to imagine that they could be further apart. A big part of the reason for the chasm between views is that there is a great deal of misinformation and misunderstanding surrounding the issues. I hope to address those in this essay.

A recent sampling of letters to the New York Times gives a flavor of the views of the opposing sides:

To Drill or Not to Drill? There’s the Rub

First a letter opposed to further drilling:

Allowing offshore drilling for gas as a solution to high fuel costs, as President Bush urges Congress to do, is as sensible as growing more food in response to rising levels of obesity or robbing a bank in response to overspending one’s budget.

While it is not popular, the clear answer, as it is in the case of overeating and overspending, is to cut back in the consumption of food, in the consumption of one’s salary and in the consumption of fuel.

Painful as it is, I applaud the $4 gallon because it is the one thing that has finally gotten the public to focus on the fact that we need to consume less. For the first time, one hears from every quarter, turn off the lights in rooms you are not in, recycle that paper, drive less and take public transportation or ride your bike. That is the kind of talk political leaders should be encouraging, not new ways to keep up the old habits.

And one in favor:

As a 40-year Alaskan, I can tell you that opening of the Arctic National Wildlife Refuge is the most sensible solution for America’s oil problems. Most of the people who are trying to stop drilling in the refuge have never been in our state.

You have no idea how little space they are talking about. Take a regular envelope, pretend that is the refuge … now where you would put the stamp, that is the area they want to open.

Alyeska Pipeline has worked, the gas pipeline is in the process, and the Arctic National Wildlife Refuge should be. Congress is making this a party fight. How about putting that energy into fighting for all Americans, as oil prices don’t care whether you are Republican or Democrat?

So, where does the truth reside? Is it not worth the effort? Or can we “drill here, drill now” and make a significant step toward energy independence? Let’s investigate.

What is the Objective?

This is the key to the entire debate. Different groups have different agendas, and desires are often based on misinformation. Take a couple of extreme examples. I consider myself an environmentalist, but one who is practical, and informed on energy issues. Let’s take an environmentalist who may be less-informed. Like me, they are concerned about the impact of continued fossil fuel consumption on our environment. When they think of drilling, they envision oil slicks washing up on the shore, and a polluted ANWR. They see oil companies – not ordinary citizens – as the primary beneficiaries if drilling is allowed. They are optimistic about the ability of alternative fuels to rapidly scale up and replace depleting fossil fuel reserves. Or, they don’t fully understand the implications of falling fossil fuel reserves, or in an extreme case they don’t care and think the earth could use a healthy die-off of the human population.

Each of these groups is going to be vehemently opposed to opening up areas to additional drilling. They simply don’t think there is a need, and that it will simply delay our transition to alternatives. Those in Congress who are so outspoken against additional exploration likely fall into the category of ‘alternative fuel optimist.’ If they can only keep the ban in place, alternatives, mass transit, and conservation will rise to the challenge. The key to this approach is that the alternatives must deliver when they are needed, and they must cover severe shortfalls. What if they don’t? What is Plan B? Shortages? Rationing?

For our other extreme example, let’s consider the Hummer-driving, non-negotiable lifestyle mentality. The majority of this group is also not very informed on energy. They believe that underneath U.S. territory lies an ocean of oil, waiting to be tapped – if those darned environmentalists would only get out of the way. They are prepared to drill through a polar bear’s head if it will mean cheap gasoline – which they know it will. These people are going to be very outspoken about the need to drill anywhere, anytime. This approach suffers from a very similar problem as the previous approach: What if the oil that is available simply can’t cover any severe shortfalls? What if the expectations of these vast oceans of oil lead us to delay actions on alternatives? Again, what is Plan B? Military action?

The majority of us fall somewhere in between, but it breaks pretty sharply along party lines. Democrats don’t want to drill, Republicans think we should drill. Perhaps we should first develop an idea of the stakes.

How Much Oil is at Stake?

