Everything you read in these commentaries is my personal opinion. When I present something as fact, I have researched it as thoroughly as possible. When I draw conclusions, I try to do so as objectively as possible. I also keep in mind the warning of the Spanish philosopher Jorge Santayana. I try to learn the lessons of history, and let those lessons shape my thinking.
But in the end, what you read is my analysis of the facts. I’m aware that some of the scenarios I present aren’t pleasant. I present them not because I hope they will come to pass, but because I fear they might.
I mention this because some of what I’m going to write in this and the next commentary is going to sound like the “doomsday fiction” that was popular at the height of the Cold War. I sincerely hope that’s what it turns out to be—fiction.
The current unrest—if that’s not too mild a word—in North Africa and the Middle East, combined with two years of the Obama Administration’s attacks on our domestic oil and gas industry, have led me to do some serious thinking and research about how vulnerable the U.S. might be to a disruption of our oil supply.
Our U.S. economy and our standard of living are totally dependent on oil. Not partially, but totally. Oil not only furnishes the fuel that powers 98 percent of our vehicles—it’s a component in thousands of other things as well. Without oil there would be no cosmetics, detergents, fertilizers, medicines, paints, plastics, or synthetic fibers. Without oil there would be no electricity in the wires, no water in the pipes. The sewers wouldn’t work.
Without oil we would have to grease the hinges on the outhouse door and the wheels on the wagon with hog lard.
Despite what the Obama Administration would have us believe, things like solar power, wind energy, and electric cars are not viable alternatives. The technology to make those things economically and logistically practical isn’t even on the far horizon.
Because of that fact, oil is not the “energy of the past,” as Obama called it in his 2011 State of the Union address. It’s the energy of the past, the present, and as far into the future as we can see.
The oil market is a supply and demand market. That is, as demand increases relative to supply, the price tends to rise. Fortunately, thru most of the Twentieth Century the oil industry was able to increase supply to meet increases in demand. With a couple of exceptions, the price (adjusted for inflation) remained relatively stable. However, there are now a couple of “gotchas” on the horizon.
One is that thru most of the Twentieth Century, the bulk of the demand came from the most heavily industrialized nations. In the past decade that has begun to change. The economies of several second-world nations, most notably China and India, have begun to grow rapidly. Their citizens are buying cars and trucks in unprecedented numbers. They’re constructing roads and buildings, which requires cranes and bulldozers and other motorized equipment. World demand for oil and oil products is increasing at a much faster rate than it did in the Twentieth Century.
The other gotcha is that one of the documents recently published by Wikileaks was a still-classified 2007 State Department “white paper.” The paper addressed the possibility that the world’s oil supply might be approaching a point of “maximum sustainable production”—a point at which new oil fields coming online will only offset depleted fields that are being taken offline. World output will level off at X barrels per day and we won’t be able to increase it further, no matter how high demand goes. The purpose of the white paper was to address the question of, “What might happen then?”
If you bake one loaf of bread a day and five people want to buy it, what do you do? You sell it to the highest bidder. That will work for a while, but then two things begin to happen. First, the high bidders start to get frustrated because they’re having trouble buying anything else. They’re spending so much money on your bread that they don’t have anything left over for butter or jam.
The poorer bidders begin to get frustrated because they never get any bread. Both sides start thinking about taking the bread by force rather than paying for it.
The white paper concluded that if that peak oil production time comes, for a time, the available oil supply will go to the highest bidder…but eventually, the world will go to war over access to oil.
Having come to that rather obvious conclusion, the paper then went on to state something equally obvious. The best way for the U.S. to avoid getting caught up in the battle over oil is to produce all the oil we need domestically.
The U.S. consumes about 21 million barrels per day (bpd) of oil. Of that amount, we only produce about 6 million bpd, less than 30% of our needs. And that number is declining, not growing. I’d like to be able to point a finger at Obama and his minions and say, “It’s all their fault,” but I can’t. They’re doing everything possible to accelerate the decline, but the decline started more than forty years ago.
It began in 1970, when (liberal Republican) President Richard Nixon created the Environmental Protection Agency. There had never been a major spill, leak, or other environmental problem in the oil industry but despite that fact, before long the EPA was making all sorts of rules and regulations that made it more difficult and more expensive to drill for and refine oil in the U.S.
The next setback came in 1977, when (liberal Democrat) President Jimmy Carter created the Department of Energy. They, too, started flexing their political muscle with rules and regulations. Like the EPA, the DoE regulated and restricted things that had never been a problem. As the saying goes in Texas, they fixed a bunch of stuff that wasn’t broke.
Since then, politicians of both parties have either ignored our declining ability to produce and refine oil, or have actively hastened it. When the EPA was formed in 1970 we were getting about 36% of our oil from foreign sources. By the time the DoE was formed in 1977, the number had risen to 40%. In 2010 we got about 72% or our oil from foreign sources, and the number is climbing steadily.
I said that Obama and his minions are doing everything possible to accelerate the decline. Here’s how:
- In 2008, just months after the State Department white paper was issued, President George W. Bush lifted restrictions on offshore drilling in the Pacific Ocean, the Atlantic Ocean, the eastern Gulf of Mexico, and the Beaufort Sea off the northern Alaska coast. I believe his actions were the first step in what he hoped would be a program to increase our domestic production and avoid the possibility of having to wage war for access to oil. Those four regions contain an estimated 40 billion barrels of oil. In one of his first acts as President, Obama reinstated the restrictions and again put those four areas off limits to drilling.
