The Electric Commentary

Sunday, March 20, 2005

No good, worthless #$@%!

(Editor's Note: The Carnival lists the author of this post as Paul. It was actually written by Jason.)

Once again, our government is making decisions that have little hope of producing the ostensible results. And yes, I am suspicious, since I assume the people running the country know people smart enough to point out the limited impact of this policy.

The Senate has cleared the way for private development of oil reserves in the Arctic National Wildlife Refuge. I think this is a horrible, horrible idea.

Have you ever opened a bag of Double-stuffed mint Oreos? Say you're dieting. As long as that bag remains closed, it (and you) is safe. But one day, you go to the gym. When you return from the gym, you're tired and hungry. Those Double-stuffed mint Oreos are calling your name. And one or two couldn't hurt. And it WOULD make you feel better right now. But then you'd erase the effects of your workout. You'd continue to be unhealthy and lethargic. And you WON'T just have one or two. The creamy, minty goodness will draw you back again and again. The next thing you know, you're on your way to Jewel at 1 AM for another bag.

So it is with development of this kind. Once you break the seal, so to speak, it becomes easier and easier to encroach on other formerly pristine areas. To make matters worse, it doesn't make the country leaner in the long run. It may make people feel better in the short term (the country's collective sigh that we're "doing something" about high oil prices), but it won't actually have a noticeable effect on the worldwide market, and it will stifle research into conservation and alternative solutions.

Let's get real though. It will make the major American oil companies happy, and I happen to know of someone who knows some people in the oil business. Oh wait, he used to (poorly) run his own oil business. Coincidence?

Let's break it down.

THE FACTS
The U.S. consumes 20 million barrels of oil a day. A DAY. Approximately 12 million bbl/d are imported from various sources (top sources are Canada, Mexico, Saudi Arabia, Venezuela, and Nigeria).

The USGS estimates that there are 5-15 billion barrels of recoverable oil in the Arctic National Wildlife Refuge. Industry experts estimate a peak production capacity of 1 million bbl/d, which is 1/20th of the CURRENT U.S. daily demand.

For comparison purposes, the tiny United Arab Emirates has proven oil reserves of 98 billion barrels, or approximately 10% of the world's oil reserves.

According to the Department of Energy, oil from the Arctic National Wildlife Refuge would not be available to the market for ten years after the ANWR is opened to development, and peak production would not be reached for 2 or 3 DECADES after that.

"In early 2000, the Energy Information Administration (EIA), in response to a Congressional request, issued a report on potential oil reserves and production from the Arctic National Wildlife Refuge (ANWR). The report, which cited a 1998 U.S. Geological Survey study of ANWR oil resources, projected that for the mean resource case (10.3 billion barrels technically recoverable), ANWR peak production rates could range from 1.0 to 1.35 million bbl/d, with initial ANWR production possibly beginning around 2010, and peak production 20-30 years after that."


THE "RESULTS"
1. Reduce U.S. dependence on imported oil.

  • Not for ten years, and even then, only by 1/20th. In fact, the oil may not even find it's way into the U.S. market. Oil production developed privately will be sold on the open market. It's proximity to the lower 48 states makes it likely that much will find it's way here, but that's not necessarily the case.

2. Create jobs.

  • Not many. And the ones it will directly create are in a very specific industry. Many say that the ancillary effect will be to save millions of jobs in the industrial heartland, but that is short-term thinking. I say it's better to start pumping efforts into R&D and creating jobs on the cutting edge of alternative energy technology rather than saving jobs in a declining sector of the economy.

3. New technology makes it possible for oil companies to extract the oil with limited environmental impact. The oil field will only require 2,000 acres in the 19 million acre Refuge area.