That’s a big problem. We don’t know. All we have right now are ‘educated’ guesses. Multiple government agencies have made assessments. The Minerals Management Service in the Department of the Interior estimated in 2006:

The MMS estimates that the quantity of undiscovered technically recoverable resources ranges from 66.6 to 115.3 billion barrels of oil and 326.4 to 565.9 trillion cubic feet of natural gas. The mean or average estimate is 85.9 billion barrels of oil and 419.9 trillion cubic feet of natural gas.

Of that, they estimate that reserves in areas currently off-limits to exploration amount to just under 18 billion barrels. Based on the 2007 U.S. consumption rate of 20.7 million barrels of oil per day, 18 billion barrels would last just under 2.5 years.

The EIA estimate from areas currently off-limits to exploration was very similar at just over 18 billion barrels:

Impacts of Increased Access to Oil and Natural Gas Resources in the Lower 48 Federal Outer Continental Shelf

This graphic was recently used in a post at Grist by Joseph Romm, who argued that the amount of oil that is off limits has been greatly exaggerated. Based on the above graphic, Romm has a point, as the amount of undiscovered oil in areas open to exploration is more than twice the estimate from areas off limits to exploration. However, much of that oil is in mile-deep water that will be very expensive to develop. So the comparison isn’t necessarily apples to apples.

Estimates of recoverable oil from ANWR are of a similar magnitude. The Energy Information Administration (EIA) in a 2008 report noted:

In the mean oil resource case, the total volume of technically recoverable crude oil projected to be found within the coastal plain area is 10.4 billion barrels, compared to 5.7 billion barrels for the 95-percent probability estimate, and 16.0 billion barrels for the 5-percent probability estimate.

The EIA also presumes that it will take 10 years to scale up and bring production online:

At the present time, there has been no crude oil production in the ANWR coastal plain region. This analysis assumes that enactment of the legislation in 2008 would result in first production from the ANWR area in 10 years, i.e., 2018.

The primary constraints to a rapid development of ANWR oil resources are the limited weather “windows” for collecting seismic data and drilling wells (a 3-to-4 month winter window) and for ocean barging of heavy infrastructure equipment to the well site (a 2-to-3 month summer window).

The timeline broke down as 2 to 3 years to obtain leases, 2 to 3 years to drill an exploratory well, 1 to 2 years to develop a production development plan, and 3 to 4 years to build infrastructure.

What’s the bottom line? With an estimated 18 billion barrels of oil offshore and 10 billion barrels in ANWR, there is potentially enough oil there to meet four years of U.S. demand. However, in terms of imports, currently around 13 million barrels a day, there is potentially enough there to eliminate oil imports for nearly 6 years. Further, based on my proposal below, there may be enough there to eliminate imports for 20 years.

Finally, consider the economic ramifications. If we do nothing, despite well-intentioned calls for conservation, our insatiable demand for oil imports will continue. With production from some of our major suppliers having peaked (e.g., Mexico) and with internal consumption in other countries negatively affecting their exports, the price of oil will be under constant upward pressure over the long term. If we don’t produce those 28 billion barrels of oil, we will go and buy those barrels on the open market. At today’s oil price, that means that about $3.5 trillion will leave this country, much of it flowing into countries that are hostile to the U.S. By keeping that money at home, we can not only create jobs, but we have an opportunity here to fund a transition away from oil, and to more sustainable options.

Let’s Compromise

Both sides generally agree that our dependence on petroleum is a problem. Among the arguments from both sides is that this dependence puts our national security at risk and that it endangers the environment. I think both sides would agree that a long-term solution to the problem could be a combination of conservation, along with alternative options such as higher efficiency vehicles, electric transport, and mass transit. Where large numbers will start to disagree is whether this is achievable in the short-term, or whether it is going to take a few more years and a few more technological developments.

