ASCF Report | 4.9.12*
By Alan W. Dowd
The national average for a
gallon of gasoline is $3.92—and rising fast. In fact, it was $3.10 per gallon
in January 2011, $2.67 per gallon in January 2010 and $1.81 per gallon in January
2009. The bad news is that we’re still months away from the summer driving
season, when gas prices peak. If there ever was a time to tap America’s vast
petroleum reserves, it’s now.
There are many causes for the
spike in oil (and hence gasoline) prices.
Oil is a global commodity
serving a global market, and global demand is rising—especially in China and India.
Plus, the worst of the Great
Recession came in 2009, which slowed economic activity and energy consumption. With
economies growing again, albeit anemically in many places, the demand for
energy (especially oil) is back on the upswing.
Plus, markets are jittery
about what’s happening across the oil-rich Middle East.
The Arab Spring revolutions effectively took Libyan oil off the market for much
of 2011; destabilized Egypt,
which controls the Suez Canal; and triggered deep concerns about the ability of
Kuwait, Saudi Arabia and
other petro-states to weather the storm.
Plus, Saudi Arabia,
the world’s oil safety net, may be running out of oil. Leaked diplomatic cables
suggest that Saudi officials privately worry that the kingdom’s reserves may be overstated by 40 percent.
Plus, international sanctions
have taken a healthy portion of Iran’s
daily output of 3.5 million barrels off the market.
Plus, Nigeria—which accounts for 8 percent of U.S. oil
imports—is being buffeted by a jihadist insurgency that could topple the
Plus, the dollar is weak,
which affects exchange rates and encourages speculation.
Add it all up, and the result
is pain at the pump.
need not be held hostage to the vagaries of this global market—or the whims of petrocrats,
speculators and dictators. “By encouraging production,” The Washington Post’s
Robert Samuelson argues, “we can enhance our energy security and help stabilize
global market—and prices—through greater supply.”
That brings us back to America’s
vast—yes, vast—petroleum and natural gas reserves. How vast?
Geological Survey (USGS) estimates that
the Arctic may hold 90 billion barrels of oil.
About a third of the oil is in Alaskan territory.
USGS study concludes
that North Dakota and Montana “have an estimated 3 to 4.3 billion
barrels of undiscovered, technically recoverable oil.”
In the U.S. swath of the Gulf of
Mexico, British Petroleum estimates a new reserve could yield 6
billion barrels of oil, and Chevron has found an oil field with some 15 billion
barrels of oil.
Petroleum Institute (API)
reports that opening up new offshore areas in the outer continental shelf
“could lift domestic crude production by nearly 1 million barrels per day,” and
if the U.S.
fully developed all of its onshore fields, “output could rise by as much as 2
million barrels a day by 2030.”
As The Economist has reported,
geologists call a swath of the Rocky Mountain states “the Persian Gulf of gas,” thanks to discoveries of between
165 trillion and 260 trillion cubic-feet of natural gas.
All told, the
National Petroleum Council pegs America’s
conventional oil reserves at 274 billion barrels. That’s a lot of oil—even for
a country that consumes 20 million barrels a day.
However, that’s just the tip
of the iceberg. RAND estimates that Colorado, Utah and Wyoming
sit atop an ocean of oil-shale deposits, once thought to be too expensive to
convert into petroleum. These states hold between 500 billion and 1.1 trillion
recoverable barrels—the equivalent of three times the amount of oil in Saudi Arabia. As
RAND’s James Bartis explains,
“We’ve got more oil in this very compact area than the entire Middle
In other words, the United States
possesses enough oil to meet its energy needs for a couple centuries.
API concludes that taking
full advantage of domestic oil reserves could decrease foreign oil imports by
79.7 percent. That would send a signal to the global oil market, and the law of
supply and demand would bring the price of oil (and gasoline) down. But Washington has to have
the will to develop and tap those reserves—or at least the good sense to get
out of the way so that industry can meet the demands of the market.
Regrettably, that’s not
happening today. Clinging to official estimates of just 22 billion barrels of
“proven reserves”—reserves that are measured and known—the president insists
possesses only “2 percent of the world’s oil reserves,” dismisses oil as “the fuel of the past” and fixates
on developing “the clean energy of tomorrow.”
But as the above litany
underscores, proven reserves are a tiny part of the picture. A report by the National Center for Policy Analysis details how
inaccurate “proven reserves” can be. In 1920, the USGS estimated total world
oil supplies at 60 billion barrels. In 1950, the experts pushed that number to
600 billion. By the mid-1990s, the estimate was higher yet—2.4 trillion. And
today, the estimate is 3 trillion barrels of oil. The reason for this constant
upward readjustment is technology. “Before the first U.S. well was
drilled in 1859, petroleum supplies were limited to oil that oozed to the
surface,” according to NCPA.
The president is quick to point
out that “oil production in America
is at an eight-year high.” But it could—and should—be higher.
Although the president deserves credit
for challenging industry to think about the post-petro economy, the reality is
that oil is the fuel of the both present and the foreseeable future—and the
clean energy alternatives of tomorrow are simply not yet ready to shoulder the
burden at a competitive cost.
Hybrid cars save lots of gas,
but they still cost considerably more than non-hybrids, which makes them too
expensive for many consumers. The Honda Civic Hybrid, for instance, starts at
$24,200, the normal Civic just $15,955—a 51-percent difference. The Chevy Volt,
a plug-in hybrid, costs $40,000. The market’s response speaks volumes: GM’s
goal was to sell 45,000 Volts this
year; the automaker is on pace to sell 9,600.
hydrogen offers great promise, but the costs remain prohibitive. And the infrastructure
and distribution channels are nowhere close to what’s needed to serve the
well-intentioned but costly examples of government-funded alternatives—from Solyndra’s
solar-powered bankruptcy, to ethanol’s endless subsidies, to wind power’s
bird-killing side-effects—only serve to underscore how efficient and cost-effective
petroleum and other fossil fuels are by comparison.
Fully exploiting domestic oil
reserves is not the only solution to our energy woes, but it must be viewed as
the main ingredient until an economical, dependable, free-market alternative is
Vast reservoirs of domestic
oil remain untapped because, as Samuelson puts it, “environmental purity and
energy practicality are at odds.”
Environmental groups, for
instance, are staunchly opposed to oil-sands and oil-shale development, which
helps explain why the president opposed the Keystone XL pipeline extension—it
would have carried oil derived from Canada’s oil-sands—and why his
administration has reducedthe acreage set aside for oil-shale development. In addition, the EPA used its
power over air permits to delay drilling in Alaska. Drilling permits have decreased by 36
percent under the Obama administration. And Washington has imposed a moratoriumon new offshore drilling, while some states have blocked offshore development.
Americans want to know what a genuine commitment to oil exploration and
production looks like, they need look no further than this hemisphere. Alberta is converting
its oil-sands into 1.31 million barrels of oil per day, building toward 3
million barrels per day by 2020. Deep-water drilling and a $1-trillion investment
have positioned Brazil
to become a top
5 oil-producing nation by 2020.
It all comes down to will.
*Dowd is a senior fellow with the American Security Council Foundation, where he writes The Dowd Report, a monthly review of international events and their impact on U.S. national security.