  • No frickin' way. See the Oreo cookie argument. First of all, when have the oil and mining industry failed to create huge environmental issues where ever they develop large-scale operations? With oil, transportation is the riskiest part from an environmental standpoint. The current Alaskan pipeline has leaks, as all pipes do eventually, especially ones that are over a thousand miles long. It also creates an unnatural barrier in one of the last untouched spaces in the Western Hemisphere. This creates problems for herd animals (barrier) and migratory birds (oil pollution).

4. Reduce oil prices.

  • The sad part is that when Bush and the Republicans talk about this issue, many Americans probably believe that opening the Refuge to production will directly and significantly affect oil prices. This is simply untrue. While it's beginning production will officially put the ANWR reserves on "the books" of proven world reserves (thus increasing the total theoretical supply), the amount is not enough to actually effect the global market. Think about it: One million barrels a day added to the current global production of about 84 million barrels/day doesn't amount to much. And that minimal impact won't even be realized for ten years.

So why are we doing this? If the ANWR is a key component of Bush's energy policy, I'm terrified to see what else he's been kickin' around the Oval Office. Let's get real and start thinking long-term. I know this is one think at which Americans generally do not excel, but we have no choice. Yes, we're going to have to suck it up in the short term, but given the right incentive, our economic system has shown remarkable flexibility, ingenuity, and creativity in the past.

4 Comments:

  • There is $750 billion worth of oil in ANWR (15 billion bbl x $50).

    To call it 'worthless' is simply of by 3/4s of a TRILLION DOLLARS.

    The rest of your argument is equally full of garbage...
    Yes, it reduces US oil dependence, no matter where it is sold, because oil is a global market. if we export it instead of consuming it in USA, the net imports are the same.
    Yes, the environmental impact will be relatively benign, Prudhoe bay has left caribou herds intact and that is from drilling technology of 30 years ago. 2,000 acres is realistic, and is the size of a subdivision in an area the size of North carolina.
    miniscule fraction of ANWR will be impacted. Environmental opposition is fetishism.

    Yes, 1 million in supply will affect prices at the margin.

    And the $750 billion and the perhaps 100,000 jobs will be a boost.

    By Blogger patrick, at 12:56 AM  

  • Correction: To call it 'worthless' is simply off by 3/4s of a TRILLION DOLLARS.

    By Blogger patrick, at 12:56 AM  

  • Thank you for the constructive feedback.

    Let's be more accurate then. Making some very generous assumptions (a 6% discount rate, peak production of 1 million bbl/d right off the bat, and the high end of total reserve estimates) the ANWR oil field would be productive for 41 years with a net present value of $400 billion.

    Obviously the oil is not worthless. It's the policy that is worthless. As I pointed out, American oil companies have been salivating over the ANWR for years. The point here is that opening the area to drilling fails to adequately meet any of the stated goals.

    It's true that from a net import/export standpoint any increase in domestic production results in less dependence on foreign sources in relative terms. However, U.S. demand is estimated to increase 1-2% each year for the foreseeable future, meaning that in real terms, we will still be more dependent on foreign sources even after ANWR reaches peak production. Barring massive new domestic oil finds, the only way this will change is through research and development of alternative energies.

    Check out the following link to see the actual environmental impact of Prudhoe Bay vs. initial estimates.

    http://www.inforain.org/maparchive/sprawl.htm

    Interesting data on spills from the TransAlaska pipeline as well. Again, see the Oreo cookie argument. What starts out as miniscule becomes easier to expand. This area was set aside to preserve some of the last pristine wilderness in our country and that purpose shouldn't change just because most people will never see it. Where do you draw the line?

    Again, I concede that any increase in supply will have some marginal effect on the price of oil, but the effect will be so small as to be unnoticeable by consumers at large. Large, oil-intensive industries will benefit, but again, this won't even begin to take effect for ten years. This is being sold to the public as an immediate, significant fix to the issue of high energy prices and it's not.

    By Blogger Jason, at 1:47 AM  

  • This comment has been removed by a blog administrator.

    By Blogger Jason, at 1:48 AM  

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