I fall into the latter category, for a variety of reasons. I am pretty familiar with a lot of the alternatives, and they are simply not competitive even at gasoline prices of >$4/gallon. To illustrate that point, consider Europe, where gasoline prices in many locations are now approaching $10/gallon. Even at that price, fossil fuels remain the dominant choice for transportation. It is going to take more than price – or at a minimum much higher prices than Americans probably anticipate – to drive us away from a very high level of dependence upon fossil fuels.

So how about a compromise? I propose that we open up some of the more promising areas to exploration, and then devote the royalties to funding fossil fuel alternatives. We could subsidize public transportation. We could provide a tax credit of $1,000 for each person who purchases a car that gets over 40 mpg. We could borrow a page from T. Boone Pickens’ plan, use these oil revenues to fund wind and solar power, and displace natural gas which could then be used to displace petroleum.

It is true that the oil won’t flow from these areas for perhaps a decade, but by then we are likely to be in very bad need of it. Prices will probably be very high, which means the royalties from the oil will provide a lot of money for funding alternatives. This should be a compromise that parties from both sides could agree to. If not, then what’s going to happen is that as prices continue to rise, so will the pressure to drill, and Congress will eventually cave in to these demands. But by failing to earmark the money for alternatives, it will just postpone the inevitable. So now is an opportune time to hold open Congressional hearings on the subject.

That’s a compromise I prefer. However, one that would have even greater support behind it would be to return an oil dividend to U.S. citizens (as Alaska has historically done). That is tangible for people, whereas funding the alternatives may not be. However, while I think this compromise would find wide support among many people with stretched budgets, it does nothing to address the problem of oil dependence. That, in my opinion, must be part of any solution.

A final excerpt from those New York Times letters summed it up best, in my opinion:

People say we should have a Manhattan Project-style program to develop alternative energy. That is fine, but while the Manhattan Project was continuing, we did not put World War II on hold while we waited for the atom bomb. The conventional war was continually fought throughout that time.

Conclusion

As I recently calculated, we could displace a great deal of our fossil fuel consumption with solar power, but it will ultimately take a multi-trillion dollar investment. We could borrow from T. Boone Pickens’ plan and use wind and solar power to displace natural gas that is currently used to produce electricity. That natural gas could then be used in CNG vehicles to displace petroleum. The net impact would be a large reduction in our fossil fuel consumption (and note that it is much easier to produce natural gas from biomass than it is to produce liquid fuels).

We sit on top of trillions of dollars of oil. We should use it – sparingly – to wean ourselves from oil dependence. The realistic alternative to this is that we continue to be highly dependent upon petroleum. As a result, we will watch those dollars flow out of the U.S. – right up until the point that our imports dry up and we watch a new generation of sons and daughters march off to fight resource wars because of our failure to plan ahead.

July 23, 2008 Posted by | Alaska, alternative energy, ANWR, OCS, oil exploration, oil imports, oil prices, solar power, wind power | 71 Comments

The Drilling Debate: Narrowing the Chasm

I have given a lot of thought to the issue of opening up new areas for drilling in the Outer Continental Shelf (OCS) and in the Arctic National Wildlife Refuge (ANWR). My position has always been to leave that oil in place for a very rainy day. I wanted to see major conservation efforts in place before we considered tapping that oil. Opening those areas when oil was $20 a barrel would have meant that much of it would have been used frivolously.

Now that oil is over $100 – and in my opinion will be much higher in 5 or 10 years (T. Boone Pickens predicts $300/bbl in 10 years) – we will have tightened our belts a good deal by the time any of this oil could actually reach the market. Therefore, I think now is the time for Congressional hearings on opening up these areas. Let’s have an open debate on the issue. However, if these areas are opened for drilling, I have a compromise that should be very attractive to those in opposition.

Hopefully this essay conveys a pragmatic approach designed to bring two sides in this debate closer together. At present it is hard to imagine that they could be further apart. A big part of the reason for the chasm between views is that there is a great deal of misinformation and misunderstanding surrounding the issues. I hope to address those in this essay.