- Following the Deepwater Horizon oil spill in April of 2010, the Obama administration put a six-month moratorium on drilling in the Gulf of Mexico. The moratorium was supposedly lifted in October of 2010, and since then there have been 33 applications for drilling permits filed. As of this writing the government has only granted one permit. It was issued in late February of 2011—three weeks after the last deepwater drilling rig left the Gulf, bound for Brazil on a 3-year lease. Exploration for new oil in the Gulf of Mexico has effectively ceased, with no quick way to restart it.
- During the Clinton administration the EPA prohibited drilling in the Arctic National Wildlife Reservation (ANWR), where an estimated 10 billion barrels of oil could be recovered with minimal environmental impact. Since then Presidents Clinton, Bush, and Obama have all bowed to pressure from environmentalists and declined to overrule the EPA’s ban.
- Another potential impact of not producing oil from ANWR is that about 25% of the oil we produce domestically comes from the Prudhoe Bay field on the north shore of Alaska. The oil travels from Prudhoe Bay to the port terminal at Valdez, Alaska, thru the Trans-Alaska Pipeline. As the Prudhoe Bay field declines, the pipeline carries less and less oil. At some point the volume of oil will be insufficient to keep the pumps primed and the pipeline will have to be shut down. Oil from ANWR would postpone that shutdown for years.
- The Obama administration has put vast areas of Colorado, Montana, New Mexico, North Dakota, Utah, and Wyoming off limits to drilling, despite the fact that those areas have been explored for decades with no negative impacts. Estimates are that these areas contain about 20 billion barrels of oil that can be recovered by conventional drilling.
- Even more important is that the Green River Formation, which extends over parts of Colorado, Utah, and Wyoming, is conservatively estimated to contain more than 800 billion barrels of oil that could be recovered from oil shale deposits. The technology exists today to recover that oil.
- Eight hundred billion barrels is more than three times the proven reserves of Saudi Arabia. If we took our entire 21 million bpd consumption from just that one source, it would still last more than 100 years. If the time comes when oil is selling to the highest bidder, the U.S. could be selling oil to other countries instead of buying it at prices that would wreck our economy.
- Canada is our largest supplier of imported oil. We get more than 4 million bpd from them. The Keystone XL pipeline would carry an additional million bpd from Alberta, Canada, to refineries in Illinois, Oklahoma, and on the Gulf Coast. It would create an estimated 342,000 jobs and add $34 billion per year to our GDP. The Obama administration has so far blocked the issue of construction permits for the U.S. portion of the pipeline.
- EPA regulations, especially the requirement for expensive and time-consuming “environmental impact studies,” have stopped the construction of new refineries in the U.S. The last new refinery was built in 1976. Since then the EPA has made it almost impossible to even maintain existing refineries. With each passing year more refineries in the U.S. are shut down, with nothing to replace them. That not only further reduces our refining capacity—it also puts more and more people out of work.
Now Obama has directed the EPA to create regulations to enforce the “cap and trade” plan that is so draconian he couldn’t even get the Democrat-controlled Congress to pass it. That will result in even more refinery shutdowns and job losses.
The result of those refinery shutdowns is that we aren’t just forced to import oil—we’re forced to import gasoline, too. The Department of Energy admits we import gasoline from Canada and Mexico, but they claim they don’t keep records of how much we import. I’ve read estimates that it may be as much as 40% of our supply, but I haven’t been able to verify that number. One thing we can count on—the number increases every year, as more and more U.S. refineries are shut down.
If either Canada or Mexico were to cut off our supply of gasoline, our economy would be severely impacted. The cost of gasoline would probably jump to $10 a gallon. The price of food, medicine, and many other essential items would skyrocket because of the cost of transporting them to market.
And if both Canada and Mexico were to cut off our supply of gasoline, our economy would grind to a halt. Our military wouldn’t even be able to defend our own borders.
Think about that, folks. Thanks to our government, our elected “public servants,” the continued existence of the greatest nation the world has ever known is in the hands of two foreign nations, one of which isn’t particularly friendly toward us.
What I’m trying to convince you of is that increasing our domestic ability to produce and refine oil is very literally essential to our national survival. Yes, we have many other domestic problems. Our government is spending too much money. Our borders are too porous. Our economy is staggering. We need more jobs. Our Constitution is being trampled by the Obama administration. But none of those issues threaten our survival as a nation.
If the world goes to war over oil and we’re still producing less than 30% of our daily needs, we’ll have to be caught up in it…and we won’t survive. On our own, we can’t produce enough fuel to enable our military to guarantee our access to foreign oil. We can’t even produce enough for our military to protect our own borders.
We currently get 50% of our oil from four countries—Canada (20%), Saudi Arabia (10%), Mexico (10%), and Venezuela (10%). We’re already in a position where any one of those countries could embargo us and hurt us badly. Any two of them acting together could destroy us completely, without ever firing a shot.
And let’s be realistic. Once our economy has been wrecked and our military rendered impotent, the once feared and respected superpower will just be another helpless third-world country full of starving people, dreaming dreams of what used to be.
But it doesn’t have to be that way. The means for preventing it are available to us. We’ll talk about that in the next commentary.