Let me remind you that some of what I’m going to write in this 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.
Let’s begin by recapping what we discussed in “Prologue – The Gathering Storm.”
- Our U.S. economy and standard of living are totally dependent on oil, yet for more than forty years we have steadily reduced our ability to produce and refine oil domestically.
- As of this writing, our U.S. economy is dependent on being able to import 15 million barrels of oil every day—more than 70% of our needs.
- A number of second-world countries, notably China and India, are beginning to industrialize, with the result that the demand for oil and oil products is increasing rapidly.
- The worldwide oil industry may be approaching a point of “maximum sustainable production,” when we will no longer be able to increase production to match demand.
- The end result of that supply-and-demand imbalance may be that the industrialized nations of the world will go to war over access to oil.
- Before the war starts, there will be a period when the available oil supplies will go to whoever is most able to pay for them (the “highest bidder” scenario we discussed in the “Prologue”).
That’s where we’re going to start.
The U.S. is still the wealthiest nation in the world. In the beginning we will be able to outbid anyone else for the available oil. As the per-barrel price climbs, though, we’ll begin to see the effects of more expensive oil. The price of gasoline will start to creep up. It will go past $5 per gallon, then $6, and it will keep going.
It won’t just be gasoline, though. The cost of all those things we can’t do without, like food and medicine, will begin to increase. In some cases, as with food, it will be because of the cost of producing it and transporting it to market. In the case of medicine, the increases will be not just because of production and transportation costs but because oil is an integral part of the product.
Little by little, we’ll start changing the way we live. Women will stop wearing cosmetics. Farmers will stop using fertilizers. We’ll go back to ironing our clothes, because clothes made with no-iron fabrics will be too expensive.
As much as possible, we’ll walk instead of driving our car. Some of us will buy little motor scooters, others will start riding bicycles. You’ve seen those pictures of cities in Asia, with thousands of bicycles crowding the streets and perhaps two or three cars in sight? That will be Houston, New York, Los Angeles, and every other municipality in the U.S.
At some point the economy will enter a “death spiral.” People will be spending so much of their income on necessities that there will be nothing left for eating out, going to the movies, and buying luxury items. Businesses that depend on disposable income, like restaurants and jewelry stores, will begin to lay off workers, then they will shut down completely. As more and more people lose their jobs there will be less and less money in circulation, and the collapse will accelerate.
Eventually, the businesses that provide our most basic services will be forced to shut down. Oil-fired power plants will be the first to go, because they will no longer be able to afford what the world’s oil producers demand for their oil. A month later the coal-fired power plants will start to shut down because they can’t afford the fuel for the trucks and trains that deliver their coal.
Finally, the natural gas systems that feed the gas-fired power plants will shut down because the pumps that maintain gas pressure are electric. There will be no more electricity in the wires.
There will be no water in the pipes, either, because our water distribution and sewage treatment systems run on electric pumps.
Garbage will pile up in the streets, because there will be no fuel for the garbage collection trucks.
The grocery store shelves will be empty because there will be no fuel for the tractors and other farm machinery, and no fuel for the trucks to move the food from the farms to the stores.
And it won’t matter, because most of us won’t have any money to pay for things, anyway. As I write this, I have $58.32 in my pocket. Without electricity to run their computers the bank isn’t going to give me more money, so when that’s gone I’m broke.
That’s the doomsday scenario I warned you about. Now let’s talk about how we can avoid it.
We’re currently importing about 44% of our oil from countries in the Americas—mainly Canada, Mexico, and Venezuela, with lesser amounts from Brazil, Colombia, Argentina, and Equator. All of those countries are politically stable. (LAF Edit: they were stable when I wrote this in 2011. By 2016, Venezuela and Brazil were verging on collapse and Argentina was headed in that direction.) Mexico and Venezuela don’t like us very much, but their economies are dependent on the money we pay them for oil.
We produce about 28% of our oil domestically, although that figure is declining every year. For now, though, that means we’re getting about 72% of our oil needs from sources that are relatively stable and reliable.
So where does the remaining 28% come from? Most of it, about 25%, comes from the Middle East and Africa. As of this writing in early 2011, neither of those regions can be considered politically stable.
The balance, about 3%, comes from Europe and Scandinavia.