A recent sampling of letters to the New York Times gives a flavor of the views of the opposing sides:

To Drill or Not to Drill? There’s the Rub

First a letter opposed to further drilling:

Allowing offshore drilling for gas as a solution to high fuel costs, as President Bush urges Congress to do, is as sensible as growing more food in response to rising levels of obesity or robbing a bank in response to overspending one’s budget.

While it is not popular, the clear answer, as it is in the case of overeating and overspending, is to cut back in the consumption of food, in the consumption of one’s salary and in the consumption of fuel.

Painful as it is, I applaud the $4 gallon because it is the one thing that has finally gotten the public to focus on the fact that we need to consume less. For the first time, one hears from every quarter, turn off the lights in rooms you are not in, recycle that paper, drive less and take public transportation or ride your bike. That is the kind of talk political leaders should be encouraging, not new ways to keep up the old habits.

And one in favor:

As a 40-year Alaskan, I can tell you that opening of the Arctic National Wildlife Refuge is the most sensible solution for America’s oil problems. Most of the people who are trying to stop drilling in the refuge have never been in our state.

You have no idea how little space they are talking about. Take a regular envelope, pretend that is the refuge … now where you would put the stamp, that is the area they want to open.

Alyeska Pipeline has worked, the gas pipeline is in the process, and the Arctic National Wildlife Refuge should be. Congress is making this a party fight. How about putting that energy into fighting for all Americans, as oil prices don’t care whether you are Republican or Democrat?

So, where does the truth reside? Is it not worth the effort? Or can we “drill here, drill now” and make a significant step toward energy independence? Let’s investigate.

What is the Objective?

This is the key to the entire debate. Different groups have different agendas, and desires are often based on misinformation. Take a couple of extreme examples. I consider myself an environmentalist, but one who is practical, and informed on energy issues. Let’s take an environmentalist who may be less-informed. Like me, they are concerned about the impact of continued fossil fuel consumption on our environment. When they think of drilling, they envision oil slicks washing up on the shore, and a polluted ANWR. They see oil companies – not ordinary citizens – as the primary beneficiaries if drilling is allowed. They are optimistic about the ability of alternative fuels to rapidly scale up and replace depleting fossil fuel reserves. Or, they don’t fully understand the implications of falling fossil fuel reserves, or in an extreme case they don’t care and think the earth could use a healthy die-off of the human population.

Each of these groups is going to be vehemently opposed to opening up areas to additional drilling. They simply don’t think there is a need, and that it will simply delay our transition to alternatives. Those in Congress who are so outspoken against additional exploration likely fall into the category of ‘alternative fuel optimist.’ If they can only keep the ban in place, alternatives, mass transit, and conservation will rise to the challenge. The key to this approach is that the alternatives must deliver when they are needed, and they must cover severe shortfalls. What if they don’t? What is Plan B? Shortages? Rationing?

For our other extreme example, let’s consider the Hummer-driving, non-negotiable lifestyle mentality. The majority of this group is also not very informed on energy. They believe that underneath U.S. territory lies an ocean of oil, waiting to be tapped – if those darned environmentalists would only get out of the way. They are prepared to drill through a polar bear’s head if it will mean cheap gasoline – which they know it will. These people are going to be very outspoken about the need to drill anywhere, anytime. This approach suffers from a very similar problem as the previous approach: What if the oil that is available simply can’t cover any severe shortfalls? What if the expectations of these vast oceans of oil lead us to delay actions on alternatives? Again, what is Plan B? Military action?

The majority of us fall somewhere in between, but it breaks pretty sharply along party lines. Democrats don’t want to drill, Republicans think we should drill. Perhaps we should first develop an idea of the stakes.

How Much Oil is at Stake?

That’s a big problem. We don’t know. All we have right now are ‘educated’ guesses. Multiple government agencies have made assessments. The Minerals Management Service in the Department of the Interior estimated in 2006:

The MMS estimates that the quantity of undiscovered technically recoverable resources ranges from 66.6 to 115.3 billion barrels of oil and 326.4 to 565.9 trillion cubic feet of natural gas. The mean or average estimate is 85.9 billion barrels of oil and 419.9 trillion cubic feet of natural gas.

