Where there's oil and gas, there's milk and honey.
That is the thrust of the American Petroleum Institute's report to the platform committees of the Republican and Democratic parties. It was previewed in Washington on May 15 by API President and CEO Jack Gerard, the oil industry's man on Earth, known for his tough attitudes to just about everything, but the Obama administration in particular.
In unveiling the report at the National Press Club, Gerard declared that the recommendations were without political slant and were delivered to both parties’ platform committees without favor; although it is generally known that the oil and gas industry — and Big Oil in particular — cares not a jot for the Democrats. In a slip, while reading a prepared statement, Gerard referred to the “Democrat Party,” which is a term used by conservative commentators and members of the Republican Party who cannot stand the thought of Democrats having a monopoly on the word democratic.
As expected, and in line with other recent utterances, Gerard called for accelerated leasing on federal lands, demanded more sensitive regulation, and declared his belief that the United States is potentially the greatest energy producer on Earth.
The White House shot back at API almost immediately, claiming it is the oil the industry that is lagging not the government.
Not to be outshot, Gerard said, “Once again, the administration is trotting out claims about idle leases to divert attention from the fact it has been restricting oil and natural gas development, leasing less often, shortening lease terms, and going slow on permit approvals—actions which have undermined public support for the administration on energy. It is also increasing or threatening to increase industry’s development costs through higher taxes, higher royalty rates, and higher minimum lease bids.”
Even if the administration is right this time, it has a hard sell ahead.
In the case of natural gas, there has been a giant windfall from shale seams; but that has been coming for some time, and the administration can take no particular credit. Similarly, oil imports are down from 57 percent to 45 percent, reflecting increased domestic production, something that helps more with the balance of payments than the price at the pump.
Gerard admitted that while natural gas prices are at historic lows because of new recovery and drilling technology, oil is priced internationally and that is no help to American consumers. API and its chief tend to conflate oil and gas to make a point. Likewise, they like to include Canada in “North American” energy.
But the energy claims of the administration are even harder to follow and more dubious. It likes to confuse fossil fuels – coal, gas and oil — with electricity and, in particular, with alternative energy, like wind, solar and, in a manner of speaking, nuclear.
Most energy gurus see the dawning of a switch from oil to electricity for personal transportation, for buses and some trucks. But that dawn is breaking slowly with consumer indifference, battery life questions and other problems, including the availability of rare earths for motors and wind turbines.
Experience suggests that energy is a lousy political issue. It is complicated; each side has its own facts and there is some truth to both sides’ facts.
At the end of the day, the energy debate is reduced not to the amount of drilling taking place on federal lands, or to the virtues of natural gas over nuclear, but to the price of gasoline at election time. If that is lower than it is today, President Obama garners votes. If it is up, no matter why, all the GOP and Mitt Romney have to say is that it is Obama's fault.
The money vote is known already: With a very few exceptions the energy money is on the GOP. But that is not new. What is new is that environment is not on the agenda. Better wait until 2016.
Lemuel Gulliver is back! You remember him – he’s the hero of “Gulliver’s Travels,” a satire written by Jonathan Swift, first published in 1726.
Many adventures befall Gulliver, but the one most remembered is that he's captured and pinned down with innumerable strings by the tiny Lilliputians. By their standards, he was a giant, but they tied him down so well that he was helpless.
That, according to those seeking the Republican presidential nomination, is the state of the U.S. energy industry – by energy, they mean oil and gas.
According to Newt Gingrich, who's echoed by frontrunner Mitt Romney and his two rivals, the oil and gas industries have been cruelly tied down by government, which imposes onerous environmental regulations and restricts drilling in the most hopeful parts of our ocean shelves and on federal lands.
If these lands and ocean sites were just opened to drilling, the Republican hopefuls argue, the United States would become the world’s greatest energy producer, as it was in the 1940s and 1950s. Drill, baby, drill and a gigantic cornucopia of energy awaits; energy for the United States and the world.
Jack Gerard, president and CEO of the American Petroleum Institute, the take-no-prisoners trade association that represents nearly 500 oil and gas companies, is a vocal advocate of more drilling in more places. He's a Gulliver theorist.
From Republicans and the oil industry, this is a new optimism born of an old idea. The old idea is that if you drill enough holes in enough places, oil will be abundant.
That optimism has existed more in the fringe world of wildcatting than it did in the big oil companies, which knew that there were limited reserves of recoverable oil and gas in the United States. They also knew that once a reserve is in production, you can calculate the point at which it will decline; as has happened with the North Slope of Alaska, where less than half the 2 million barrels a day produced at its peak is flowing today.
Then came the new technologies, largely developed by the despised government. Now in full deployment, these technologies have incontrovertibly changed expectations for natural gas but their impact on oil is debatable.
The first of these is 3-D seismic mapping. Advanced physics enables the companies to determine very accurately how much hydrocarbon a particular formation underground might contain. Gone are the days when the hard-drinking wildcatter followed his gut and mysterious patterns in the tumbleweed.
Next, is the hole itself. At one time, a well was a well – drilled straight down, looking for a pool of oil, a cavern of gas or both. Fracturing – the process in which water, chemicals and other substances are injected down the hole to break up rock in proximity to the hole – has been used to release more of the good stuff. With time fracturing, also called “fracking,” has become more sophisticated.
What has made the euphoria of the politicians and oil lobbyists possible is the miracle of horizontal drilling, which allows as many as eight holes to be spread out for miles from a single shaft. This and better fracking has changed the prospects for gas out of all hope, and has somewhat improved oil expectations.
Much of the enthusiasm for new drilling has come from the success of the new technologies in North Dakota, which has overnight become the the fourth-largest oil-producing state in the Union. But beware. This isn’t Texas circa 1945.
Oil from North Dakota's Bakken Field isn’t cheap. Its “lifting cost” is among the most expensive there is: It costs about $50 a barrel to bring North Dakota oil to the surface, compared with about $15 in Russia and Saudi Arabia. Is it oil or incense?
API’s Gerard told reporters in a telephone conversation, designed to preempt President Obama’s “all of the above” energy recommendations, that technology in its inevitable advance would keep the oil flowing for many generations.
Only the government, in Gerard’s view, stands between the American people and abundant oil.
However, fields that have peaked – like the North Slope and much of Texas, Louisiana and the North Sea – have seen declining production and no technology has been enough to revive them. All the oil has been removed. Gone, baby, gone.
More drilling has already improved domestic oil production. But will unfettered drilling really make a new Saudi Arabia of the. United States? Can the resource base stand the exploitation? Can Gulliver actually stand up?
The next generation of technology won’t put more oil in the ground. – For the Hearst-New York Times Syndicate