In my opinion the entire 28%, roughly 6 million bpd, is at risk. We need to find some way to replace it, either with domestic production or with reliable imports.
Can we do it? Well, the answer is sort of a good news-bad news thing. The good news is that yes, it can be done. The bad news is that you and I can’t do it. The oil companies can’t do it. It can only be done by our elected officials—our senators, our representatives, and our president. Especially the president, because he’s the one who has immediate jurisdiction over the various agencies of the Executive Branch such as the EPA, the Department of Energy, and the Department of the Interior.
So where can we get another 6 million bpd?
On-shore exploration and production is faster and less expensive than offshore, so the fastest way to start increasing our domestic production would be to start drilling in the Alaska National Wildlife Reservation (ANWR). The preliminary work has already been done. All that remains is for the Department of the Interior and the EPA to issue the necessary permits. Within two years we would have an additional one million bpd flowing into the Trans-Alaska Pipeline.
That’s a good start, but we need to find another 5 million bpd.
Opening up the areas of Colorado, Montana, New Mexico, North Dakota, Utah, and Wyoming that the Obama administration has put off limits would add at least another million bpd. Possibly more, but let’s be conservative.
We’re still 4 million bpd short.
There are currently 32 permit applications for drilling in the western Gulf of Mexico being held up by the Department of the Interior and the EPA. Approving those applications and allowing drilling to resume in the Gulf would probably give us another million bpd.
Now we’re down to needing 3 million bpd.
I couldn’t find a consensus on how much lifting the restriction on drilling off the Pacific coast, the Atlantic coast, and in the eastern Gulf would add to our production. Estimates ranged from 2 million bpd to as much as 3.5 million bpd. Let’s be conservative and say 2 million bpd.
We still need one million bpd.
Shell and ExxonMobil have been making preparations for years to drill in the Beaufort Sea, off the north coast of Alaska. They’ve spent hundreds of millions of dollars. They’ve done their geophysical studies. They know where the oil is, and have a pretty good idea how much there is. They have drilling rigs leased and standing by. All they need is drilling permits.
Based on their studies, they believe the Beaufort Sea fields will produce at least a million bpd. Some estimates are for more, but we’re being conservative.
So we’ve found the 6 million bpd we needed to remove the Middle East, Africa, Europe, and Scandinavia from our supply picture, and our numbers are deliberately conservative. The real total might turn out to be somewhere between 7 million and 10 million bpd. That would be a nice cushion, considering how crazy the rest of the world might be by then.
But wait…there’s a bonus.
Remember the Keystone XL pipeline from the “Prologue,” the pipeline coming from Canada to refineries in the U.S.? If we complete that pipeline it will add another million bpd to our available supply. It will also generate an estimated 342,000 jobs and add $34 billion a year to our GDP.
But exploration and production are only half the equation. We also need to increase our refining capacity, something the EPA has blocked for 35 years. Most of the existing refineries in the U.S. are obsolete in terms of both equipment and technology. They’re held together with baling wire and bubble gum. They need to be scrapped and replaced, and dozens more need to be built.
We need to start building facilities to extract that 800 billion barrels of oil from the oil shale in the Green River Formation. It will probably be five years before the first facility goes online, but the formation is so large that we could build many extraction facilities over a large geographical area. It’s not inconceivable that we could produce all our domestic needs from this one source for decades to come.
Then there are the secondary benefits, and they are many. The average land-based drilling rig is 25 years old. Thousands of them need to be replaced, and thousands more built. We need more offshore drilling rigs, particularly deepwater rigs. We need more offshore production platforms. Those platforms, as well as the new refineries and the oil-shale extraction facilities, will need lots of new pipe and steel and equipment. We’ll need thousands of miles of new pipelines to connect the wellheads to the refineries.
We’re not just talking about reducing our dependence on foreign oil and refineries. We’re talking about jobs. Millions of good-paying, permanent jobs. Billions of dollars poured into the economy in wages, and billions more for equipment and supplies. If the government would lift the restrictions and issue the permits we could go from the worst recession since the Great Depression to the biggest boom since—well, ever—and it would happen in a very short period of time—months, not years.
But time is of the essence. It’s going to take several years to achieve the independence we’re discussing. We can’t wait until the Islamic Empire cuts off our oil to start developing our own resources. At that point it will be too late. We must start now.