Of that, they estimate that reserves in areas currently off-limits to exploration amount to just under 18 billion barrels. Based on the 2007 U.S. consumption rate of 20.7 million barrels of oil per day, 18 billion barrels would last just under 2.5 years.

The EIA estimate from areas currently off-limits to exploration was very similar at just over 18 billion barrels:

Impacts of Increased Access to Oil and Natural Gas Resources in the Lower 48 Federal Outer Continental Shelf

This graphic was recently used in a post at Grist by Joseph Romm, who argued that the amount of oil that is off limits has been greatly exaggerated. Based on the above graphic, Romm has a point, as the amount of undiscovered oil in areas open to exploration is more than twice the estimate from areas off limits to exploration. However, much of that oil is in mile-deep water that will be very expensive to develop. So the comparison isn’t necessarily apples to apples.

Estimates of recoverable oil from ANWR are of a similar magnitude. The Energy Information Administration (EIA) in a 2008 report noted:

In the mean oil resource case, the total volume of technically recoverable crude oil projected to be found within the coastal plain area is 10.4 billion barrels, compared to 5.7 billion barrels for the 95-percent probability estimate, and 16.0 billion barrels for the 5-percent probability estimate.

The EIA also presumes that it will take 10 years to scale up and bring production online:

At the present time, there has been no crude oil production in the ANWR coastal plain region. This analysis assumes that enactment of the legislation in 2008 would result in first production from the ANWR area in 10 years, i.e., 2018.

The primary constraints to a rapid development of ANWR oil resources are the limited weather “windows” for collecting seismic data and drilling wells (a 3-to-4 month winter window) and for ocean barging of heavy infrastructure equipment to the well site (a 2-to-3 month summer window).

The timeline broke down as 2 to 3 years to obtain leases, 2 to 3 years to drill an exploratory well, 1 to 2 years to develop a production development plan, and 3 to 4 years to build infrastructure.

What’s the bottom line? With an estimated 18 billion barrels of oil offshore and 10 billion barrels in ANWR, there is potentially enough oil there to meet four years of U.S. demand. However, in terms of imports, currently around 10 million barrels a day, there is potentially enough there to eliminate oil imports for nearly 8 years. Further, based on my proposal below, there may be enough there to eliminate imports for 20 years.

Finally, consider the economic ramifications. If we do nothing, despite well-intentioned calls for conservation, our insatiable demand for oil imports will continue. With production from some of our major suppliers having peaked (e.g., Mexico) and with internal consumption in other countries negatively affecting their exports, the price of oil will be under constant upward pressure over the long term. If we don’t produce those 28 billion barrels of oil, we will go and buy those barrels on the open market. At today’s oil price, that means that about $3.5 trillion will leave this country, much of it flowing into countries that are hostile to the U.S. By keeping that money at home, we can not only create jobs, but we have an opportunity here to fund a transition away from oil, and to more sustainable options.

Let’s Compromise

Both sides generally agree that our dependence on petroleum is a problem. Among the arguments from both sides is that this dependence puts our national security at risk and that it endangers the environment. I think both sides would agree that a long-term solution to the problem could be a combination of conservation, along with alternative options such as higher efficiency vehicles, electric transport, and mass transit. Where large numbers will start to disagree is whether this is achievable in the short-term, or whether it is going to take a few more years and a few more technological developments.

I fall into the latter category, for a variety of reasons. I am pretty familiar with a lot of the alternatives, and they are simply not competitive even at gasoline prices of >$4/gallon. To illustrate that point, consider Europe, where gasoline prices in many locations are now approaching $10/gallon. Even at that price, fossil fuels remain the dominant choice for transportation. It is going to take more than price – or at a minimum much higher prices than Americans probably anticipate – to drive us away from a very high level of dependence upon fossil fuels.

So how about a compromise? I propose that we open up some of the more promising areas to exploration, and then devote the royalties to funding fossil fuel alternatives. We could subsidize public transportation. We could provide a tax credit of $1,000 for each person who purchases a car that gets over 40 mpg. We could borrow a page from T. Boone Pickens’ plan, use these oil revenues to fund wind and solar power, and displace natural gas which could then be used to displace petroleum.

It is true that the oil won’t flow from these areas for perhaps a decade, but by then we are likely to be in very bad need of it. Prices will probably be very high, which means the royalties from the oil will provide a lot of money for funding alternatives. This should be a compromise that parties from both sides could agree to. If not, then what’s going to happen is that as prices continue to rise, so will the pressure to drill, and Congress will eventually cave in to these demands. But by failing to earmark the money for alternatives, it will just postpone the inevitable. So now is an opportune time to hold open Congressional hearings on the subject.

That’s a compromise I prefer. However, one that would have even greater support behind it would be to return an oil dividend to U.S. citizens (as Alaska has historically done). That is tangible for people, whereas funding the alternatives may not be. However, while I think this compromise would find wide support among many people with stretched budgets, it does nothing to address the problem of oil dependence. That, in my opinion, must be part of any solution.

A final excerpt from those New York Times letters summed it up best, in my opinion:

People say we should have a Manhattan Project-style program to develop alternative energy. That is fine, but while the Manhattan Project was continuing, we did not put World War II on hold while we waited for the atom bomb. The conventional war was continually fought throughout that time.

Conclusion

As I recently calculated, we could displace a great deal of our fossil fuel consumption with solar power, but it will ultimately take a multi-trillion dollar investment. We could borrow from T. Boone Pickens’ plan and use wind and solar power to displace natural gas that is currently used to produce electricity. That natural gas could then be used in CNG vehicles to displace petroleum. The net impact would be a large reduction in our fossil fuel consumption (and note that it is much easier to produce natural gas from biomass than it is to produce liquid fuels).

We sit on top of trillions of dollars of oil. We should use it – sparingly – to wean ourselves from oil dependence. The realistic alternative to this is that we continue to be highly dependent upon petroleum. As a result, we will watch those dollars flow out of the U.S. – right up until the point that our imports dry up and we watch a new generation of sons and daughters march off to fight resource wars because of our failure to plan ahead.

July 23, 2008 Posted by | Alaska, alternative energy, ANWR, OCS, oil exploration, oil imports, oil prices, solar power, wind power | 71 Comments

Support for Energy Exploration Rises

I was recently pointed to a new survey on energy conducted by the Pew Research Center for the People & the Press. I have to admit that I do not know the political leanings (if any) of this organization. The surveys on their homepage looked pretty balanced to me. Regardless, I was pretty surprised at the results of the survey, a summary of which can be found here.


Source: Pew Research Center

As Gas Prices Pinch, Support for Energy Exploration Rises

The public’s changing energy priorities are most evident in the growing percentage that views increased energy exploration – including mining and drilling, as well as the construction of new power plants – as a more important priority for energy policy than increased conservation and regulation. Nearly half (47%) now rates energy exploration as the more important priority, up from 35% in February. The proportion saying it is more important to increase energy conservation and regulation has declined by 10 points (from 55% to 45%).

The survey found a sharp shift among nearly all demographics toward increased oil exploration. The biggest shift came among those surveyed who either described themselves as young (+25% shift since February) or liberal (+23% shift since February). In fact, the poll found that support for increased exploration is now even higher among Democrats (46% in favor) than among Republicans (43%). Oddly, Republicans registered a 6% drop in support for increased exploration compared to the February poll, while Democrats registered a 16% gain in support for increased exploration.

There were still sharp contrasts on the topic of drilling in ANWR. 75% of Republicans favored this, while only 36% of Democrats did. The poll also showed a trend of greater support for ANWR drilling at successively greater age groupings. Only 37% of those 18-29 were in support of ANWR drilling, while 62% of those over 65 favored ANWR drilling.

The poll also asked about views on the war in Iraq, but these had changed little since the last survey in February.

I have been asked a number of times for my own views on this topic, and I will soon post something on the subject.

July 14, 2008 Posted by | energy policy, oil exploration, opinion survey, politics | Comments Off on Support for Energy Exploration Rises

Support for Energy Exploration Rises

I was recently pointed to a new survey on energy conducted by the Pew Research Center for the People & the Press. I have to admit that I do not know the political leanings (if any) of this organization. The surveys on their homepage looked pretty balanced to me. Regardless, I was pretty surprised at the results of the survey, a summary of which can be found here.


Source: Pew Research Center

As Gas Prices Pinch, Support for Energy Exploration Rises

The public’s changing energy priorities are most evident in the growing percentage that views increased energy exploration – including mining and drilling, as well as the construction of new power plants – as a more important priority for energy policy than increased conservation and regulation. Nearly half (47%) now rates energy exploration as the more important priority, up from 35% in February. The proportion saying it is more important to increase energy conservation and regulation has declined by 10 points (from 55% to 45%).

The survey found a sharp shift among nearly all demographics toward increased oil exploration. The biggest shift came among those surveyed who either described themselves as young (+25% shift since February) or liberal (+23% shift since February). In fact, the poll found that support for increased exploration is now even higher among Democrats (46% in favor) than among Republicans (43%). Oddly, Republicans registered a 6% drop in support for increased exploration compared to the February poll, while Democrats registered a 16% gain in support for increased exploration.

There were still sharp contrasts on the topic of drilling in ANWR. 75% of Republicans favored this, while only 36% of Democrats did. The poll also showed a trend of greater support for ANWR drilling at successively greater age groupings. Only 37% of those 18-29 were in support of ANWR drilling, while 62% of those over 65 favored ANWR drilling.

The poll also asked about views on the war in Iraq, but these had changed little since the last survey in February.

I have been asked a number of times for my own views on this topic, and I will soon post something on the subject.

July 14, 2008 Posted by | energy policy, oil exploration, opinion survey, politics | 23 Comments

Support for Energy Exploration Rises

I was recently pointed to a new survey on energy conducted by the Pew Research Center for the People & the Press. I have to admit that I do not know the political leanings (if any) of this organization. The surveys on their homepage looked pretty balanced to me. Regardless, I was pretty surprised at the results of the survey, a summary of which can be found here.


Source: Pew Research Center

As Gas Prices Pinch, Support for Energy Exploration Rises

The public’s changing energy priorities are most evident in the growing percentage that views increased energy exploration – including mining and drilling, as well as the construction of new power plants – as a more important priority for energy policy than increased conservation and regulation. Nearly half (47%) now rates energy exploration as the more important priority, up from 35% in February. The proportion saying it is more important to increase energy conservation and regulation has declined by 10 points (from 55% to 45%).

The survey found a sharp shift among nearly all demographics toward increased oil exploration. The biggest shift came among those surveyed who either described themselves as young (+25% shift since February) or liberal (+23% shift since February). In fact, the poll found that support for increased exploration is now even higher among Democrats (46% in favor) than among Republicans (43%). Oddly, Republicans registered a 6% drop in support for increased exploration compared to the February poll, while Democrats registered a 16% gain in support for increased exploration.

There were still sharp contrasts on the topic of drilling in ANWR. 75% of Republicans favored this, while only 36% of Democrats did. The poll also showed a trend of greater support for ANWR drilling at successively greater age groupings. Only 37% of those 18-29 were in support of ANWR drilling, while 62% of those over 65 favored ANWR drilling.

The poll also asked about views on the war in Iraq, but these had changed little since the last survey in February.

I have been asked a number of times for my own views on this topic, and I will soon post something on the subject.

July 14, 2008 Posted by | energy policy, oil exploration, opinion survey, politics | 23 Comments